Friday, October 10, 2008

Too Many Houses, or Not Enough Residents?

One of the many causes of the current financial situation is an excess of housing supply. During the real estate boom, developers speculatively built houses in anticipation of eager home buyers buying their dream home now that they could finally (or so they thought) afford it. As we now know, that plan didn't really pan out.

One perspective is that there are too many houses. Another perspective is that there aren't enough residents. Solution? Get more residents (i.e. increase immigration limits). The genius economists at Marginal Revolution seem to think this a good idea, as does Lee Ohanian, an economist at UCLA:

We should encourage the immigration of prime-age individuals. Beginning in 2007, net immigration fell to half of its level over the previous five years. Increasing immigration would increase the demand for housing and raise home prices. And note that the benefit would be immediate. Home prices -- and the value of subprime obligations -- would rise in anticipation of a higher population base. The U.S. particularly needs highly skilled workers. These workers not only would purchase homes, but would generate higher living standards for all Americans.

I actually favor lifting all caps on immigration and letting as many people come to America as want to, but letting more skilled workers in (you know there's a shortage when the annual application quota for high-skilled workers is filled on the first day applications are accepted) seems like a very politically-palatable way of increasing immigration and helping the economy.

Image from here.

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