According to yesterday's WSJ (8/14/08, David Wessel, A1), Greenspan agrees with my pro-immigration views, at least with respect to educated immigrants:
"The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants," he said...
"Perhaps 150,000 of [new households] are loosely classified as skilled...A doubling or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale--and hence stabilize prices."
So far, so good; however, the Journal makes a mistake when it tries to do its own analysis:
The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes would accomplish that...
The Journal doesn't seem to understand that skilled immigrants mainly come to the States by way of H1-B visas and would settle in already-strong economic areas, such as San Jose, San Francisco, Chicago, and other large, diverse cities.
The housing crisis is mainly in places where mortgage brokers and lenders granted credit to low-income employees or workers with unsteady incomes.
Las Vegas, NV is a prime example. Although Vegas is a strong union town, too many uneducated people entered the market with hopes of making it to the middle-class. The city simply couldn't absorb all of its new entrants. As for attracting educated foreigners, how many M.A.s in Physics does a casino need?
Stockton, CA and Merced, CA have become notorious for their high rate of foreclosures. Their residents are mainly non-college-educated workers. While that situation may change because of the new UC in Merced, for now, if you have a PhD in engineering, would you end up in Merced, CA or San Jose, CA? (And yes, that's a rhetorical question.)
When residents bought homes outside but near Boulder and Denver, Colorado, they forgot the law of supply and demand. When you live near cities with only 1/2 million (Denver) and 100,000 (Boulder) residents, there's not enough demand to justify a large, immediate increase in supply. While Denver does have Qwest and ProLogis, there aren't enough companies there to sustain an inflow of high tech talent. In contrast, in Santa Clara County, I get lost driving in Sunnyvale because there are so many little streets that lead to massive warehouses filled with tech companies I've never heard of.
Greenspan is still correct in his pro-immigration view, but there's a missing step. We need companies to open new branches outside of the major cities. Perhaps if the government changed the H1B program to increase the cap on companies willing to place educated workers in mid-sized or smaller cities, educated immigrants could be a boon to overlooked cities suffering from the economic downturn.
Greenspan has recovered some of his credibility--he said this in November 2002:
It's hard to escape the conclusion that at some point our extraordinary housing boom...cannot continue indefinitely into the future.
Then again, this is the same person who said this in October 2004:
[Home price declines] "likely would not have substantial macroeconomic implications... (2004)
And this gem comes from October 2006:
I think the worst of this [housing price decline] may well be over. (2006)
At the end of the day, we need more skilled immigrants or immigrants willing to work hard, but the question is where should they go? State governments and smaller to mid-sized cities should be more active in working with national and local corporations to set up the infrastructure necessary to attract foreign talent. It's a win-win situation for everyone. Local residents and businesses would benefit from higher prices due to increased demand. Foreign talent gets to come to America and make more here than they would elsewhere. I hope the local governments of Merced and Stockton are reading and thinking outside the box--if they don't follow the Rafat Rule ("being pro-immigration necessarily means being pro-capitalism"), more Southern cities like Louisville, KY, will beat them to the punch.