The 10-year, $2.65 trillion plan goes far beyond “roads and bridges” and would impact many industries, including commercial real estate.
In March, the Biden Administration unveiled its proposal to increase federal investment in the nation’s infrastructure. The plan amounted to a 10-year cost of nearly $2.65 trillion, according to estimates by the Committee for a Responsible Federal Budget. The proposal sought not only to fund infrastructure, but more importantly, to transform the U.S. economy in the aftermath of the COVID-19 pandemic and achieve broader policy goals envisioned by President Biden.
The economic dislocation caused by the pandemic focused attention on issues of income inequality, the vulnerability of supply chains for drugs and other goods, the lack of internet access for many, and other issues that have long been policy priorities for the Democratic Party. Coupled with initiatives designed to combat climate change, the urgency to address issues highlighted by the pandemic provided a rationale for the Biden team to go beyond the traditional “roads and bridges” definition of infrastructure and push for a more expansive program.
The resulting proposal, named the American Jobs Plan, includes numerous policy initiatives which, if enacted, would have far-reaching implications for the nation’s industries. For commercial and residential real estate, three areas in particular illustrate its potential impact. These include policies aimed at promoting domestic manufacturing and addressing supply-chain issues raised by the pandemic, infrastructure investments to increase energy efficiency in structures, and funding for infrastructure needed to transition to a carbon-neutral, “clean energy” economy.
Increasing American manufacturing and measures to promote the resiliency of supply chains will impact the commercial real estate industrial sector, affecting warehouse production and distribution. The Biden plan proposes $300 billion to strengthen manufacturing supply chains for critical goods, including allocating $50 billion to create a new office at the Department of Commerce dedicated to monitoring domestic industrial capacity, and funding investments to support critical goods. The plan would provide $50 billion to invest in semiconductor manufacturing and research. Biden is also calling for Congress to invest $52 billion in domestic manufacturers, including specific supports for modernizing supply chains, such as in the automobile sector.
Reducing energy usage in the building sector is another goal included in Biden’s infrastructure plan, in keeping with the broader aim of reducing carbon emissions and addressing the effects of climate change. The Biden administration proposes to produce and retrofit two million homes and commercial buildings, with a particular emphasis on building affordable housing. It proposes extending and expanding home and commercial efficiency tax credits and provides $27 billion for a “Clean Energy and Sustainability Accelerator” with the aim of increasing private investment in retrofits of residential, commercial and municipal buildings, among others.
While not initially included in the original proposal, bipartisan legislation introduced in Congress and backed by NAIOP would establish a 10-year accelerated depreciation period for energy-efficient qualified improvements to commercial buildings — a proposal that could be incorporated into an infrastructure bill as it advances through Congress.
Finally, consistent with the goal of transforming to a carbon-neutral, “clean-energy” economy, Biden’s infrastructure plan would provide $174 billion to invest in the expanded use of electric vehicles (EVs). This would include consumer rebates for purchasing EVs, funding to build 500,000 new charging stations, as well as replacing and electrifying the federal vehicle fleet. Coupled with an additional $400 billion in clean energy tax credits to hasten the economy’s transition, the strong push toward EVs will inevitably be felt in the commercial real estate industry, with the provision of electric vehicle charging stations possibly becoming a tenant demand of office developers.
States and localities could find their regulations governing commercial vehicle traffic to warehouses or industrial properties outmoded. For example, California air-quality regulations mandating reductions in the hours of operation for commercial trucks would be unnecessary as more of these are replaced by electric vehicles.
Of course, many of the Biden proposals in the American Jobs Plan will face resistance, particularly in the Senate, and it will be a challenge for Biden and congressional Democrats to navigate the plan through Congress if they refuse to concede enough ground to win over Republican support. House Speaker Nancy Pelosi (D-CA) has set July 4th as the target date for passage of a bill by the House of Representatives, with the hopes that the Senate could then pass a bill by the August congressional recess.
More likely, some version of an infrastructure bill will be sent to President Biden’s desk in September. In all likelihood, that legislation will contribute to shaping the post-pandemic commercial real estate market for years to come.