new-york-skyscrapers

A bunch of Russian oligarchs want to buy some hot New York City real estate. How can we cool their MiG jets? Greater density! Deregulate zoning and let developers build as the market demands. With greater supply, the returns on foreign investment diminish. Hot condo cash ends up somewhere else more restricted, right? Wrong:

For many foreigners, American housing markets are both a bargain and a haven amid concerns over unsustainable asset values abroad. Chinese buyers in particular “want to diversify because the housing market over there is just way too hot,” said William Yu, an economist at the University of California Los Angeles.

Favorable exchange rates have also boosted many foreigners’ potential purchasing power. Given the relative weakness of the dollar, “after our housing downturn, homes became even more valuable if you were shopping with the yuan,” said John Burns, chief executive of a home builder consulting firm in Irvine, Calif. …

… Many foreigners are targeting neighborhoods with good schools where their kids can learn English. They are also seeking trophy properties. Asian buyers frequently bid on homes priced for more than $3 million, and pay in cash, said Maggie Navarro, a real-estate agent in Pasadena, Calif. On Tuesday morning, she put into escrow a $3.7 million home that was selling to a buyer from mainland China.

For Chinese buyers, all American real estate markets look juicy compared to the the non-U.S. alternative. Thus, variance between zoning in Houston and San Francisco ceases to matter. A “haven” is somewhere safe to park amassed wealth. Whether or not greater density fosters diminishing returns isn’t an issue. Investors want safe, like a global currency bankrolling digs in a major metropolitan neighborhood with good transportation access to tradable jobs.

Foreign real estate investors want safe like a great school district. A geographic launch pad to upward mobility is appreciated, in home values. An expatriate workforce can park a bonus in a Fairfax County neighborhood within the geography of Thomas Jefferson High School and laugh at the S&P 500. No risk, huge reward.

The international market for U.S. real estate looks nothing like the domestic market for U.S. real estate. The salve for that discrepancy has been that international real estate investment is of little consequence. Given the general demographic decline (no population growth without immigration), that perspective is (charitably) naive.