Trump’s infrastructure plan: How will it affect the real estate industry?February 16, 2018 4:25 pm
Our country’s infrastructure is aging, creating numerous hazards, ranging from pot holes on our roads to unstable bridges. To address this issue, the Trump Administration released their new infrastructure plan earlier this week. This plan is of interest to those in the real estate industry, as they understand that the condition of a community’s infrastructure, i.e. roads, bridges, powerlines, greatly impacts property value and desirability of an area.
The Trump Administration’s new $200-billion plan aims to stimulate cooperation between local, state and private sectors, generating an estimated $1.3 trillion to fund the infrastructure upgrades.
The plan has been both welcomed and opposed, and some real estate groups have started taking stances. For those opposed to the plan, one concern is the rise in local taxes that would be necessary if local governments can’t raise enough private investment for the infrastructure changes. Such taxes normally appear as bonds, special assessments or Mello-Roos in new construction developments. Typically, neighborhoods with increasing taxes become less desirable to many buyers, causing a drop in home sale prices. Another concern is that rural areas would be negatively affected. Although $50-billion would be set aside for rural infrastructure, significant cooperation would be need from outside stake holders for it to be successful. Historically it’s been difficult to procure private investments in sparsely populated areas because the return of investment in rural areas tends to be less than in highly populated areas. This would force local governments to take on more of the costs, inherently raising taxes, or not upgrading the infrastructure at all. These effects in turn will lead to further migration to urban areas and lowering home values in rural areas.
Those that support the plan believe it will spark new home and existing home sales by making many areas more desirable and easily accessed. It could help alleviate the housing crunch in highly populated areas. Also, new construction means jobs. Although proponents of the infrastructure plan don’t deny the increase of local taxes, they argue the benefits would outweigh the cost. They believe a decrease in sale prices due to increased taxes would be temporary, as the easy access and infrastructure upgrades would eventually lure new buyers and industry to these areas, causing both a price and demand increase. Advocates feel that new construction would create new demand for housing in rural areas, which would in turn make those communities more attractive for private investors.
Clearly, there is much to consider in this plan. Unfortunately, as our infrastructure continues to age, something must be done, and our leaders must work together for solutions.