What is an H-1B Visa and How Does it Affect Silicon Valley Real Estate?

by Audrey Sun

Silicon Valley has always been known as the tech hub of the world, where many innovative and entrepreneurial tech CEOs begin their journey in some garage lacking heat but full of passion. More so than anywhere else, Silicon Valley is home to a lot of powerful tech CEOs and many of them are immigrants. Indian-born Sundar Pichai (CEO of Google), South African-born Elon Musk (CEO of SpaceX and Tesla), Taiwan-born Jerry Yang (Co-Founder and former CEO of Yahoo), and Soviet Union-born Sergey Brin (Co-Founder of Google) are some of this area’s most renowned immigrants. One of the reasons why Silicon Valley is so successful is because it welcomes these brilliant immigrants and gives them an opportunity to fulfill their very own American dream. Without the Immigration Act of 1990, which, in turn, created the H-1B program, the door would not have been opened to those with exceptional backgrounds and education to be able to work legally in America.

What is the H-1B Visa?

The H-1B visa category was signed in 1990 by George H. W. Bush and allows non-U.S. citizens who have technical expertise in specialized fields to work at U.S. companies. These occupational fields include architecture, engineering, science, medicine, education, and finance. The initial length of the visa is 3 years, however, it can be extended for a maximum of 6 years. During the applicant’s visa duration, they may also apply for a green card for permanent residency. The current allowable cap for H-1B Regular is 65,000 spots, while the H-1B Master allows an additional 20,000 spots for people with advanced degrees. This allowable cap also includes a set amount for Chilean nationals (1,400) and Singapore nationals (5,400) under the Free Trade Agreement.

The H-1B Visa is a Lottery-Based Process

According to USCIS (U.S. Citizenship and Immigrant Services), a component of the United States Department of Homeland Security, they received just under 200,000 petitions in the 2018 fiscal year. The selection process is solely based on luck, also known as a lottery. The applications are first sent into the mailroom and incomplete applications (such as those with incorrect addresses, missing signatures, or any other errors) are rejected. After that, 65,000 and 20,000 applicants are randomly selected for the H-1B Regular and H-1B Master visas, respectively. Once an application has been approved, the USCIS will send a notice to the employer that sponsored the applicant. If the application is denied, everything mailed in will be returned back to the employer, noting that the application was not selected.

In Silicon Valley, the war for talent is extremely competitive, forcing companies to rely on talent from overseas. Oftentimes, employers can fail to get an H-1B visa regardless of the worker’s skill level or need for that skill, even after multiple petitions. At that point, the employer’s only option is to look for all new employees or ask their skilled employees to continue to work from overseas until they can try again for an H-1B visa one year later.

Ethan Anderson, the founder and CEO of MyTime, Inc. which is a Silicon Valley appointment scheduling and point-of-sale startup, has applied for H-1B visas for many of his overseas software engineers and designers, but hasn’t had a single application reviewed by USCIS in the past three years because of unlucky lottery numbers. As a result, more than half of MyTime’s employees now work remotely from other countries and the money going towards their salaries (and the subsequent economic multipliers from those salaries) leaves the country instead of staying here in Silicon Valley.

How is the H-1B Visa Changing Under the Current Administration?

Our current administration is looking for ways to tighten immigration laws, and under President Trump’s new executive order, “Buy American and Hire American”, the number of immigrant workers allowed to work in the U.S. will be dramatically reduced. This new law will particularly affect Silicon Valley’s tech companies, since a large part of the employee population here consists of immigrants. With today’s advanced technology, people can communicate via video conferences, FaceTime or even virtual reality and augmented reality platforms. The need for people to be physically stationed in an office to work is becoming increasingly rare. In fact, more foreigners are starting to move back to their homeland to start their own businesses. Google, Apple, and other large enterprises have also opened many tech hubs in other countries, where salaries and other costs are lower. With our immigration laws tightening, Silicon Valley will likely lose many of our skilled workers, and Vancouver is becoming the next best place for immigrants to start their new journey.

USCIS has already drafted a proposal scheduled to take effect in January 2019, stating that “our country’s immigration policies should be designed and implemented to serve, first and foremost, the U.S. national interest. Visa programs for foreign workers… should be administered in a manner that protects the civil rights of American workers and current lawful residents, and that prioritizes the protection of American workers – our forgotten working people – and the jobs they hold.” With that being said, the real estate market in Silicon Valley will likely be affected by less foreign investments and a shrinking international buyer pool.

All of this comes at a time when recently increased California income tax rates, coupled with dramatic federal reductions in the deductibility of state and local taxes, have caused companies to consider moving jobs from California to low, or no-tax states, such as Washington, Nevada and Texas.

While there is still a strong demand for Silicon Valley homes by foreign buyers, we are likely to see a drop in demand from those foreign buyers that need an H-1B visa if the federal changes go through.  While this is certainly bad for the local real estate market, it pales in comparison to the possible impact associated with tech companies moving ever larger parts of their operations to Canada, India, China, Singapore and a number of other countries with emerging tech centers.

In an effort to increase demand for our listings, the DeLeon Team will help the buyer of any of our listings (purchased after 12/01/2018) resell the property at our cost if the buyer is going to lose money on the transaction because they are forced to leave the country for immigration reasons. Please contact Michael Repka for full details on this program.