Immigration, citizenship, and housing investment
By David A. Smith
5 min read
You can have open borders or you can have the welfare state, but you cannot have both. – Milton Friedman
Culturally, Mexico begins just south of Tucson, where the Interstate signs are in Spanish and the distances are in kilometers. These are a reminder that physical borders are permeable: people, money, and ideas flow across in both directions.
Similarly, housing markets are influenced on both sides of a border. Since enacting its strict immigration law in 2010, Arizona has been a laboratory illustrating the consequences of a sudden change to tough enforcement. Tucson, for example, has seen large drops in apartment occupancy levels and home prices.
Recently, our newly lame-duck President announced yet again that he intends some form of executive action to provide amnesty to millions of illegal immigrants now in the U.S. What are the likely policy or market implications of this?
Immigration, Citizenship, and Investment
Throughout history, societies have always linked immigration, a path to citizenship, and investment in the place where one lives – and indeed, inherent in citizenship is the concept that you invest your effort into the place where you wish to become a citizen.
While established as crown-granted colonies, early America was in fact peopled by squatters who moved to the wilderness, settled in a place and made investments in it (i.e., clearing, farming, and fencing the land), and gained legal title to the property after the fact. This pattern – of claim, occupancy, investment, and entitlement at the end – has been repeated around the world and over time.
Political thinkers from Alexis de Tocqueville to economist Hernando de Soto connected citizenship-based investment directly to successful polity and economy. The 1862 Homestead Act, which de Soto lauded as policy, was also a sophisticated political move by a visionary president to rationalize the facts on the ground, and by so doing purchase loyalty to America at a time (the Civil War) when the nation needed it.
The Act’s principal provisions offered settlers a three-step process:
- Invest first, then formalize. File an application, live on and improve the land (for five years), and then file for deed of title.
- Prove yourself not unworthy. The adult applicant couldn’t bear arms against the U.S. government (freed slaves were eligible).
- Earn title with cash or sweat-equity investment. The applicant had to furnish evidence of improvements to the land.
Present Day Analogs
Analogs to the Homestead Act abound in American immigration policy today. One can become an American citizen or permanent resident by making one of the following investments in our country:
- Serving in the U.S. armed forces.
- Marrying an American.
- Securing an H-1B visa by having an American employer sponsor your application.
- Securing an EB-5 visa (green card) by investing $500,000 in a qualifying American investment (which can include multifamily housing).
Bottom line: you earn the right to be an American by investing in America’s infrastructure: its security, its people, its workforce, or its businesses.
Housing Investment
To be a citizen, you must invest what you possess that matters to you. Housing is an investment of one’s family in a place – the essence of citizenship. Here is the place I own; here is the place I shall defend with my loyalty. In the twenty-plus countries in which I’ve worked (1), almost everyone uses variations of these principles.
America is the world’s most immigrant-accepting nation. But this broad acceptance has always been predicated on coming to America to work, not to freeload.
These dynamics change when an illegal immigrant gains “unearned” social-welfare benefits, because the reward is then given without the demonstrated irrevocable commitment of investment.
Affordable urban housing doesn’t arise naturally out of efficient markets; instead, it is a policy construct that is globally regarded as a social-welfare benefit, and is globally offered preferentially (or exclusively) to citizens. Prioritizing the worthy is especially important in America, where only one in four income-eligible people actually occupy affordable housing.
Earning “citizenship” can also be applied in a local context. In Austin, Texas, for example, under the housing authority’s Six Star Resident Program (2), deserving public housing families can move to the suburbs, at reduced rents, if they:
- Are irrevocably committed to change (benefits end after three years).
- Maintain six points of “good citizenship,” by paying their rent on time, keeping up their apartment, being drug-free, ensuring that their children attend school, maintaining full-time employment, and becoming registered voters.
Reframing the Debate
Instead of framing the immigration debate in terms of amnesty, the U.S. should reframe it as “earning citizenship” by investing yourself into American society. What if we offered immigrants seeking permanent residence an updated Urban Homestead Act: Buy a foreclosed house in Cleveland or Detroit (3), live in it for five years, renovate it, send your children to school, stay drug-free and out of jail, and in five years you and your family have a green card.
A hundred and fifty years after enactment of the original law, this is an updated version that many of us could endorse as immigration reform.
Ask not what your adoptive country can do for you; ask what you can do for your adoptive country. – Adapted from John F. Kennedy
David A. Smith is Chairman of Recap Real Estate Advisors, a Boston-based real estate services firm that optimizes the value of clients’ financial assets in multifamily residential properties, particularly affordable housing. He also writes Recap’s free monthly essay State of the Market, available by emailing dsmith@recapadvisors.com.
(1) As the Affordable Housing Institute, a global §501(c)(3) non-profit: www.affordablehousinginstitute.org.
(2) Details available at http://www.hacanet.org/residents/six-star.php. It’s a fantastic experiment.
(3) In Cleveland, Fannie Mae has been paying to have derelict houses demolished. Detroit is auctioning homes for prices in the single-digit thousands.
