Biden infrastructure plan would affect real estate

By: J. David Chapman/August 5, 2021

I am not sure how the Biden administration’s plan will actually play out once it gets through Congress, but one thing is for sure: It’s going to be big and it’s going to be one of his main priorities as president. Bigger may not be better for the U.S., and may not be better for all citizens, but it is likely very good for real estate investors.

The largest portion in Biden’s infrastructure bill is the $621 billion he wants to spend on improving roads, bridges, and various forms of public transit. Typically, better roads, bridges, and public transit give companies better access to customers, lead to new businesses, add new jobs, and drive demand for housing.

Another part of the Biden proposal provides an additional $213 billion for building, renovating, and retrofitting 2 million homes with upgrades paid by giant grant programs. The Neighborhood Homes Investment Act also would offer $20 billion in tax credits to developers and investors to build or renovate approximately 500,000 owner-occupied homes.

A little further removed from real estate, but still helpful, is the billions to be spent on parks, airports, railroads, pipelines, water security, electric grids, and internet infrastructure. Theoretically, all these things make quality of life better in America and will, by extension, make real estate more valuable to the public – again helping investors.

All these amenities are not just about attracting residential tenants and higher rents; this infrastructure spending is also huge for commercial real estate as well. Traditional infrastructure spending on utilities, transportation, and telecommunications is the most important factor when it comes to influencing commercial real estate and development decisions.

More investment in actual infrastructure for America should be welcomed by most real estate owners and investors. However, there are likely consequences to the spending that will cause discomfort for them as well. Rumors of the potential elimination of the 1031 exchange rules and carried interest tax treatment, along with a potential increase in capital gains, will certainly get the attention of investors. Investing in real estate is riskier than many other investment classes and investors have become used to getting certain tax advantages for that risk. With the tax advantage removed, they are less likely to take the risk, hurting commercial real estate prospects.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).