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EB-5 Visa Program and The Price of Beer

The San Francisco Giants are second only to the Boston Red Sox in the price of beer at a ballgame. We accept this as a compromise for living in a highly desirable area of the country.

But what would happen if Bill Gates decided to purchase a small-market team like the Pittsburgh Pirates? And what if Bill decided to employ his great resources to lavishly bid for players and reward the Pirate fans? This much wealth suddenly flowing into Pittsburgh would spread inflation to every corner of baseball as owners struggled to keep pace with Bill’s spending. Bill’s actions would singlehandedly raise the salary bar, causing a trickle down increase for the Giants bidding for even mediocre players. The ripple effect would be more expensive game tickets and even more expensive beer at AT&T Park.

What is this EB-5 visa program? In exchange for a $1 million investment, a non-US citizen can obtain green cards and gain residency permits for their families.”

A deluge of money into a concentrated area tends to overflow its banks. The Wall Street Journal recently discussed the billions of foreign money flowing into US construction projects through a special EB-5 visa program. For instance, the builder of the second post-9/11 World Trade Tower was looking to raise $500 million through the EB-5 visa program. The former mayor of Oakland wanted to finance a new football stadium with EB-5 funds. The Huffington Post reported that EB-5 money has been earmarked to build 12,000 homes and 3.1 million square feet of office space on the old San Francisco shipyards.

What is this EB-5 visa program? In exchange for a $1 million investment, a non-US citizen can obtain green cards and gain residency permits for their families. The legislative rationalization for EB-5 visas is that the money must be applied to businesses, and that the money must create new jobs.

The topic here is not anti-immigration, but three separate issues: a) the new preferential treatment for wealthy immigrants, b) skyrocketing housing prices tied to the instability of other countries’ economies and the resulting capital flight to the US dollar, and c) preferential visas that have not yet been factored into the inequality debate.

Have you ever gone to an airport and wondered why someone that purchased a first class seat through a corporation such as United Airlines receives preferential government treatment through a special TSA lane? That is pretty much the EB-5 message we send to people trying to enter our country. Foreigners can give money to private businesses and get priority services from our government. This is quite a change from “give me your tired and poor.”

An EB-5 investment cannot fund a personal residence. Yet, it is difficult to argue that foreigners that have invested a million dollars in the US probably have some desire to purchase a home as well. The purchase of a US house parks capital in our stable currency, while protecting the foreigner from further fluctuations in their home currency. Much of this “parked capital” sits in vacant homes that have been bid up beyond the reach of US families.

The numbers on how many houses sit empty is not clear. The Wall Street Journal recently reported that in Canada, analysts have resorted to looking in garbage cans and checking utility bills to see if the houses are “ghost homes.” By their very nature, unoccupied homes are volatile investment. Money that comes in quickly can leave just as fast, leaving Americans to suffer from a pricked housing bubble.

Chinese nationals’ US home purchases increased 27% between 2014 and 2015. The amount of capital fleeing the turbulent Chinese Yuan is so great that under pressure from China, HSBC bank will no longer lend money to Chinese nationals buying real estate in the United States. China is by no means the only country competing with American homebuyers. Petro-economies such as Russia, South America, and the Mideast are saturating our east coast.

Over the past decade, China has overbuilt cities, anticipating a great migration from the rural lands to metropolitan areas. 60 Minutes (8/3/14) broadcast a segment on entire cities that were built, but continued to remain absent of people. Cheap money spurred building for the sake of building and the formation of “Ghost Cities.”

This should raise Californian’s concern for contagion. The Los Angeles Times reported that 85% of EB-5 money in 2014 came from China. How many US construction projects are being built just because so much EB-5 bubble money is coursing freely into our economy? Is the leaking air from China’s bubble now inflating a US bubble an ocean away?

The media and presidential candidates have been touting the popular issue of “inequality” while EB-5 garners virtually no media attention. Over the first 40 days of 2016, the word “inequality” appeared over 150 times on The Chronicle’s SF Gate website. The term “EB-5” appeared once. The premise of inequality is that the wealthy have benefited more from lower interest rates and our tax structure, than have the middle class and the poor. Those damn Google buses. However, the issue of inequality is more complex− involving automation creeping up the food chain; the middle class not reproducing; and longevity straining our health and social programs.

Are the wealthy really doing that much better, or are we just juicing richer immigrants into the wealth pyramid creating a more populated upper class? Is this any different than Mark Zuckerberg, Warren Buffett, and Bill Gates purchasing small-market sport franchises? If that were the case, it would be specious to claim that the owners were getting richer from the sport, and more accurate to say that more rich people were becoming owners. And for the simple beer-drinking bleacher bums, foreign economies will continue to drive up the local cost of living, inflate homes beyond our reach, and force us to pare the Lagunitas IPA’s at the Giants games.

Lou Barberini is a San Francisco CPA living in West Portal

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