What’s in Biden’s infrastructure proposal?
There are several aspects of Biden’s plan that could make American communities more appealing to live — and rent — in, and most of them aren’t even directly related to real estate.
Biden has called for $100 billion to build new public schools and an additional $25 billion to upgrade child care facilities in areas of the country that most desperately need it.
When looking for a place to raise their families, tenants often look at the number of quality schools a neighborhood has to offer. More good schools spread across the country should mean more areas families would be comfortable living in.
The $111 billion Biden wants to put toward fixing the country’s aging water infrastructure would go a long way toward making areas with outdated and dangerous lead pipes more livable. Just think about what new pipes would mean for a city like Flint, Michigan, which has had serious challenges when it comes to keeping rental properties tenanted.
The biggest-ticket item in Biden’s infrastructure bill is the $621 billion he wants to spend on improving roads, bridges and various forms of public transit.
Better roads and bridges would give companies better access to consumers. That could lead to new businesses — and new jobs — popping up in certain parts of the country, which may drive housing demand. New public transportation options often have the same effect.
Biden’s proposal would also provide $213 billion for building, renovating and retrofitting 2 million homes and housing units, with the upgrades being paid for with grant programs. The president is also pushing for the passage of the Neighborhood Homes Investment Act, which would offer $20 billion in tax credits to developers and investors to build or renovate approximately 500,000 owner-occupied homes.
Corey Burr of TTR Sotheby’s International Realty says Biden’s plan will benefit anyone wants to make money by investing in real estate “if the program actually targets worthwhile improvements to airports, roads, bridges, railroads, pipelines, water security, the electric grid and internet.
"All of these actual infrastructure investments will make the quality of life in America better and will, by extension, make real estate more valuable.”
How infrastructure spending helps investors
When they say real estate is all about “location, location, location," it’s not just a reference to the amenities a property is near today, but what it might be close to in the future — a new highway, a new rail yard, a new university campus. The evolution of a neighborhood, or of an entire small city, sometimes needs infrastructure spending to get the ball rolling.
And it’s not just a matter of new parks, schools or subway stations attracting residential tenants willing to pay higher rents. Infrastructure spending is huge for commercial real estate, too.
A joint study by the Urban Land Institute and EY found that traditional infrastructure spending on utilities, transportation and telecommunications is the most important factor when it comes to influencing commercial real estate and development decisions.
Any infrastructure spending-triggered increase in commercial real estate activity would also help residential investors. The same elevated economic activity that boosts commercial real estate demand should lead to job growth, which often prods both housing demand and rent values in the right direction.
“Investing in actual infrastructure for America should be welcomed by all real estate owners and investors,” Burr says.
The controversial aspects of Biden’s proposal
While there are plenty of reasons to get excited about what trillions in infrastructure spending could mean for real estate, there are a few aspects of Biden’s proposal that could lose the president support both among investors and in Congress.
The first is the elimination of the 1031 exchange, which allows investors to delay paying taxes on investment gains when they sell their investment properties if they reinvest their proceeds in a similar property. It’s a useful tool for investors, as it frees up capital for them to work with.
Getting rid of 1031’s has already raised the ire of investors, according to Teresa Tims of TDR Mortgage & Real Estate Group.
“That’s what they care about,” Tims says. “The new tax laws, the changes — nobody’s happy about them.”
Tims is referring not only to 1031 exchanges, but also to the second reason Biden’s proposal faces resistance: The president’s plan to pay for it.
Biden has suggested returning the top individual tax rate to 39.6%, increasing the corporate tax rate from 21% to 28% and almost doubling the capital gains tax rate from 20% to 39.6%. Those moves would eventually generate more than $1 trillion in revenue, but they are sure to be howlingly unpopular among the country’s wealthiest citizens.
They won’t be too appealing to Congress, either. Biden had enough trouble getting the COVID-19 aid bill approved. Getting both the House and Senate to sign off on another $2.3 trillion in infrastructure spending might require no less than a miracle.
Sensing a dicey road ahead, the president previously stated that he would be willing to accept $1.7 trillion in infrastructure funding. He then said he would consider signing an infrastructure bill worth $1 trillion.
Recently, Republicans in the Senate proposed a counteroffer of $928 billion — more than $70 billion shy of Biden’s minimum. There could be a long way to go before anyone, investors or otherwise, will be benefiting from this particular bill.
Build up your financial infrastructure
While Washington works out a solution for the country’s infrastructure, why not take some time to optimize your investing strategy.
Find new ways to approach real estate. If you want to take part in the country’s raging real estate market but aren’t in a position to buy any investment properties of your own, you can generate real returns by investing in a Real Estate Investment Trust. Getting a piece of dozens of high-end properties costs as little as $500.
Diversify your portfolio with leftover cash. For consistent long-term growth over the past several decades, it has been hard to beat the stock market. And with the help of an smartphone app you can invest “spare change” from everyday purchases.
Get back to the land. Meanwhile, some apps even allow accredited investors to invest in U.S. farmland, which over the last 30 years has performed even better than the stock market, according to industry research.
Don't forget to refi. If you’re an investor and you haven’t refinanced the mortgages on your properties, you could be leaving a ton of cash on the table. Now that mortgage rates are back under 3%, mortgage data and technology provider Black Knight says 14.1 million homeowners could save an average of $287 a month with a refi.
Fine art as an investment
Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.
That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.