Research Proposal on "Economic Benefits of Buy a House Get a Green Card"

Research Proposal 8 pages (2613 words) Sources: 8

[EXCERPT] . . . .

Buy a House, Get a Green Card

Fundamental objective of this proposal is to present the economic benefits of "Buy a House, Get a Green Card." Implementation of the proposal could serve as the economic solution to the present U.S. mortgage financial crisis. The present U.S. financial crisis has led to the decline of the inflow of capital into the U.S. economy, which consequently leads to the decline of the U.S. growth rate, loss of jobs and decline of the purchasing power of millions of American households. To revive the present U.S. economic problem, it is critical to address the root cause of the problem. The collapse of housing prices has been identified as the major cause of the present financial crisis, the proposal suggests that the government should provide incentives for foreign nationals to buy up the excess housing to encourage the inflow of capital into the U.S. economy.

Background Problem

The root cause of the present U.S. financial crisis comes from the collapse of the housing prices. Between 2000 and 2007, the United States experienced a boom in the mortgage business leading to the increase in the valuation of the real properties. Due to the fear of recession, Federal Reserve Board lowered the interest rate in 2001 from 6.5% to 1%, and the decline in the interest rates led to the boom in the housing markets. During the period, there was a growth in the mortgage business and many mortgage financial institutions engaged in sub-prime lending to attract more customers. In finance, concept of sub-prime lending is the act of giving out loans to people with bad credit history or given out loans to people who could have difficulties in making repayment schedules. In the United States, sub-prime lending transactions make million of people with bad credit history to secure mortgage loans, and the rising in the demand for the housing triggered the housing prices between 2001 and 2007. With fear that the accelerating downturn in the housing market could trigger financial crisis, Federal Reserve Board reversed and increased the interest rates 17 times from 1% to 5.25% between 2004 and 2006. The rising of the interest rates triggered the decline in the housing prices, and many people with housing loans were unable to settle their housing debts because of the decrease in the market values of their properties. Illustration in Fig 1 reveals the rise in the housing prices, which reached its peak in 2006 and showed its decline from 2006. By April 2008, there was a rising in the delinquencies of the mortgage market leading to the massive losses of $565 billion. When combining these losses with other category of loans originated from commercial real estates, the losses were estimated to reach about $945 billion. Increase in the concern about the collapse of housing markets led to a tightening of credits within the financial market around the world, which later triggered the U.S. And global financial crisis. (Bianco, 2).

Fig 1: Housing Prices between 1989 and 2009

Source: Lefrak, and Shillings.

Despite the $700 billion bailout bill passed the congress under the Bush administration, many firms still embark on the massive lay-off. Many U.S. households are increasing indebted and there is decrease in the disposable income of an average American. (Crotty, & Epstein).

This proposal attempts to provide a solution to the mortgage crisis that triggers the U.S. financial crisis. The study proposes "Buy a House, Get a Green Card" as the economic solution to the present U.S. mortgage and financial crisis. To enhance greater understanding of the proposal, the study provides the economic benefits of "Buy a House, Get a Green Card."

Economic Benefits of "Buy a House, Get a Green Card"

The U.S. government policy formulation on "Buy a House, Get a Green Card" will be critical to alleviate the current economic problem facing the United States. The policy is simple, the U.S. government should pass a bill into law to allow a wealthy individual to buy a house worth $500,000 and in exchange for this initiative, the U.S. government should offer a Green Card to the person. There are several economic benefits that the U.S. could derive from passing this proposal into law and allow legal immigrants to buy up excess housing in the United States.

First, allowing a foreigner to buy a house worth $500,000 will assist in stabilizing the housing values in the United States. Between 1996 and 2006, homebuilders built the excess of 4.6 millions houses, which led to the massive increase in the housing inventory, and excess of 2.4 million of housing excess. Typically, the housing excess forces the housing prices to decline. To eliminate the excess inventory, the U.S. government should allow rich foreigners to buy up houses in the United States to stabilize the U.S. housing crisis. In 2007, Merrill Lynch estimated that there were approximately 10.1 million people globally with at least $1 million in financial asset and, and 7.1 millions of these individual are outside the United States, and the overall estimation worth $29 trillion. If the government allows foreigners to buy up excess of 2.4 million houses in the United States, this initiative would inject untold $1.2 trillions into the U.S. economy, and the money would assist in stimulating the economy. For example, if one million foreigners were allowed to buy excess houses in the United States, the transaction would inject $500 billion into the U.S. economy, and the transactions would provide jobs for millions of Americans.

David and Fenwick argue that U.S. has benefited the total of $1.7 trillion inflow of foreign capital through foreign direct investment (FDI) over the last ten years and the impact has led to the creation of between 5 and 6 million jobs. The authors further point that the decline in the U.S. jobs is due to the decline of capital inflow into the United States. Since 2009, capital inflow has declined leading to the massive in job loss.(1)

The proposal could reverse the unemployment rate by allowing foreigners to inject the capital into the U.S. economy. "Given the power of foreign capital inflow as an economic engine and the quality of jobs it supports, there is great potential benefit from broadening and deepening foreign capital in the United States." (David and Fenwick, 5). Implementing the proposal will make the United States to attract people with enough capital to start up the business that would create jobs for U.S. citizen. Jackson also argues that foreign capital inflow has always enhanced the U.S. economic performances. In 2008, foreigners invested approximately $351 billion in the U.S. economy, and in 2009, the inflow of foreign capital declined to $269 billion leading to the decline in the U.S. economic performances. Between 2008 and 2009, there was a decline in the foreign capital, which led to a decline in the U.S. economic growth. With downward trend of inflow of foreign capital into the U.S. economy, the U.S. government could reverse the trend by allowing foreigners to buy up the excess housing and inject the capital into the U.S. economy. Typically, if foreigners were allowed to buy excess of 2 million houses, foreigners would inject approximately $1 trillion into the U.S. economy.

With $1 trillion dollars injected into the whole economy, there would be increase in the purchasing power of million of American since larger percentages of Americans invest considerable amount of their financial assets in real estates. If they are able to find buyers for their houses, large percentages of American will sufficient to start up new businesses, which would lead to the job creations. Essentially, increase in the purchasing power of Americans will enhance growth rate of the U.S. economy since banks, insurance companies, estate valuators, and lawyers will be involved in the transactions of buying house deals and get a green card. Moreover, the rise in the foreign capital would increase the performance of the equity leading the increase in the stock value.

More importantly, the proposal will enhance the appreciation of dollar against other foreign currencies. Since 2002, the value of dollars has depreciated against a basket of foreign currencies. The effect of depreciation of dollars has led to the correspondence decrease in the value of assets in the United States, which reduces the overall returns of U.S. assets. Essentially, depreciation of dollars has led to the decline of the wealth of American investors and American firms requiring foreign raw materials for manufacturing of their products. Allowing the inflow of foreign capital into the U.S. economy through "Buy a House and Get a Green Card" will appreciate the value of dollar and there will be improvement in the performances of the national economy.

National Association of Realtors relates the impact of inflow of capital ("Buy a House and Get a Green Card") into the U.S. economy to the impact of foreign direct investment (FDI) holding on the U.S. real estate. The report showed that FDI in the real estate totaled $43.3 billion in 2006 and the amount of… READ MORE

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