The plight of children being torn out of their parents’ arms has been big news lately, giving both pro and anti RAISE Act proponents plenty to talk about.
However, whether you’re for or against immigration, it’s clear that the RAISE act, endorsed by President Trump, would reduce immigration levels by cutting the number of green cards issued in half.
Several studies show that reducing immigrant levels would have an immediate impact on several segments of the economy, and commercial real estate is one of them.
RAISE Act Plays An Important Role In The Construction Industry
According to statistics, legal foreign-born workers already represent 25% of the jobs available in construction. However, experts estimate there are an additional 1.1 million immigrants who work in construction that are undocumented.
The largest proportion of these undocumented immigrants are located in cities with strong CRE markets, such as Los Angeles and New York, both of which have large immigrant populations.
Without this workforce, both new development and renovation of investment properties could be seriously affected, slowing completion times and increasing the risk of financial loss.
Developers Already Struggling With Labor Shortages
As a result of the RAISE Act for 2017, developers have been struggling for the last several years from shortages in labor, particularly skilled labor. And although many jobs were lost due to the recession, only 40% of those who worked in construction have returned.
When you combine that percentage with the number of people who naturally age out of the industry, you end up a huge gap that is getting harder and harder to fill.
The effects of the labor shortage are already making themselves felt. Construction costs are directly related to two factors: the availability of labor, and the cost of materials. Thus while the cost of materials continues to decrease, the construction costs continue to increase.
In fact, in a survey sponsored by USG and the US Chamber of Commerce, although 58% of contractors said they are turning in higher bids, one-third of them also said they are being forced to turn down bids, simply because they don’t have the skilled labor to do the job.
Their solution? Tell employees to work harder.
Industry officials predict the situation will only worsen if Trump’s plan to fix America’s infrastructure goes through. Contractors, already strapped with what they have, state they would be completely overwhelmed.
The RAISE Act And Increased Cost Of Management Services
If you use a property management service, you could also see some changes as a result of the RAISE act. Property management also has a larger than average share of foreign workers – 31%, which is nearly double that of U.S. industries in general.
Furthermore, property management uses large numbers of skilled labor.
A shrinking pool of workers not only means property management services would cost more, but also that the lack of workers would cause a drop in service quality.
Less Foreign Capital
Many investors are unaware of EB-5, a little-known investor program allows a non-American a chance to apply for a green card if they invest a minimum of $500,000 in an impoverished area.
The investment is a loan secured by real estate, but it does allow wealthy investors a chance at immigrating to the United States, and bringing their family with them.
And although there have been scandals with the law since the program was established in 1990, it is still a frequent source of funding for new CRE projects.
Decreased Demand For Housing
A large portion of the population growth in the U.S. actually comes from immigrants. In fact, in 2017 nearly half of the growth in the U.S. came from immigration. Typically immigrants end up in the country’s largest cities, which helps make it easier for newcomers both financially and in terms of support.
With foreign-born residents making up as much as 38% of a city’s population, it’s clear that some of the U.S.’s largest cities will experience a significant decrease in population. This, in turn, will affect the demand for new housing, impacting greatly on the multifamily market. Statistics confirm this as true: about two-thirds of new renters are foreign-born.
Less Demand For Office Space
A decrease in population in the larger cities would also affect the office industry.
The RAISE Act also plans to limit the H-1B program, a visa program that allows U.S. employers to hire highly skilled foreign workers in fields such as mathematics, engineering, and technology.
These industries are some of the top industries driving demand for office space, which means that a decrease in available workers could slow business growth, thereby causing companies to decrease the amount of space required.
But limiting the H-1B program won’t only affect the number of employees hired by businesses; it also affects the number of new businesses started. Since 2011, more than 40% of companies listed on the Fortune 500 were started by foreign-born residents or their children.
At the moment, statistics show that right now skilled workers are choosing to go to countries that are more immigration-friendly. For example, in 2017 Canada increased the number of foreign skilled workers by 7.5%. They’ve also opened up a program that approves visas within 2 weeks, instead of the 6-8 month wait in the U.S.
It’s unclear whether or not the RAISE act will go through or not. While it was introduced to the Senate, it has so far been opposed and has been put aside until Congress decides on a tax reform bill. In the meantime, it is clear that if it does pass, it will have a significant effect on commercial real estate.
