Reforms to the EB-5 Immigrant Investor Program
By John Griffith & Michael D. Berman
Enterprise Community Partners and the Accelerating Impact Investing Initiative (AI3) released an issue brief calling for specific changes to the EB-5 Immigrant Investor Program to encourage more investments in affordable and workforce rental housing.
Since 1990, the EB-5 program has helped eligible foreign nationals attain permanent legal residence in the U.S., so long as they make a sizable job-creating investment in the country. Few investors took advantage of the program in its early years, but the program is now oversubscribed. This provides an opportunity for meaningful reforms, with the dual goals of mitigating fraud and maximizing the social and economic impact of each invested dollar. After a series of short-term extensions, the EB-5 program is scheduled to expire on September 30, 2017.
Unfortunately, the EB-5 program generally has a poor track record on achieving social and economic impact beyond job creation, and the program has been criticized for supporting luxury real estate and other projects that would otherwise have no trouble attracting private investment capital. The issue brief offers two broad sets of recommendations to help strengthen the program:
- Regulatory changes that would not require legislation. In the near term, the Department of Homeland Security (DHS), which oversees the EB-5 program, should establish new rules and incentives that better target underserved communities — including neighborhoods with high levels of rental cost burdens — and encourage EB-5 participants to invest in workforce and affordable rental housing. Specifically, DHS should set a new minimum investment threshold for real estate investments in targeted neighborhoods that meet certain benchmarks for housing affordability, thereby attracting capital to projects that would not otherwise receive funding from conventional sources.
- Legislative changes that would require an act of Congress. In the longer term, as Congress considers reauthorization and expansion of the EB-5 program, lawmakers should take steps to strengthen federal oversight and further encourage EB-5 participants to pursue targeted investments in affordable housing and other community assets. Among other changes, Congress should centralize the designation of “targeted employment areas” and update the definition to include areas of concentrated poverty and neighborhoods with significant affordable housing needs. Congress should also provide flexibility on the job-creation requirement if an EB-5 investment achieves social and economic impact beyond job creation — such as the development of affordable or workforce rental housing — and is held for at least 10 or 15 years.
While the issue brief focuses on reforms that encourage investments in affordable and workforce rental housing, similar policy changes could encourage other forms of impact investments, including targeted investments in small businesses, social enterprises, health centers, charter schools, retail centers and other community assets.