Housing industry digs Biden’s American Jobs plan
President Joseph Biden’s announcement that he would unveil a $2 trillion infrastructure plan to Congress, dubbed the American Jobs Plan, was met mostly with praise within the housing industry. Then came the hard questions: could it actually get through Congress relatively intact? And even if it did, how could the government implement
To offset costs, the Biden Administration wants to raise the corporate tax rate from 21% to 28% which, combined with measures designed to stop offshoring of profits, would fund the entire plan within 15 years, according to the White House. The tax hike would essentially roll back tax cuts from former President Donald Trump’s 2017 bill, which capped the amount of state and local taxes (SALT) that could be deducted from federal income taxes at $10,000.
Any tax hikes – especially those rolling back a key accomplishment of the Trump administration – are certain to meet Republican resistance.
“I trust the Biden team when they say that the investments will pay for themselves in 10 to 15 years, but a lot can go wrong in financial markets before then,” said Tim Rood, head of industry and government relations at SitusAMC. “However, I’m anxious about how we do appear to be casually passing multi-trillion dollar deficit spending bills on partisan lines.”
Democrats could attempt to pass the American Jobs Plan through budget reconciliation, an option that does not require any Republican support in a chamber split 50-50 by party (Vice President Kamala Harris being the tie-breaking vote). It would be similar to the passage of the American Rescue Plan, which Democrats passed without any Republican support. The new jobs plan includes $213 billion allocated for housing, with a focus on low- and middle-income homeowners and prospective homebuyers with the construction and rehabilitation of over 500,000 homes in low- and middle-income areas.
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Rood said he believed the infrastructure bill is “long overdue,” and that the country “can’t rest on its laurels anymore.” The proposed infrastructure investment, new jobs and the ensuing stimulus of a growing housing market is a positive, he said. But paying for this particular bill is worrisome.
“Biden is essentially playing the roll of the Wizard of Oz where everybody gets what they want,” Rood said. “Who doesn’t love that, if you can pay for it. Which, we cannot.”
Rick Sharga, executive vice president at RealtyTrac, said the addition of so many new housing units won’t solve the lack of affordable housing completely, but is sorely needed.
“There’s no doubt that the lack of affordable housing is a growing problem,” Sharga said. “Home prices continue to rise by double digits, and a large percentage of renters pay 40 to 50% of their monthly earnings just to cover rent. This will certainly help.”
Sharga highlighted several logistical challenges of the American Jobs Plan, namely that it requires highly coordinated efforts between the Federal Government, state and local governments and the private sector.
“The program would be funded mostly by a combination of federal grants and tax credits, but would be managed by the states and executed at the local level in a public/private partnership,” he said. “That’s a lot of moving parts, and previous attempts at these kinds of far-reaching programs have been bogged down in massive amounts of red tape, and suffered from bureaucratic inefficiencies and political in-fighting.”
Second, Sharga said the program depends, to an extent, on the elimination of exclusionary zoning and “harmful land use practices,” which has limited the development of multi-family and other affordable housing units in most major urban markets across the country. There’s certainly going to be backlash from that aspect of the plan, Sharga said.
“The Biden Administration plans to convince local municipalities to eliminate these zoning laws by offering an ‘innovative, competitive grant program’ that provides funding to cities that remove these zoning restrictions,” he said. “It remains to be seen if local politicians will risk facing the wrath of NIMBY-oriented voters to participate in a program like this.”
Partisan issues aside, a focus on rebuilding the infrastructure while also rehabilitating the housing market is smart economics, according to David Dworkin, president of the National Housing Conference.
“Infrastructure and housing investment really need to go hand in hand to positively impact communities,” he said.
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