On Nov. 15, President Biden signed a $1.2 trillion infrastructure package—The Infrastructure Investment and Jobs Act—that provides historic funding levels to improve public works, including roads, bridges, highways, internet access and the power grid, as well as to mitigate the effects of climate change. (The bill does not include funding for social policy, which is covered under separate legislation known as Build Back Better.)
This is one in our series of industry-focused outlooks analyzing the impact of the infrastructure legislation.
What the $1.2 trillion Infrastructure Investment and Jobs Act means for real estate
The largest benefit for real estate will be in the second-order impacts. Improvements in transportation, telecommunications and utilities will increase property values across asset types and make communities more desirable. Hundreds of billions of dollars are being allocated to the improvement of roads, bridges and ports. This will make the supply chain quicker and more effective, driving up e-commerce traffic and the need for industrial real estate. Sixty-five billion dollars is dedicated to improving and expanding broadband internet access, which will substantially increase the number of internet users and provide even greater demand for data centers. Once the power grid also improves, data center developers will have more flexibility on where new projects can be situated.
Source: White House press release
In the short term
The short-term impact of the legislation on real estate will likely be muted. It will take a long time for the funds to be allocated, and for projects to be selected and planned. Then it will take time for these transformational projects to be completed. Once improvements are made, immediate benefits should be seen by both commercial and residential real estate tenants through improved water quality, better access to broadband internet and transportation, and improved roads. Housing will be upgraded, particularly in rural, underserved and low-income areas. When new public transportation stations are identified, developers will likely be quick to start planning projects in those areas. Transit-oriented developments often bring high value returns.
The big picture
In the long term, the infrastructure bill will drive GDP growth and job creation, with both boosting demand for real estate. Additionally, existing communities will improve and new communities will be created with the investment in roads, bridges and public transportation. Real estate companies will have more opportunities for value-add and redevelopment of properties to coincide with the areas that get funding from the bill. Spending toward resiliency against climate change will also preserve properties that may otherwise be destroyed in areas susceptible to hurricanes, wildfires and floods.
Questions that frame the path forward
- How will projects be selected and prioritized?
- How transparent and publicly known will infrastructure investments be?
- Will funds be evenly spread geographically?
- Are the funds enough to sufficiently improve the crumbling infrastructure across the country?