March 29, 2009

A real solution to the housing crisis – green cards!

Solving the Housing Crisis
by John Mauldin
March 21, 2009

This last Tuesday the Wall Street Journal published an op-ed by my friend Gary Shilling and Richard LeFrak. They offer a simple solution for the housing crisis: give foreigners who will come to the US and buy a home resident status (green cards). This is a very important proposal and one that deserves national attention and action. Gary was kind enough to send me two lengthier white papers offering more facts. In this week’s letter we are going to look at this proposal in more detail than the small space that an op-ed can offer. And while this letter will be somewhat controversial in some circles, I ask that you read it through, giving me the time to make the case. I will also add a few thoughts as to why this could not only help solve the housing crisis, but help put the nation back into growth mode.

Long-time readers know that I have been growing more and more bearish of late. I have been writing for a long time that we are in for a long period of slow Muddle Through growth as the twin crises of the housing bubble and credit bubbles require time to heal. Today we look at a serious proposal for cutting the time to healing for at least one of those bubbles (housing), and at least keep the other (credit) from getting worse. This is the most serious idea I have seen that could actually make a real positive contribution to the economy and help put us back on a growth path.
I will post Gary’s papers and a link to the actual op-ed piece for those who want to do further research, but let me make one point at the beginning that he did not emphasize: the US is already allowing roughly 1 million immigrants a year into the country (which for a variety of reasons I and most serious economists of all stripes believe is a very good thing). We are suggesting that we simply change the nature of what constitutes the conditions for acceptance, so as to jump start the housing industry and the economy. We are not suggesting additional immigrants, although nothing would be wrong with that. I will also post a link for you to send this e-letter to your congressmen and senators.
Let me put up front a few benefits of a program that would allow legal status to immigrants buying a home. Housing values would stabilize and in many cases rise. The massive losses because of bad loans that are being subsidized by US taxpayers would be stemmed, saving many hundreds of billions, if not a trillion or more dollars. The excess inventory of homes would quickly disappear and the millions of jobs that were lost as home construction fell into a deep depression would come back. If housing values rise, many families would be able to refinance their homes at lower rates and have more income left over after paying their mortgages. $12 billion in commissions would end up in real estate agents’ pockets, helping a very battered and bruised group. Hundreds of billions will flow into local businesses, as these new immigrants will need to furnish their homes. This could mean as much as a half trillion dollars in sorely needed stimulus in the next few years, without one penny of taxpayer money and actually adding taxes back to governments from local to national. And we are not bringing in 1 million foreigners, we are attracting 1 million mostly middle-class new Americans, which, if we are smart in how we do this, will result in more jobs for all Americans. So let’s jump right in and look at the details.

Wow… if there was ever a good idea on how to help the Real Bay Area, this would be it!

Sure this would encourage more people to buy their way into America, thus boosting housing prices. But there’s more!

This would reduce the costs for local employers (who are wasting gobs of money on lawyers trying to get greencards for their employees), thus freeing up money to pay higher salaries! (As we all know, that’s what happens when employers reduce costs – they pass it on to employees via higher salaries.) This in turn will boost housing prices.

Win WIN WIN!!!

This will help the Real Bay Area soar! Contact your Congress critters today and tell them that this is what you want!

Comments (13) -- Posted by: burbed @ 5:45 am

13 Responses to “A real solution to the housing crisis – green cards!”

  1. madhaus Says:

    I don’t understand. I thought there were lots of people with cash at the sidelines. And that foreigners would save RBA real estate for sure. Now we have to pass laws to make both of them happen? While we’re at it, can we pass a law that says my house is worth a hundred mil and the government has to buy it from me at 125% of its value?

  2. UnrealAlex Says:

    The “Mexicans” are going home. They can’t find jobs. They’re like, ‘Screw this, there’s no work, they need me on the farm’. Indians, Russians, you name it, can’t find JOBS here. Americans can’t, either. Green cards are not going to solve this, those who have ’em are going home if they still can (hard to go back once you’ve been here say 20 years). Those without ’em are going home too, Issuing green cards en masse won’t work.

    Halving all house prices may work for a bit, but that’s going to happen within two years anyway, no gov’t intervention needed.

    Here’s a “lightbulb” moment I had a while back …. gas prices are lower in dollar amount now, but NOT in terms of affordability. It costs me $4 to fill up my motorcycle, a small amount but one I have a certain amount of angst over – it’s hard to earn that $4 and I have to consider each trip carefully. A year ago, it cost me $8 (gas was up, same bike) and it was a similar amount of angst. 2 years ago, it cost me say $30 to fill up my Prius, and that was EASIER t do! In terms of affordability, gas has gotten more expensive.

    This applies to houses, etc. Today’s $100k house will be harder to afford than yesteryear’s $300k or $500k house.

    Around my neighborhood, Gilroy, CA, we see people doubleing up all over the place. Campers being moved in, room for rent signs up, McMansions with 7 cars out front, etc. 2 houses being compacted to one, 5 down to 3, 5 down to 2, or even 1!

    The empty houses are being left to decay, repo’d, sit forlornly for sale with tippy RE signs out front, etc. The clustered-up people are not paying $500-$700 room rents, they’re kicking in what they can, how they can. I myself am in an old trailer and kick in farm work, yes, hoeing corn rows and chopping thistles etc., and don’t because I can’t kick in money at all. I hope to in the near future! As an ex business owner, it drives me nuts not working, not having something going! I will be able to kick in $100 a month or so when I get the cash flow from drips to an honest trickle. This is what people all over the US are doing right now, and this thing is just getting started!

    Thus, issuing any kind of printed-up green paper is not going to fix this problem. Hoover may have been right, let the sucker crash and the sooner the better so we can get to rebuilding.

  3. UnrealAlex Says:

    BTW I have to give Tickerforum its due for my education on a lot of this. Real-world observations are as rare now as they were the last Depression, because they require taking off the rose-colored VR glasses….. but they always have some good real-world stuff and the figures I cite for people bunching up in one or two houses and leaving several vacant, are from there. That made me start counting trailers and cars around here, over time. That site is well worth reading.

  4. Herve Says:

    I think we should go one step further and strip US citizenship of people who don’t buy a house within the next 2 years.

  5. nomadic Says:

    great idea – I’ll write my “congress critter” right away!

    (god, that’s a good one – congress critter! They are kind of like cockroaches.)

  6. UnrealAlex Says:

    Herve – the average US “citizen” without top-quintile income is becoming a non-citizen already. There’s little that can be done to accelerate this already rapid process.

  7. Blissex Says:

    Basically this program is based on the idea that there are at least 1 million USA citizens that don’t deserve their jobs because they are losers who cannot afford to buy a house and enrich their property owning neighbours.

    Therefore these worthless individuals should be replaced with 1 million foreigners who can afford to prop up house prices.

    If you are a house owner, the prospect of replacing 1 (or more) millions of your neighbours who aren’t doing their best to make your richer with foreigners who can is a fantastic idea.

  8. UnrealAlex Says:

    Blissex – I just had another “aha” moment reaading your post…. import 1 million foreigners who are required to buy houses ….. they won’t be able to make it in the US economy any more than the US nationals they replaced, BUT…. they will have family still outside the US who will probably , very probably indeed, be easily suckered into sending money to their struggling branch of the family trying to hang onto their newly bought home here.

    Let me make this very very obvious:

    Case A: Some Drew Carey type from Minnesota buys a house in Mountain View, can’t keep up with the payments and is about to lose the house. He calls all of his relatives and none of them have any cash to help him with, one is unreachable because there are no phones in the homeless shelter they’re in now, and if he’s really lucky, he may have one struggling relative out of all of his struggling relatives who works in a junkyard and offers him a van to sleep in and half the proceeds from stripping cars for scrap.

    Case B: Some Asian or South American etc version of Drew Carey comes to the BA, gets this green card in exchange for buying a house, finds they can’t keep up with the payments, and sends telegrams or letters or something to his family. His family is larger than in Case A, and while most are subsistance farmers, several have risen into their country’s middle class and have been saving 25% of their income. They are able to send thousands of dollars, to help their relative hang onto that house, in America! The subsistance farmers also send a few hundred dollars each, they make little but spend little, mainly on elaborate holidays, and a bit less corn pollen or sacrificial cattle or whatever’s called for, well, they’ll pinch it down a bit, the Gods will understand, they’re helping Family, hang onto his house in America!

    In the end, the guys in Case A and Case B, end up losing their houses anyway. In case B there was just another year or two of cash flowing into the coffers of the banks. One’s happy stripping cars, at least it beat the homeless shelters he had to resort to for a while there, and the guy in Case B now works for his Uncle on his farm, and whoops it up more in the native festivals than anyone’s seen in a generation.

    So, this is just a way for the powers-that-be to clean out extended families overseas since they’ve already cleaned ’em out here.

  9. anon Says:

    Goood job, Obama.

  10. DreamT Says:

    Good leadership is taking ultimate responsibility even when you didn’t have anything to do with the situation – as long as it’s in your power to address it. If Obama fails with his plans but still manages to change that leadership culture, we’ll already be better off.

  11. DreamT Says:

    As for this thread’s article… This is so wrong in so many ways esp. fairness and ethics, but what strikes me as obvious is that such a program would exacerbate xenophobia, hence further reduce open & free trade, hence further harm the economy.
    It also goes to show how little some citizens value their own citizenship – another sense of entitlement for folks who never got invaded on their own soil during their lifetime.

  12. bob Says:

    Once again, a plan to fix a problem that is fixing itself. When prices fall to levels people can afford, people will buy. Its really that simple. Corrections are necessary and good. Besides- a lot of other countries- like the UK, Ireland, Spain, Japan, France, most of the rest of the EU, the UE, and most of the rest of the developed world is in a recession as well, often worse than our own. I doubt many of them think moving to another country would solve their dilemma. Even though I have heard that there is a recent surge in Australians buying burned out houses in Detroit…

  13. Bobby S Says:

    This how that plan will work. The immigrants will help stimulate the economy with low paying jobs. They will live 10, 12, or 15 to a house so they can pool their meager wages to buy it and the end of this plan will be higher real estate prices!

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