And we’ve all felt its impact: the stress of dealing with highway traffic and airport delays, financial hardship as manufacturing and construction jobs dry up over the last few decades.
President Donald Trump made rebuilding our infrastructure systems a cornerstone of his America-first campaign. Now, as he begins to outline his bold vision, the question remains: How could the first significant infrastructure investment program in roughly 50 years impact the way we work and live?
The numbers spell out T-R-O-U-B-L-E
American infrastructure comes with a warning label: Immediate Capital Needed! America’s infrastructure recently fell to #11 in economic competitiveness worldwide, a major decline from the top spot it held in 2005.1 The picture of our nation’s crumbling core infrastructure isn’t pretty.
The campaign promise
In 2016, then-candidate Trump spoke at steel plants and on airplane hangars about a time when American-made materials were used by American workers to build an infrastructure system that was the envy of the world.
Trump’s message resonated in its simplicity: we need massive investment to rebuild America’s infrastructure, from highways and bridges to airport makeovers. Like most political pledges, it was large in promise, but short on details.
However, as campaigning turns to governing, experts and the public are ready to comb through the fine print. The plan’s core pillars, along with some details on costs and logistics, are starting to become part of public discourse.
In June, President Trump unveiled an outline of his $1 billion infrastructure initiative with the following main goals.2
• Lowering the average permit time from 10 years to two years
• Unleashing private sector capital and expertise to rebuild cities and states
• Investing in rural infrastructure
• Reimagining America’s approach to infrastructure with transformative projects
• Focusing on workforce training initiatives built around skill-based apprenticeship education
The administration seeks to achieve these goals by reshaping how infrastructure projects are funded, developed, and maintained. It wants to devolve some of the federal government’s oversight to private enterprises through public-private partnerships (P3s). It hopes to establish “better procurement methods, market discipline, and a long-term focus on maintaining assets.”3
The federal government would make $200 billion in targeted investments that potentially pack the most economic punch, relying in part on corporate tax reform to help fund the expenditure.4 Offering U.S. corporations a special tax rate could help increase tax revenues from the $2.4 trillion in corporate profits currently sitting offshore.5 Meanwhile, the plan would rely on private companies to inject roughly $800 billion by making it worth their while.4 Private sector sweeteners may include giving companies the right to collect tolls and other fees, offering the possibility of a revenue stream to support investment.
The Trump administration also wants to give localities and states a prominent role, as they have an intimate understanding of their unique infrastructure needs. It believes their independence would increase efficiency and perhaps cut the red tape that lengthens the permitting process.
The potential impact on real estate
A renewed focus on infrastructure could have a pronounced effect on America’s economy. Increased construction projects may improve employment rates, especially for those middle-aged construction workers hit hard by the Great Recession.6 Projections flying around include a possible $750 billion boost to gross domestic product (GDP) and 500,000 new jobs.7
Our lifestyles may also be affected. Millennials and families could choose living spaces further away from where they work if improved infrastructure reduces traffic congestion and streamlines travel. Some of this will come from rebuilding, but also reinventing 21st-century travel, including state-of-the-art airports and the next generation of cars.
People will also keep a keen eye on which housing and job markets receive the most capital, especially if they are concerned about travel, water quality, and broadband. Markets with aging infrastructure, particularly rural areas and impoverished cities that aren’t helped by these initiatives, may become even less desirable.8
Real estate investors will also be focused on where infrastructure projects take place and how people react to them. A survey by the Urban Land Institute and Ernst & Young shows that infrastructure systems are the most important factor influencing real estate investment and development decisions around the world.9
The road ahead
Before infrastructure takes center stage, the administration must pass tax reform. Upon its completion, the infrastructure plan seems to be next in line. However, in general, a massive investment in rebuilding America’s infrastructure will have potentially positive impacts on both the economy and real estate markets.