Are We "Handing over the Keys" by allowing More Foreign Farmland and Real Estate Ownership?

Many argue that foreign ownership of land and real estate represents a threat that could be used against the US in a variety of means and represents a national security concern

The USDA recently reported that foreign persons and entities held an interest in 40.8 million acres of U.S. agricultural land in 2021, accounting for 3.1% of total privately owned land (Table 1). These data cover agricultural land and non-agricultural land.

While, in the big scheme of things, very little U.S. farmland is owned by foreign entities, such acquisitions are accelerating. Of the 1.3 billion acres of private agricultural land in the United States, foreign entities fully or partially owned roughly 40 million acres valued at $74 billion in 2021.

The ownership breakdown of the American agricultural land that is foreign-owned looks like this:

Canada: 32%
Netherlands: 13%
Italy: 7%
United Kingdom: 6%
Germany: 5%
China: 1%

Currently, anyone may buy and own farm land and real estate, including both commercial and residential property, in the United States, regardless of citizenship. There are no laws or restrictions that prevent an individual of any foreign citizenship from owning or buying a home in the U.S.

Because the US has no citizenship requirement for farm land and real estate sales, non-US citizens can buy property in the US. In fact, foreigners can even qualify for a mortgage if they meet certain requirements. However, foreign property owners do face a more challenging tax situation than US citizens.

Although there are no significant restrictions at the Federal level, some individual States have passed laws restricting foreign ownership of land/real estate. While there are approximately fourteen states that specifically forbid or limit foreign ownership of farmland within their state, the federal government only monitors certain foreign acquisitions and landholdings in agricultural land through the Agricultural Foreign Investment Disclosure Act (“AFIDA”) of 1978. Essentially, AFIDA requires certain foreign persons to disclose their interests in U.S. farmland to USDA.

There is currently a federal-level bill pending in the US House of Representatives, which is sponsored by Rep. Louis Gohmert (R-TX). H.R.6383 is titled “National Security Moratorium on Foreign Purchases of U.S. Land.” This bill would "prohibit the purchase of public or private real estate located in the United States by foreign persons, and for other purposes.". The Act has been cited as the “National Security Moratorium on Foreign Purchases of U.S. Land”.

The proposed bill includes, among other things, the assertion that foreigners have been abusing the EB–5 visa system, which allows foreign nationals to obtain green cards if they invest in specific business ventures and proposes that the rules to acquire an EB–5 visa should be made more stringent.

Congress is also considering other measures that seek to restrict foreign investments not only in agricultural land, but all public and private real estate located in the U.S. One such measure is the Securing America’s Land from Foreign Interference Act (S. 4703/H.R. 3847). This bill specifically targets potential investments by the Chinese.

Another broader bill that is currently before Congress is known as the Protecting our Land Act (“POLA”) (H.R. 8652). POLA seeks to restrict foreign adversaries and state sponsors of terrorism—and any of its agents, affiliates, and persons it owns or controls—from purchasing public or private U.S property.

These are just a select few. There are other similar bills being introduced with language along these same lines. What is clear from all of this recent legislative activity is that there is a growing herd mentality in the US postulating that it is a good idea to ban or otherwise restrict foreign entities, and especially those who are non-allies of the US, from buying up land and real estate. The implicit concern behind this growing groupthink is that, by owning US land, these foreign entities have an opportunity to exert undue political and/or economic impact on the US.

Beyond this assertion, some also believe that there is an emergent food security issue, whereby the biggest concern is that foreign owners might, for example, pay a higher price for agricultural land and force a spike in food prices.

In any case, the general implicit threat here is that foreign ownership could be used against the US in a variety of ways — and that it represents a national security concern. And the spate of proposed new bills on this topic suggests that US lawmakers are reacting to these concerns.

The key question here is less about whether FDI is good for our economy, in general, than it is about whether our nation should be restricting land and real estate ownership in the US by foreign entities who are not prescribed allies of the US.

Critics see such measures as anti-foreigner hysteria. For example, the Texas' Asian American community has expressed concern that such bills might have a daunting effect on immigrants who want to buy homes and build businesses.

There is also a significant and longstanding school of economic thought supporting the ideal that foreign direct investment (FDI) is good and useful in creating new jobs and more opportunities as investors build new companies in foreign countries. FDI can lead to an increase in income and more purchasing power to locals, which in turn leads to an overall boost in targeted economies.

The Committee on Foreign Investment in the United States (CFIUS) is a government body that was formed in 1975 with the power to block foreign investments in U.S. companies. Its oversight has expanded in recent decades as Chinese investment in U.S. industries has grown, leading it to reject several high-profile deals over national security concerns.

Other countries, including Australia, France, and the United Kingdom, have also heightened their scrutiny — especially with regard to Chinese investment.

The downside of FDI is that it could potentially hinder domestic investments and transfer control of domestic firms to foreign ones. There is also a risk of undue political influence and perhaps, even an argument that FDI exposes the US to foreign political influence on exchange rates and interest rates, not to mention digital crime (e.g. Huawei, TikTok).

Few would argue that FDI is critical for developing and emerging market countries. Companies in developing countries need multinational funding and expertise to expand, give structure, and guide their international sales. These foreign companies need private investments in infrastructure, energy, and water in order to increase jobs and salaries. But the question here is whether well-developed nations, like the US, should limit FDI for strategic, economic, and national security reasons.

What do you think? And why?

Sources:

https://www.americanactionforum.org/research/foreign-ownership-of-u-s-agricultural-land/#:~:text=Of%20the%201.3%20billion%20acres,at%20%2474%20billion%20in%202021.

https://nationalaglawcenter.org/congressional-considerations-on-restricting-foreign-investments-in-u-s-agriculture/

https://www.google.com/amp/s/www.pbs.org/newshour/amp/nation/states-consider-restricting-land-ownership-for-foreign-nationals-after-chinese-balloon-sparks-national-security-debate

https://researchfdi.com/resources/articles/benefits-fdi-foreign-direct-investment/#:~:text=FDI%20creates%20new%20jobs%20and,overall%20boost%20in%20targetted%20economies.

https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk