Advantages of U.S. real estate near international borders

I have spent a lot of time thinking about, researching, and writing about leaving the U.S. to escape various intolerable situations like hyperinflation and a bunch of related laws that make it impossible to get food or other necessities. In the course of my research, I came across a number of references to border areas in past hyperinflations around the world. Interesting.

Three long U.S. borders

America has three long land borders—Alaska-Canada, continental U.S.-Canada, and Mexico-U.S.—and a water border between the U.S. and British Virgin Islands.

If the conditions and laws are about the same on each side of the border, it has no significance. That was more or less the case since 1812 on the Canadian border. I am not sure the Mexico border was ever normal. The Alaska border with Canada appears to be virtually all remote, relatively unpopulated areas—although I do not mean to suggest that there are not some advantages and disadvantages even in those areas.

Our borders with Canada and Mexico are, in part, bodies of water, e.g., Great Lakes, Rio Grande River. And there is about two miles of water between the U.S. and British Virgin Islands.

Low cost to cross border

What is the basic reason why the nearness of an international border has any significance? Absent artificial impediments, you can cross the border or send things across the border very quickly and at very little cost. And crossing the border, when it changes your conditions and/or the laws to which you are subject, can be a great benefit or disadvantage.

Two flags opportunity

The basic advantage is with such proximity, and in the absence laws that prohibit it, you can choose which country you want to use for various purposes thereby always getting the most advantageous of the two. In some cases, things that you need, like food or fuel or a stable currency may not be even available at any cost in the U.S., thereby making access to Canada or another country literally a business or life saver.

At present, Americans are very aware that living near the Mexican border can subject you and your property to the disadvantages of illegal immigration, drug, and gun trade.

Canada

Canada, I once wrote, had higher real estate values for homes almost across the street from almost identical U.S. homes. Why? Canada allowed wealthy foreigners to make investments which enabled them to become citizens in a shorter period of time than U.S. law allowed. One of my college classmates took advantage of that renouncing his U.S. citizenship and becoming a Canadian citizen on a fast track via a substantial investment in Canada. Many wealthy Chinese had immigrated to Western Canada—so many that it raised home values on the Canadian side of the border.

Sound of Music

Borders have, on occasions had far more significance, e.g., the fictional crossing by the real von Trapp family from Nazi Austria to neutral Switzerland in The Sound of Music. (The actual family essentially defected to America while touring and performing in the U.S.)

Checkpoint Charlie

In August, 1967, I went across the border at Checkpoint Charlie in Berlin. By wearing my U.S. Army uniform, I could go anywhere in Germany as a member of one of the occupying nations’ armies. Now that was an interesting border area!

The Underground Railroad in the pre-emancipation period was about escaped slaves crossing borders, namely the Mason-Dixon Line and the Canadian border. The North would extradite the slaves back to the South, but Canada would not. During the Vietnam War, 30,000 to 40,000 American draft dodgers and military deserters fled to Canada.

Price controls in one country

Price controls in one country but not the other create dramatic opportunities for near-border residents. For example, imported beef was not subject to Nixon's early 1970s wage and price controls. So American farmers near the Canadian border would ship their own cattle to Canada then import them back so they could sell them at market prices.

Francs in a safe deposit box

In deflation, cash in a safe deposit box is the best investment. Switzerland is now experiencing deflation and also did in 2009 and 2011. Its currency is so sought after that Swiss banks now charge depositors negative interest. Furthermore, it is very difficult, if not impossible, for Americans to have Swiss bank accounts today.

You do not want to own foreign currency in a U.S. safe deposit box because probable future hyperinflation would almost certainly result in U.S. capital controls, a typical provision of which is all foreign currency owned by U.S. residents would have to be sold to the U.S. government at a below market rate.

Foreign currency in the form of currency need not be reported to the U.S. government the way foreign financial accounts must. So owning Swiss francs in a Canadian safe deposit box would make a lot of sense. If you lived in the U.S. within walking distance of a bank in Canada, you would have no “transaction costs” to visit your Canadian box to put things in or to remove them.

US airports preferred over Canadian

The Wall Street Journal recently wrote that extraordinarily high fees at Canadian airports are causing large numbers of US/Canada border crossers to drive or take mass transit to cross the border and fly into or out of U.S. airports, many of them quite small, on the U.S. side of the border.

Americans often cross the Canadian and Mexican borders to buy cheap prescription medicines—a differential caused by the Canadian health plan's monopoly and the free market and low overhead in Mexico.

Wage and price controls in one country but not the other would cause the market to seek the free country. Wage and price controls are a typical accompaniment to hyperinflation. They create an illegal black market in the controlled country and a greater demand for the free-market shopping and selling opportunities on the other side of the border.

Whenever there is a great advantage to one side of the border or the other, you should not be surprised to see the country that is losing money and/or population outlaw money or people leaving the country (accomplished with capital controls and exit visas).

Federal wage and price controls in the U.S., but not Canada, would make Americans want to spend their money in Canada, trade U.S. dollars for Canadian dollars, and move to Canada. That’s because price controls do not hold prices down. Rather, they make the supply of whatever has its price controlled go to zero. “Yes, it’s really cheap when we have it because of government price controls, but guess what, we’re totally out. Matter of fact, I predict we will always be out, until the price controls are ended. Have a nice day.”

The U.S. government would want to encourage exports to Canada, Canadian tourists coming to the U.S., and to discourage imports from Canada. The Canadian government would have incentive to slap tariffs on goods imported from the U.S., prevent U.S. residents who were unemployed/poor from setting foot in Canada, and to encourage money from the U.S. coming into Canada either to buy Canadian dollars or to buy Canadian goods and services. Canadian residents would want to import cheap stuff from the U.S., visit the U.S. to enjoy bargain vacations, and to sell stuff to what American refugees from price controls would come to avail themselves in Canada’s free market.

Left alone, the residents of each country would do what they wanted, but the governments would probably both outlaw, to one extent or another, such freedom to protect political interests like Canadian jobs or trying to stop a run on the U.S. dollar.

Googling real estate near Canadian border, I found an ad for housing alleging it was great for border patrol personnel—in an unpopulated U.S. area where about the only industry was patrolling the border. That would be a perennial advantage of that location.

There is a real estate brokerage in Ontario called Borderland Realty.

Have to report construction near the border

Here are some obscure facts about the U.S. Canadian border: Residents of each nation who own property on the border are required to report construction of any physical border crossing on their land to their government. In remote areas where staffed border crossings are not available, there are hidden sensors on roads and also in wooded areas near crossing points and on many trails and railways. The number of U.S and Canadian border personnel is classified, which I surmise means they are embarrassed about how few they are.

When there are differences in economic rules on each side of a border, smuggling arises to illegally move goods into the more restricted country. In hyperinflated Austria in the early 1920s, buying from smugglers was illegal, but not buying from them would cause you to starve or freeze to death. So in a situation where you must buy from smugglers to survive, near-border areas offer easier and cheaper smuggler service than more-distant-from-the-border areas.

Even in normal times, there are smuggling business opportunities for highly-taxed products like cigarettes or illegal ones like recreational drugs, guns, and illegal immigrants. I am not advocating that. Just noting that it is a source of problems for such areas, e.g., the U.S.-Mexico border in recent decades.

When one country initiates the hyperinflation cocktail of price controls, capital controls, and rationing, almost everything becomes a smuggling opportunity.

Some buildings actually straddle the U.S.-Canada border.

Exclaves

An exclave is a portion of Canada that can only be reached on land by going through the U.S. and vice versa. The Canadian exclaves are Akwesasne (just south of Ile Saint-Regis) and Campobello Island. The island is part of Charlotte County, New Brunswick, but is actually physically connected by the Franklin Delano Roosevelt Bridge with Lubec, Maine—the easternmost tip of the continental United States.

And there are a number of U.S. exclaves. Alaska, actually, is a very big one. You can only get there on land by going through Canada. The other inhabited ones are Point Roberts, Washington and Northwest Angle, Minnesota. Use Google satellite to see them.

Point Roberts, WA

Point Roberts, within sight of Vancouver, Canada, 20 miles away, often attracts Canadians seeking cheaper gasoline and groceries (because of avoiding Canada's 12% sales tax). The gas is no bargain by U.S. standards. On 6/14/12, a gallon of Shell regular was $4.65.

Canada, on the other hand, has a drinking age of 19 verses 21 in the U.S. Also, many Canadians have post office boxes at the Point Roberts U.S. Post Office and five private mail box companies there to avoid delays and customs fees on packages mailed across the border as well as to receive packages from retailers who refuse to ship to Canada.

Crime is extremely low in Point Roberts because criminals have to pass through customs/immigration—twice, if they are coming from the U.S. And Canada does not allow felons into Canada so career criminals would have to use a boat or plane to get to Point Roberts. Legend says about 50 persons in the U.S. witness protection program live in Point Roberts. Residents call it the “best gated community in America.”

Point Roberts has the best weather in the Seattle-Vancouver, Canada area. But there are many inconveniences caused by its exclave nature and small population (1,314—4,500 in summer): no medical or dental personnel or services, none of many types of stores (they have a bank, country club, restaurants, shipping, groceries, bed and breakfast, and gas), no school after third grade, no vehicle mechanics. Point Roberts Realty offers homes from $79,500 to $699,000. Photos of the beach suggest you might be able to heat a home on Point Roberts solely with free driftwood from the beach. Coldest average low temperature is 30ºF in January.

If you travel to and from Point Roberts by boat, you would not have to go through customs/immigration. The nearest U.S. land to Point Roberts is about ten miles away. There is an airstrip and marina in Point Roberts.

Northwest Angle, MN has unstaffed border crossings where you are supposed to phone border officers to make any necessary declarations. This spot was made famous by Tim O’Brien's book In the Lake of the Woods.

The Point Roberts web site says, “Many of our full-time residents are consultants, inventors, scientists, writers, artists and virtual business owners who enjoy the natural beauty, peace and relaxed pace in between global travels.”

Point Roberts is interesting because extreme cases facilitate teaching. But really, all you need is proximity to get the opportunity to choose the best of the two worlds. Better both sides of the border in your location are major metro areas where the maximum number of goods and services governed by each countries laws and conditions are available.

Detroit and Windsor

The closest approximation of that is probably the Ambassador Bridge which connects Detroit and Windsor, Ontario. Canada is America’s number one nation trading partner. 25% of US-Canada merchandise trade goes across the Ambassador Bridge. Did you know that Detroit is switching from cars to casinos? Really. I am paraphrasing the mayor of Detroit when I say that. There is a huge population on the Canadian side and they patronize the Detroit casinos including Caesars and MGM Grand.

Detroit and Windsor are the main beneficiaries of a special NAFTA status that lets certain college- or university-educated professionals from each country work in the other country by way of a TN visa. (http://en.wikipedia.org/wiki/TN_Visa) TN visas work at any Canada or Mexico border crossing. Internet says pedestrians are not allowed on the Ambassador Bridge, but they do have a cheap Transit Windsor bus that goes through a tunnel that connects the two cities. North of Detroit-Windsor is a pair of smaller cities Port Huron and Sarnia with another bridge. I have not been to either town but Wikipedia seems to indicate that Port Huron is lower middle class and Sarnia has more than twice the median family income as Port Huron and that median income is well above the U.S. national median.

The median home price in Sarnia is $175,000; Port Huron, $96,500.

The more goods and services there are near the location in question on both sides of the border, the better for those who live in the U.S. near the border. Notwithstanding the lousy reputation of Detroit, the Ambassador Bridge area would appear to be the best location for benefitting from advantages that may arise from proximity to Canada.

Virgin Islands

The U.S. Virgin islands are a non-self-governing territory. They import their food and fuel and create their fresh water from the ocean using imported fuel. In the event of U.S. dollar hyperinflation, that might mean no food, water, or fuel because the economy is mostly American tourism and that would suffer or near end in hyperinflation.

Would their nearness to the British Virgin Islands save them? However British their government, the British Virgin Islands also depend on U.S. tourism economically. But they do get more than half of their GDP from finance. The British Virgin Islands are a tax haven. The official currency of the British Virgin Islands is the U.S. dollar, but one expects they could and would switch to the British pound overnight if the U.S. dollar became hyperinflated.

If the U.S. merchants can sell things that Canadians need for less than their Canadian competitors—as above in the groceries and gasoline in Point Roberts—you will prosper from proximity to the border. Or conversely, if things you need, like groceries, fuel, building supplies, appliances, are available across the border for less, you will be better off financially than your fellow Americans who live farther from the border.

In an extreme financial crisis in the U.S., you might work in Canada on TN visas thereby avoiding much of the suffering of U.S. residents who also work in the U.S.

During hyperinflation in Austria, Germany, and Hungary in the early 1920s, people in those countries were literally starving and/or freezing to death, yet all was just fine right across the border. The problem was lack of a stable currency in the hyperinflated countries. Just across the river or other border, they had a stable currency and, therefore, a normal economy.

In the absence of Berlin Wall style barriers and guards, you and yours could avail yourselves of the nearby normal currency and economy to get the things you need or even to escape from the U.S. if the U.S. government decides to repeat the mistakes of Germany in the early 1920s. It would be easy for you to establish bank accounts and safe deposit boxes on both sides of the border in both currencies and thereby not lose everything because of hyperinflation in the U.S.

Should you buy or rent real estate near the Canadian border now as a precaution? Americans can go anywhere in America without permission. So if a need arose to be there in the future, you should be able to go there then.

Prices probably would be higher then. So that could be a reason to buy there now. Also, the U.S. or local governments might institute local or regional prohibitions against newcomers. That would be unconstitutional, but there have been plenty of instances of U.S. governments of various levels ignoring the Constitution because of “emergencies.”

The Constitution contains no wartime or emergency powers other than the right of the president to suspend habeas corpus (the ability to get out of jail before trial by posting reasonable bail) in the event of “rebellion or invasion.” Note that inflation is not on that list. Lincoln suspended habeas corpus during the Civil War. People point to that as evidence that even the best presidents were sleazy law breakers. Nope. Lincoln had a rebellion so his suspending habeas corpus was absolutely constitutional and legal.

The bottom line on being in the U.S. near the Canadian or Mexican border is that it can be extremely advantageous in the event of anything happening in the U.S. that made conditions and/or laws in Canada or Mexico much more favorable than in the U.S. But the advantage of that proximity can be nullified if either Canada or Mexico or the U.S. or each pass laws that eliminate the advantages. Buying in such areas in advance of trouble in the U.S. might turn out to be profitable absent laws taking the advantages away.

Persons who already owned property there would probably be exempt from any future local bans against outsiders.

Here is an email from a reader:

Hi Jack,

I just read your article about living near the border. I don't live anywhere near the border, but I've been working on a project for a client in their various Canadian plants near Toronto and have had numerous border crossings over the last few months.

Just to give you an idea of the difference in price between flying into Canada vs flying into the US, I decided to fly to Philly for my mother's 75th birthday last month. A nonstop flight from Buffalo to Philly was about $400. A nonstop from Toronto was $1000. I was working at their plant East of Toronto. It's about an hour drive to YYZ and about 2.5 hours to BUF. Guess where I flew? I've priced other tickets that weren't quite as extreme (maybe $200 difference) but as you probably remember from that WSJ article, Canadian airports are paid for by the taxes on plane tickets.

On the occasions where I had to drive from Michigan to Ontario (Sunday will be another time) I always took the Port Huron/Sarnia bridge, at the suggestion of the locals. When I'm in MI, I work North of Detroit, about halfway between Port Huron and the Windsor bridge, but the traffic, I'm told, is a LOT less. Which I can believe, because other than the signs for an outlet mall, I didn't really see anything other than trees and fields up at Port Huron. It's a pretty spectacular view going over the bridge, too.

I've crossed the border about a dozen times on this project. Typically the wait at Port Huron or the Peace Bridge near Buffalo was only a few minutes. But the last time I drove into Buffalo it was over an hour. Apparently there are a LOT of Bills fans living in Ontario.

Talking with some of my Canadian colleagues, quite a few own, or plan to own, vacation homes in Florida and other warm spots in the US. And, when I was discussing the election with one of the plant managers, she said something like "The US presidential election has a much bigger impact on us than the Canadian government elections."

Have a great weekend,
Seth

I spent a morning so fascinated by the Canada-U.S. border that I made a list of the 15 spots where there is a border crossing between towns on each side of the border. They are from west to east listing teh Candian town first:

Tswassen-Point Roberts, WA

Huntingdon-Sumas, WA

Douglas-Blaine, WA

Osoyoos-Oroville/Boundary Point, WA

North Portal-Portal, ND

Rainy River-Baudette, MN-Sault St. Marie-Sault St. Marie, MI

Sarnia-Point Huron, MI

Windsor-Detroit, MI

Fort Erie (near Toronto, Canada’s largest city)-Buffalo, NY

Tonawanda-Grand Island, NY

Niagara Falls-Niagara Falls, NY (tourist traps; Rainbow Bridge has pedestrian walkway)

Prescott-Ogdensburg, NY

Rock Island-Derby Line, VT

Some of these are more expensive than others. But if you do not need all the big-city advantages, each and every one of them would probably allow you to get stuff like food, fuel, and shipping services. On the German-French border during the early 1920s, they cracked down on people carrying goods across the border so the french started carrying them in their stomach. I’m not talking about swallowing condoms full of cocaine. Rather, it just meant they would go over to Germany to pig out eating food and drinking booze then walk back across the bridge to France. Going over in a car with an empty gas tank and coming back with a full one might work the same way.

John T. Reed