The land of milk and honey … and homes

The fix to the country's lagging housing market may actually lie outside our own borders

John Steinbeck once wrote, "Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires." Nowhere may this be truer than in looking at the housing aspirations of the nation’s immigrants.

With the Federal Reserve and the housing industry as a whole keeping a watchful eye on slow gains in housing this year and still-sluggish growth in the labor market, it might be time for both parties to turn their attention a little more closely to immigration and what immigration reform (or lack thereof) could mean for the residential housing market.

“Economists who predict underperformance in real estate based on baby boomers downsizing are overlooking another huge demographic trend,” National Association of Realtors Chief Economist Lawrence Yun wrote in a blog post for the Bipartisan Policy Center’s Immigration Task Force. That demographic would be the nation’s current and future immigrants.

While Yun points out that some 8,000 baby boomers turn 65 every day (many of them looking to downsize) and the upcoming Generation X is substantially smaller (as well as more skittish about homeownership), that doesn’t mean homeownership numbers need decline in the coming years. Yun doesn’t take any particular position on immigration reform, but he remarked in his blog post, “Regardless of the specifics of any new legislation, the implication for the housing market largely comes down to simple math: additional people mean additional housing demand.”

MARKET FAR FROM TAPPED

Over the past 30 years, the nation has seen the arrival of about 1 million immigrants annually. These people, Yun argued, are “the ones who can step in to fill the generational housing gap.”

Last year the BPC Immigration Task Force released a study that began to quantify the impacts of immigration on the housing market and, concurrently, on housing reform. The study forecasted that immigration reform could jumpstart housing recovery by boosting residential construction numbers an average of $68 billion over the course of the next two decades. Already the nation’s 16 million foreign-born households make up 14% of the country’s households.

Research from the National Association of Home Builders (which assumes net immigration of 1.2 million annually based on Census Bureau projections), estimates that in 10 years today’s new immigrants will occupy over 2 million multifamily homes and more than 1.2 million single- family homes. More than 900,000 of those will be homeowners.

The Research Institute for Housing America makes similar projections, indicating that from 2010 to 2020, immigrants will make up more than a third of the growth in home ownership nationwide and will represent a quarter of the growth in renter households.

Furthermore, a recent Fannie Mae edition of Housing Insights notes there were 18.8 million immigrants renting homes in the U.S. in 2012. Those renters, the government-sponsored enterprise posits, represent “a large reservoir of potential future home ownership demand.” Fannie Mae economists go on to advocate for continued study of the nation’s immigrant housing trends to see how and when foreign-born residents advance into homeownership to determine how they may impact the future of the housing market.

Whether or not immigrants will become homeowners depends largely on how long they have lived in the United States. Homeownership rates among those here less than five years stands at about 20%, according to Yun. But that number climbs to nearly 80% for those who have been here 40 or more years. “That means past immigration will help boost current home buying demand, and more recent arrivals will assist future demand,” he adds.

TO REFORM OR NOT REFORM

According to a recent white paper by Goldman Sachs Global Macro Research, overall immigration to the U.S. is set to rise, as is the number of immigrants with work authorization. While immigration numbers dropped during the recession, improving economic conditions are bringing the numbers up again, and the Obama administration is purportedly working on executive actions to gradually open opportunities for increased legal immigration.

However, economics don’t always correlate with immigration. As Goldman Sachs researchers noted, there is demand for immigration to the U.S. above and beyond available visas, and lead times on obtaining those visas can be quite long.

Unauthorized immigration is up as well, according to data from the U.S. Census Bureau, and more illegals are making attempts at border crossings given the increased number of border apprehensions reported by the Department of Homeland Security the last two years. And those numbers are up without taking into account the recent increase in unauthorized immigration of unaccompanied children.

Given Congress’ persistent lack of action on immigration reform, the Obama administration is looking to introduce some changes to illegal immigration that will no doubt impact the housing market if instituted.

Among those changes is excluding dependents from the cap on employment-based green cards. Currently DHS puts a cap of $140,000 a year on each employment-based visa, which means an immigrating patriarch, for example, as well as his income-earning dependents cannot make more than that $140k annually. Should dependents be removed from that cap, it could open up more “principal” workers to become permanent legal residents. DHS currently estimates that, on average, $75,000 of each $140,000 employment-based visa granted each year goes to dependents.

The White House may also announce changes that would allow the “recapture” of employment- based green cards. Each year, some employment-based green cards go unused, and DHS data shows the cumulative difference between the congressional cap on various types of visas for legal permanent residence and the unused number from 1992 through 2013 currently stands at about 200,000. While federal law currently allows for increase of the cap in a given year basedon the number of unused green cards in the previous year, the administration might allow the recapture of those green card allocations over a longer period of time. The Senate’s immigration reform bill (S. 744) would have permitted capture of the unused allocation since 1992.

The White House has already made some moves on handling unauthorized immigration. In 2012, the administration established the Deferred Action for Childhood Arrivals program, which was used by 611,000 unauthorized immigrants through the close of 2013. To qualify, immigrants must be under age 31, in the U.S. for at least five consecutive years since 2012, and under the age of 16 upon immigration. Those who participate are generally authorized to work and exempt from removal. The Obama administration could propose extending these benefits to parents of enrollees in the program or to unauthorized immigrants whose children are U.S. citizens. Goldman Sachs said these changes are unlikely to have any significant impact on the labor market since those who would qualify as legal under potential new laws are likely already working anyway.

LOCAL RATHER THAN NATIONAL IMPACTS

The Americas Society/Council of the Americas and Partnership for a New American Economy report immigrants have added $3.7 trillion to the nation’s housing wealth between 2000 and 2010. Their research also shows that increases in a locality’s number of immigrants also corresponds to a locality’s economic gains due to increased demand for local goods and services and an influx of U.S. citizens drawn by that economic growth.

In a recent white paper, the AS/COA noted, “The research finds that immigrants revitalize less desirable neighborhoods in costly metropolitan areas, opening up new alternatives for middle and working-class Americans to buy homes, and immigration supports the housing market without exacerbating the nation’s worst affordability problems, because immigrants tend not to settle in the most expensive places.”

Studies have already shown that immigrants are more likely to become homeowners than U.S. citizens of similar heritage. As a whole, they maintain a much stronger drive for the “American Dream.”

But immigration’s impact on housing recovery has been and will continue to be localized. According to Mark Calabria, Ph.D., director of financial regulation studies at The Cato Institute, almost one in four foreign-born residents lives in California, largely concentrated in the Los Angeles area. And a third of all foreign- born households reside in California, New York, Texas and Florida. Other areas of significant immigrant population include Chicago, Washington, D.C., Boston and Atlanta.

In a recent blog post for the BPC Immigration Task Force, Calabria wrote that in some areas of the country, international immigration has softened the economic impact of internal “outmigration.” One example would be New York State, which U.S. citizen-residents have been leaving for years. Nevertheless, thanks in large part to immigrants, the state’s population has continued to grow.

What draws immigrants to a given area? Well, it’s not always economics. The AS/COA says immigrants tend to favor localities that not only offer economic opportunities but that also offer access to an existing network of people of their own nationality. In fact, the latter is probably more important to the average immigrant than wage or salary potential.

These immigrants drive housing demand both through their own purchasing power as well as by indirectly creating demand among U.S.-born workers who migrate to high growth areas. AS/COA and PNAE research shows that for every 1,000 immigrants who settle in a county, 250 U.S. citizens follow. Meanwhile, they often contribute as well to the stabilization of metro areas felt to be in decline. A vivid example is the nation’s Rust Belt region, where immigration has served as a buffer against substantial drops in home values.

For example, since 1970, U.S.-born residency in Chicago and adjacent Cook County, Illinois, has dropped by 900,000. Those numbers look almost “Detroit-esque.” However, some 600,000 immigrants have moved into the area in the same period, helping offset the population decline and any concurrent decline in home values.

In nearby Gary, Indiana, where immigrants have been settling in substantial numbers since 1990, they have added $1,500 in value to the average home.

Meanwhile Harris County, Texas, which includes Houston and its immediate suburbs, has felt the nation’s largest impact from immigration over the last decade. AS/COA estimates immigrants have added $25,000 to the value of a typical home in the area in the last 10 years.

Harris is one among a dozen U.S. counties where immigration has impacted home values at an average of $10,000 per home. The research comes from analysis of county- level data on population and housing obtained from the Census Bureau as well as the American Community Survey between 1970 and 2010.

“The impact of easing immigration policy over the long-term may be good for the housing market,” said Yun, “which is something lawmakers should keep in mind as the debates continue.”

Calabria agrees. “The dynamics of foreign immigration remind us that we do not have a national housing market, but rather we have lots of local housing markets,” he wrote. “Many have seen their potential decline arrested thanks to foreign immigration.”

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