How Immigration Reform Could Affect Retail Real Estate
Sep 21, 2010 9:16 AM, By Elaine Misonzhnik
As Arizona’s Senate Bill 1070 (SB 1070) went into effect on July 29, local media outlets predicted Armageddon for the state’s retail businesses. SB 1070, otherwise known as the Support Our Law Enforcement and Safe Neighborhood Act, attempts to discourage unauthorized immigration in a state where immigrants make up 14.3 percent of the population.
Many fear that the bill—which makes it mandatory for Arizona’s foreign-born residents to carry legal documentation at all times, allows police to ask about suspects’ immigration status during arrests and makes it a crime to hide and assist unauthorized immigrants—will result in unfair targeting of Arizona’s Hispanic community.
Hispanics make up 30 percent of the state’s total population and represent a powerful consumer constituency. In the weeks leading up to the bill’s enactment, there were reports of immigrants moving out of Arizona’s residential buildings, and retail businesses facing the prospect of closure because of a drop in demand from Hispanic shoppers. Warnings about shopping centers sitting empty abounded.
To make matters worse, a number of organizations, municipalities and private individuals urged an economic boycott of Arizona, refusing, among other things, to travel to the state.
The truth, however, is that while Arizona’s economy has suffered as a result of the Great Recession, there is little data to suggest direct ties to the passage of SB 1070.
The Great Recession hit Arizona harder than many other regions in the country because of the tremendous amount of over-building that took place there during the housing boom and it has been suffering financially for the past several years.
In July, the state ranked second in the nation in residential foreclosure rates, with one in every 167 homes receiving a foreclosure filing, according to RealtyTrac, an online provider of foreclosure information.
The unemployment rate in Arizona now stands at 9.6 percent, in line with the national figure. From December 2009 through April 2010, long before the new immigration bill was signed into law, retail sales in Arizona dropped 24 percent, to $3.62 billion, according to the University of Arizona. Arizona’s government is so strapped for funds it’s forcing 30,000 state employees to take 12 furlough days during the next two fiscal years.
In other words, the setback the state has seen is purely economic, not political.
Given how badly the state’s economy has been suffering, it makes sense that retail businesses in immigrant-heavy communities are experiencing low demand, says Jose de Jesus Legaspi, president of the Legaspi Co., a Montebello, Calif.-based real estate development and brokerage firm focused on the retail sector. For the past 30 years, Legaspi has specialized in serving Hispanic consumers in urban markets.
When the Pew Hispanic Center, a Washington, D.C.-based non-partisan research organization, measured the unemployment rate among unauthorized immigrant workers in March 2009, it was more than a percentage point higher than the unemployment rate for U.S.-born workers, at 10.4 percent. The unemployment rates for U.S.-born workers and legal immigrants for that month stood at 9.2 percent and 9.1 percent respectively.
“What influences retail sales within any group is economic conditions; if there are no jobs, if there is no income coming into the household or the income is reduced, retail sales fall,” Legaspi says. “And the issue in Arizona regarding retailers who are having a hard time is probably about economic conditions in Arizona.”
An in terms of people fleeing the state, the two biggest factors that determine where immigrants choose to live are job availability and the presence of established family ties, notes Daniel Griswold, director of trade policy studies with the Cato Institute, a Washington, D.C.-based public policy research organization. Given that Arizona has one of the largest Hispanic communities in the country, it’s unlikely they will start moving to other states just because of the new immigration law.
Potential effects
In fact, many economists say that immigration reform, whether on the state or federal level, will do little to impact migration patterns or retail sales in the U.S., at least in the near term. While a good case has been made that providing unauthorized immigrants with an easier path to legal status might have a positive effect on the U.S. economy overall, the effects on the immigrant community itself are likely to be minimal.
To begin with, the new laws will target only a fraction of the country’s 39 million immigrants, the majority of whom already hold legal status. The political situation in the U.S. today makes it unlikely that any reform passed on the federal level will have a wide scope, if it gets passed at all, says Madeleine Sumption, policy analyst with the Migration Policy Institute (MPI), a Washington, D.C.-based independent, non-profit think tank.
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Of the approximately 11 million illegal immigrants already in the U.S., it will affect, at most, several million people. And given the low level of education among unauthorized immigrants, it’s unclear whether the reform will have any substantial impact on their income levels.
Legal status might make it easier for them to find work. But an increase in income would be tied to greater investment in secondary education and the development of English language skills, rather than directly to the change in immigration status, Sumption notes.
Approximately 47 percent of illegal immigrants between the ages of 25 and 64 lack a high school diploma, according to the Pew Research Center, an independent, non-partisan research organization based in Washington, D.C. That compares to 8 percent of U.S.-born residents in the same age group.
Nor is immigration reform likely to significantly influence the number of new immigrants entering the country on an annual basis. “While [law] enforcement clearly plays a role in illegal migration patterns, the variation in illegal immigration over time is largely a response to changes in the U.S. macro-economy, as well as the economies of migrants’ home countries,” writes Gordon H. Hanson, professor of economics at the University of California-San Diego and a research associate with the National Bureau of Economic Research. “Over the last two decades, the inflow of unauthorized immigrants has broadly tracked economic performance.”
From 2000 to 2004, the inflow of unauthorized immigrants into U.S. averaged 800,000 people a year, according to the Pew Hispanic Center. In contrast, in 2008 and 2009, about 300,000 unauthorized immigrants entered the country. Overall, the total number of unauthorized immigrants in the U.S. fell by 10 percent in the past three years, to 11.1 million today from the peak of 12.4 million in 2007.
On the agenda
Immigration has become a hot topic issue this year as state and federal officials began addressing lax border security and the widespread practice of tolerating unauthorized entry. Arizona has enacted the strongest response to this in the form of SB 1070.
But the passage of SB 1070 has sparked heated opposition both inside and outside the state, including legal challenges filed with federal courts and business boycotts. Many cities, organizations, entertainers and private citizens have vowed not to spend money in the state, including foregoing travel to Arizona, not holding concerts and conventions there and not patronizing Arizona-based companies that have failed to oppose the law. No hard figures exist, however, to measure the boycott’s impact so far.
Meanwhile, states currently considering laws similar to Arizona’s include Florida, Texas, Georgia, Ohio, Utah and Maryland.
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The Obama administration has also made comprehensive immigration reform a part of its agenda. The Comprehensive Immigration Reform for America’s Security and Prosperity Act of 2009, or H.R. 4321, was introduced to Congress in December of 2009. In addition to increasing border security and requiring employers to check the immigration status of new hires, the bill would increase the number of temporary visas available for low-skilled immigrant workers and provide a path to legalization for the unauthorized immigrants already in the U.S.
But while such measures would make it possible for a high percentage of unauthorized immigrants in this country to apply for legal status, the fate of H.R. 4321 remains dubious, Sumption notes.
In recent years, proposed immigration legislation has been routinely stalled in Congress. The idea that unauthorized immigrants could gain legal standing in spite of breaking the law has sparked a heated reaction from immigration opponents. Senate Majority Leader Harry Reid has promised to bring H.R. 4321 before Senate several times already, to no avail. Plus, in an election year, the bill’s fate could be more uncertain than ever.
A piece of immigration legislation that might have a better chance of being enacted, according to Sumption, is the Development, Relief, and Education for Alien Minors (DREAM) Act.
The DREAM Act would provide the path to permanent legal status for unauthorized immigrants under 35 if they arrived in the U.S. before they turned 16, have lived here for at least five years and received a high school diploma.
Roughly 726,000 unauthorized immigrants would become eligible for the benefits of the DREAM Act if passed, according to MPI’s National Center on Immigrant Integration Policy. Another 934,000 would become eligible as they turn 18. But based on historical trends, MPI estimates that only 825,000 immigrants would actually take advantage of the legislation.
Immigrant snapshot
Even if a comprehensive reform package is enacted, however, economists doubt it would significantly impact migration patterns or the spending power of unauthorized immigrants once they gain legal status. The estimated increase in incomes resulting from such reform ranges from zero to 20 percent. In Sumption’s view, if incomes do rise, it would be by at most 10 percent. After the federal government’s Immigration Reform and Control Act of 1986 made it possible for unauthorized immigrants in the U.S. to get amnesty, those who took advantage of legalization saw their wages go up anywhere from 5 percent to 15 percent. The figure was most likely in the single digits, according to B. Lindsay Lowell, director of policy studies with the Institute for the Study of International Migration at Georgetown University.
That’s because unlike immigrants who enter U.S. legally, unauthorized immigrants tend to have a much lower education level, which limits their earning potential regardless of their legal status.
Today, there are approximately 39.4 million immigrants living in the United States. Of that number, 28 million, or 72 percent, are here legally, including 36 percent who have already become naturalized U.S. citizens, the Pew Research Center reports. Immigration reform will not directly affect them.
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