American Jobs Plan Spells Opportunity for Real Estate
The COVID-19 pandemic has certainly created challenging economic conditions for New Jersey and Pennsylvania-area businesses. Unfortunately, the issues which occurred during the onset of the pandemic, including but not limited to high unemployment, limited access to working capital, and the need for modified business models, have yet to subside. The April 2021 jobs report missed expectations as an increase in unemployment to 6.1% was reported. Despite ongoing vaccinations and the rollback of COVID-19 guidelines, much work remains to revive the economy.
On March 31, 2021, President Biden released the American Jobs Plan (AJP), an ambitious $2T plan which not only addresses critical infrastructure needs but is designed to create new employment opportunities in several sectors. A vital part of the AJP is the modernization of schools, commercial buildings, affordable housing, and federal buildings. The focus on modernization will mean significant opportunities for real estate and construction companies over the next several years.
Key AJP Provisions
- Affordable Housing – The AJP calls for the construction, preservation, and retrofitting of more than one million affordable housing units that are accessible and energy-efficient. This will be achieved through a series of targeted tax credits, grants, and project-based rental assistance. It also includes affordable housing rental opportunities for the underserved, including rural and tribal areas.
- Housing for Low-Income Buyers – The AJP also calls for the construction and rehabilitation of more than 500,000 homes for low and middle-income purchasers. The mechanism proposed to fund and encourage development is the Neighborhood Homes Investment Act (NHIA). Through the NHIA, there would be over $20B worth of tax credits available over the next five years to incentivize real estate and construction companies to invest in rehabilitation activities.
- Exclusionary Zoning Rules – Many zoning rules which require minimum lot sizes, mandatory parking requirements, and bans on the development of multi-family housing have inflated construction costs and limited purchasing opportunities. The AJP includes a provision that would create a new competitive grant program that provides flexible funding to local government agencies that remove these barriers.
- Public School Modernization – The AJP also addresses the crumbling public school infrastructure in particular low and middle-income areas. There will be an investment of $100B, divided between $50B in direct grants and $50B leveraged through bonds to facilitate modernization. It is expected schools will be improved through new indoor air quality mechanisms, better ventilation, and energy-efficient technology. Finally, funds will also be provided to enhance the quality of kitchens to ensure they can be better used to serve student needs.
- Upgrade Community College Infrastructure – There is also a provision that calls for upgrading community college infrastructure to ensure the health and safety of students, staff, and the community is protected. The AJP allocates $12B to fund such changes and will leave it to each state responsible for using funds in alignment with program objectives.
There will an interesting interplay in the coming months to see how the current administration handles the rules under section 1031 (like-kind exchanges) and whether there will be an extension of the opportunity zone credit. The administration has mentioned that potential changes could be coming to the section 1031 rules to raise revenue to pay for some tax incentives. This may cause investors not to take an interest in some of the projects that the AJP is aiming to complete.
The AJP is undoubtedly an ambitious effort to address the nation’s infrastructure needs. It also presents several new portfolio opportunities for residential and commercial real estate companies, investors, and property management companies. While certain components of the AJP will most likely change as it undergoes Congressional negotiation, it provides insight into how the government intends to invest in the coming years. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Klatzkin can help. For more information, click here to contact us. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.