Much has been said about the impact of Donald Trump’s proposed wall on immigration, how it would get built, and whether he can actually get Mexico to pay for it. But how would it affect real estate? Given The Donald’s Yuuuge real estate empire, he presumably has given this some thought. Unfortunately, he hasn’t shared those thoughts, so let’s take a crack at it ourselves.
Looking at precedents such as Germany’s Berlin Wall is not encouraging. Real estate values in Berlin declined precipitously when it was built. Now that it has come down, the site of the former wall is the hottest real estate market in Berlin. And the scale of Trump’s wall is nearly unprecedented: the Berlin Wall was 91miles long. Trump’s wall would be 1,000 miles long. His original proposal was for a 2,000 mile wall, but he has since reduced the length, arguing that natural obstacles make parts of the Wall unnecessary. Of course the Great Wall of China is over 5,000 miles long and it was built in segments over a period of more than 1,000 years. It did help to control unwanted immigration from the Mongols but I can’t honestly tell you how it affected real estate values in China.
While the intent of the wall is to keep out illegal immigrants, in practice, and in combination with Trump’s other immigration and trade policies, it will chill relations with Mexico and further restrict travel between the US and Mexico. It’s this indirect effect of the wall that is likely to have the greatest impact. Here’s how we think the Great Wall of Trump, in combination with his other immigration and trade policies, will affect real estate markets in the US:
Demand for housing and neighborhood retail will boom in border towns during construction. Forty thousand workers will have to be housed in apartments and hotels, and they will also need to shop for food and clothing. This could turn moribund border towns into boom towns during construction. But wait – Mexico is paying for the Wall, so most of the construction will occur on the Mexican side of the border. Maybe it’s time to buy apartments in Ciudad Juarez. Regardless of who pays, what will happen when the wall is finished and all of those workers go home? Don’t worry, it will probably take more than four years to build it, so just remember to sell before it’s finished.
Construction costs will increase. Building the wall would require 8 million cubic yards of concrete, 5 billion pounds of steel rebar, and 40,000 construction workers per year for at least four years. By comparison, the 91 story Trump International Tower in Chicago, which is the largest concrete building in the world, used 180,000 cubic yards of concrete. In other words, the Wall would use as much concrete as 45 skyscrapers. Both concrete and labor are primarily a local resource, so this increased demand would drive up building costs in Texas, the southwest, and southern California. Higher construction costs would limit new construction and put upward pressure on rents due to the reduction in new supply of space.
Industrial and office real estate near the border in Texas, California, and Arizona will see higher vacancies. The economies of these states have been boosted by trade with Mexico and the importation of cheap labor. Maquiladora factories along the border could not function without relatively free travel between the US and Mexico. While the factories themselves are in Mexico, many executives have offices in the US and cross the border each day to manage them. Industrial parks in cities like San Diego, CA, El Paso, TX and McAllen, TX have expanded to service US distribution of goods produced in Mexico. If border crossings in these locations are further restricted, Mexico will lose ground to Asia as a manufacturing center, the border economies will suffer, and demand for office and industrial space in these areas will be reduced
Housing prices could fall due to declining demand and a faltering economy. If 11.3 million Mexican immigrants are deported, as Trump has proposed, this would reverse nearly five years of population growth, which would reduce the demand for housing. The impact would be strongest in high growth states such as Texas and Arizona where economic growth has been fueled by low cost immigrant labor. Housing demand may also be reduced by the economic impact of reduced trade with Mexico. The total value of US – Mexico trade is more than $1 billion per day, and roughly 6 million jobs are sustained by trade with Mexico.
Retail, and hotel properties near the border will be devastated, once construction is complete. Border towns such as San Ysidro CA and McAllen TX have developed into shopping meccas for Mexicans. They offer lower prices and a much broader selection of goods than their Mexican counterparts. According to the Simon Property Group, approximately 21 million people who come through the San Ysidro border crossing every year say that their primary purpose is to shop. Clearly, it’s not the illegal immigrants who are shopping for luxury goods in the US. It’s the symbolic impact of the wall, along with the increased likelihood of being harassed or detained for a minor infraction, that will deter legal, middle class and wealthy Mexican visitors from visiting the US and spending their pesos at shopping centers and hotels.
Overall, our real estate prognosis is for short term gains and long term pain if and when the wall gets built. Until then, there’s another prediction we can make with a high degree of confidence. The last few weeks of the election process are going to be entertaining!