Tuesday, 27 September 2022 | The Latest Buzz for the Appraisal Industry

What Impact Will the Infrastructure Bill Have on the Housing Crisis?

The United States is currently in what many consider to be a housing crisis. Market prices for purchased and rented homes are through the roof, with no clear end in sight.

More people are searching for homes than there are houses available. This supply and demand issue made property prices skyrocket, with few able to afford what sellers were asking. Particularly impacted are minority and low-income communities, which cannot keep up with the market trends.

Though the federal government has yet to pass legislation directly tackling the current housing crisis, some bills may affect it indirectly. A significant indirect influence comes with the infrastructure bill signed into law in November 2021.

The infrastructure upgrades inside the bill could significantly impact some of the housing market’s problems.

The Current Housing Crisis

In the past few years, home prices have risen to the point where we are in another housing crisis. In 2020, 30% of all households had “unaffordable” mortgage or rent payments. Experts consider a price unaffordable if the owner or occupant spent 30% or more of their monthly income on the home, with one in seven households spending over half of their income.

Home prices continued to rise by over 20% between the spring of 2021 and the spring of 2022. This was due to an all-time housing shortage. Construction has failed to keep up with the demand of households, especially with the increase during the COVID-19 pandemic.

Housing isn’t a new issue in major coastal cities. Some metropolitan areas like New York and Los Angeles have failed to provide enough housing for their residents for decades. Smaller towns and communities across the country offset this problem by offering many houses to rent or purchase. However, as of early 2022, the nation had a deficit of 3.8 million homes, with the most significant shortage of homes with low-income affordability.

With the country facing a lack of homes and the gap between black and white homeownership still over 28%, the search for solutions is ongoing.

It’s hard to tell how the country will recover from this housing crisis, with no major legislation recently passed to address it. The good news is that a recently passed law may indirectly change the real estate market for the better.

The Infrastructure Bill

In November of 2021, President Joe Biden signed a bipartisan infrastructure bill into law. The Infrastructure Investment and Jobs Act dedicates $1.2 trillion to various projects around the nation, including:

  • $55 billion for clean drinking water
  • $65 billion for high-speed internet access
  • $110 billion for bridge and road repair
  • $39 billion to modernize transit
  • $17 billion for port improvements
  • $25 billion for improving airports
  • $7.5 billion for more electric vehicle chargers
  • $65 billion for upgraded power infrastructure
  • $50 billion for weatherization and natural disaster protection
  • $21 billion in pollution cleanup

The bill also makes the most significant investment in passenger rails. There’s a push for more high-speed railways in the U.S., which will lead to faster and easier cross-country transportation.

How It Impacts the Housing Crisis

You may have noticed that there isn’t specific funding for solving the housing crisis in the infrastructure bill. However, some of the investments could have an impact on the market. Here are a few things to be aware of if you are involved in property sales.

Appraisals

The bill is funding better drinking water, more transportation options, and upgraded power and internet. These investments could significantly raise home values if made in the right areas.

Potential deals fall through since home offers have been higher than appraisal values. When a bid is placed and accepted on a home, the contract will most likely be contingent on an appraisal since most lenders won’t give to borrowers without one. Some appraisals don’t come close to the asking price and offer, and it can be nearly impossible to agree upon a new sale price.

This keeps houses on the market longer, with few who can get the financing for them. However, if a community’s value goes up thanks to new demand in the area, the home’s worth can also increase, helping offers more closely match the appraised value.

Employment

All this investment toward new work creates the need for workers. According to the Biden administration, the bill will help add $1.5 million in jobs yearly.

The unemployment rate in the country has remained over 3%, with millions struggling to find and keep jobs. This makes low-income workers unable to compete with high rental and purchase prices.

Job opportunities aimed at struggling communities help low-income families improve their financial standing, helping them afford homes they otherwise wouldn’t be able to. Creating this financial ability means the high rent and purchase prices may not be as extreme anymore.

Multifamily Housing

The bill doesn’t have anything specifically related to the multifamily housing industry, but professionals in the field praise it for taking infrastructure burdens off industry investors.

The infrastructure improvements to water systems and transportation allow investors looking to purchase and build property for rent to worry less about mitigating those problems themselves to attract tenants.

This cost reduction for investors would have a chain effect on providing more housing options to communities in need. Better infrastructure means investors are more likely to come to an area, creating apartments and other multifamily homes for residents.

Looking Ahead

We don’t yet know the total impact the infrastructure bill will have on the housing crisis. Experts predict that home prices won’t drop anytime soon, as median prices reached an all-time high in June 2022.

Since the start of 2022, legislators have introduced 53 bills regarding housing in Congress, with only two ever making it past the introduction phase and none yet passing the House. It’s essential to keep your eyes peeled on the local, state and federal legislation affecting your area and how it could impact real estate investments and business ventures.

There is some hope on the horizon. Though mortgage rates still have a long way to go, the country’s seen some weekly decreases throughout the summer of 2022. High interest rates and inflation have cut some progress short as the country struggles to deal with the prices of almost everything.

Though the future is uncertain, the infrastructure bill seems like a step in the right direction.

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