After months of negotiations, on November 15, 2021, President Biden signed into law his $1.2 trillion infrastructure plan (officially known as the Infrastructure Investment and Jobs Act). According to the President, "when we invest in infrastructure, we’re really investing in opportunity." However, real estate investors want to know just one thing: how will this plan affect my opportunities in the real estate market?
The good news is that it could very well have a tremendous impact on your real estate investments. With billions going toward new and old buildings, public works, bridges, roads, and broadband access—just to name a few categories—these funds will only increase demand for real estate. In this brief guide, we'll explain how you can reap the benefits of this plan with a savvy real estate investment strategy.
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What’s in Biden’s Infrastructure Proposal?
The original package proposed was worth over $2 trillion, spread over eight years of infrastructure improvement. The back and forth between the major political parties has reduced the cost of the package to roughly $1.2 trillion, but it’s still one of the largest and boldest infrastructure investments in American history.
When we talk about infrastructure, we mean the aspects of building and civil engineering that are the backbone of the country: roads, bridges, utilities, public transit, and even educational settings. The basics of the proposed package include:
$115 billion for road and highway modernization
$20 billion for road safety, including repairs for at least 10,000 bridges
$85 billion for transit, including doubling the current federal funding that goes into public transit
$80 billion for the Amtrak repair backlog, and some modernization
$25 billion for airports
$17 billion for waterways
$174 billion investment in electric vehicles, including tax incentives to “buy American”
$400 billion for home care services
$300 billion injection into the manufacturing industry
$213 billion into housing, including investment in modern, energy-efficient homes plus 500,000 homes to be either fully renovated or built from scratch for low- to middle-income buyers
Other aspects of the package include research and development, water infrastructure, digital infrastructure, and schools.
How Infrastructure Spending Helps Investors
If you look at the list above, there’s some clear indication that the quality of life could increase for many Americans. That includes being able to travel to other areas more effectively, having access to more jobs, and benefiting from more opportunities in a range of industries.
And what do people need when they suddenly move to new areas? They need new homes. Areas that were previously “undesirable” may suddenly become popular. As education improves, so do the attitudes and opportunities within an area, naturally raising the cost of real estate. Improved utilities and transport links also boost real estate value.
Of course, investors don’t just look at what’s happening now, or even in the next six months. This package stretches over eight years, and savvy investors know that investing now could mean greater returns in the future. A neighborhood’s evolution is often directly linked to infrastructure spending. A new university, for example, could turn a quiet, unknown town into a bustling suburb with critical transport links to the nearest city.
Suddenly, it’s a premium destination for workers in a variety of industries, educational professionals, students, and researchers. The value of real estate naturally increases, not just for residential properties, but commercial interests too.
Opportunities for Real Estate Investors
Thanks to the broad focus of this $1.2 trillion infrastructure package, there are likely to be various opportunities for real estate investors. Commercial real estate should grow organically, while residential real estate may be more focused on specific areas where new homes are being retrofitted or renovated. Beyond this, the “green” aspects of the bill will see environmentally conscious real estate become the norm, as opposed to an outlier in the world of construction.
Commercial Real Estate
Commercial real estate, such as increased retail units, hotels, restaurants, and entertainment venues, is attractive to investors during any period of economic growth. Individual investors find these projects appealing as they can invest often with low risk, knowing that growth is likely.
With such a large amount of money proposed for infrastructure improvement, there should be plenty of major commercial projects taking place right across the United States. Investors can look to these “signal projects” as a signpost to indicate which communities they should be investing in. The more investment a particular area gets, the more appealing it becomes to developers and investors alike.
Residential Real Estate
Once areas become attractive to commercial developers and investors, they naturally become more desirable places to live. People want to live close to great stores and amenities and have plenty of entertainment options for themselves and their families, from bars to movie theaters. Revitalizing local communities and creating better opportunities through increased education and improved infrastructure naturally draws homebuyers to an area.
As well as supporting organic growth in residential real estate, Biden’s administration seeks to inject $20 billion into tax credits for developers and investors, via the Neighborhood Homes Investment Act (NHIA).
This investment aims to create half a million modern, livable, and affordable homes. Investing in affordable homes may seem, at first glance, less appealing than investing in luxury real estate options. However, it’s often a less risky option because of the increased likelihood of finding buyers quickly.
The more people move into an area, the better the local economy, and surrounding real estate can often naturally increase in value due to this.
Environmentally Conscious Real Estate
Clean energy investment is one of the key takeaways of the proposed infrastructure package. Dealing with the climate emergency is a top priority for the Biden administration. This means that environmentally conscious real estate could become the norm, with companies focused on renewable energy and sustainable construction initiatives highly mobilized to work with developers and investors.
Factors that real estate investors could benefit from include divesting from fossil fuels, energy-efficient appliances, and even home designs that include built-in LED lighting. Investing in these types of developments now could ensure high returns later down the line as these types of homes — and commercial real estate — become not only desirable but essential to modern living.
Conclusion
Now is a great time to consider real estate investments if you haven’t already done so. It’s clear that this plan will increase jobs, and add more money to the economy, and America’s communities will see improvements and developments over the next few years.
Of course, along with any cash injection from the government, there are always tax implications. Some developers and investors will receive tax credits, whereas others may lose some benefits they had previously.
Understanding the intricacies of the proposed package can help you identify the best ways to approach real estate investment in a post-pandemic world.
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*Disclaimer: EquityBrix is not an investment adviser. This information is for educational purposes only and does not constitute investment or tax advice. It’s important to be informed and to make your own investment decisions or do so in consultation with a professional financial advisor. Under no circumstances should this material be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any investment. Any such offer or solicitation will be made only by means of a written online prospectus relating to the particular investment.
FAQs
How will Biden’s $1 trillion infrastructure plan impact real estate?
Improved infrastructure naturally improves communities, driving real estate prices up and making them more lucrative opportunities for investors. Such a large infrastructure cash injection means many more opportunities for real estate investors and developers, both residential and commercial.
What are environmentally conscious real estate investments?
Environmentally conscious real estate investments involve pushing money into alternative energy and divesting from fossil fuels, exploring sustainable construction options, plus better energy efficiency in both appliances and architecture.
What is the Neighborhood Homes Investment Act?
The Neighborhood Homes Investment Act (NHIA) is part of the Build Back Better Act. It calls for a new federal tax credit for developers to retrofit, renovate, or build 500,000 homes in rural areas or communities previously considered distressed.
