Five Ways the Proposed Infrastructure Plan Could Impact CRE
President Biden’s proposed American Jobs Plan, a $2 trillion government spending plan to invest in roads, public transit, electrical grids, broadband access, water systems, schools, public housing, social justice programs and more, is anticipated to have a deep impact on cities and regions throughout the country if passed. The Biden Administration plans to pay for the programs by raising the corporate tax rate from 21% to 28% and individual taxes on households with an income of $400,000 or more. Other potential tax increases discussed by President Biden during his campaign, although not mentioned in this plan, include raising capital gains taxes on real estate and stock market investments and possibly eliminating the 1031 exchange for investment properties.
If the infrastructure plans and tax changes are passed by Congress, they are likely to influence commercial property owners and investors’ decisions about where to invest and the types of projects that will be viable.
Key elements of the American Jobs Plan for CRE include:
Infrastructure improvements including roads, water systems and schools. Approximately $621 billion of the proposed spending is earmarked for a variety of projects such as fixing aging bridges and roads, and replacing or upgrading water systems in both rural and urban locations. Funding for the redevelopment of industrial sites in disadvantaged areas is also part of the plan and could include a variety of commercial and residential properties. The plan calls for $100 billion to build new public schools and to upgrade school facilities including adding ventilation systems. In combination, these improvements are likely to increase the appeal of cities and their performance by reducing congestion. School construction can spur housing development and attract renters with families.
Public transit and airport enhancements. Part of the $621 billion that may be spent on infrastructure improvements is directed to provide better bus, rail and rapid transit access to residents in cities and inner suburbs. Investors looking for locations to create transit-oriented developments may find new opportunities in the plan. An additional $50 billion is allocated for increasing resilience to natural disasters by investing in urban infrastructure such as roads, rail systems and hospitals, all of which will create new jobs and potentially revitalize neighborhoods.
Broadband access, clean energy initiatives and electrical grid upgrades. The plan includes $100 million to invest in bringing broadband to rural locations and increasing the affordability of broadband throughout the country. Improvements to broadband access and to the electrical grid may create opportunities for investing in multifamily housing and other commercial real estate in new locations. The proposal includes $27 billion for a clean energy and sustainability accelerator program that is meant to spur private investment in clean energy and clean transportation in disadvantaged communities as well as to retrofit commercial and residential buildings with energy efficient improvements, which could financially benefit property owners.
Public housing and affordable housing investments. The plan includes $213 billion to assist renters in low and moderate-income households by building, preserving and remodeling rental housing. The program includes a mix of tax credits and grants for public-private partnerships. The plan also includes $40 billion for improvements in public housing to mitigate safety hazards and increase energy efficiency to reduce operating costs. In addition, the plan includes incentives to local jurisdictions to remove zoning restrictions that have slowed development. All of these plans offer potential opportunities for multifamily developers.
Spending on social programs. A variety of proposals are in the plan that would have a less direct but possibly significant impact on real estate. For example, a $100 billion allocation for workforce development, including $48 billion for job training and $40 billion to retain workers in fields such as clean energy, could change the job market in some communities and therefore possibly increase the need for rental housing. A proposal for $400 billion to expand home care services for seniors and disabled individuals could reduce demand for assisted living facilities. However, those funds are also meant to be used to increase wages for home health care workers, which could in turn increase their spending power for rental housing or allow them to form new households.
It remains to be seen whether Congress will pass this massive spending bill – or parts of it - after recently passing the American Rescue Plan, but as it moves through Congress, real estate investors should stay apprised of how new infrastructure policies that could impact their business plans.