Infrastructure builds the future of real estate

Posted by on March 26th, 2018

As the population grows, so too does the need for infrastructure improvements – more roads, more pipelines, more electricity and more water distribution channels – but who pays the price?

Look at the Monopoly board. Players buy up properties, then add houses and hotels. In the game, the two utilities, Water Works and the Electric Company, do not  increase in value, no matter what happens on the rest of the board. That’s not a realistic representation – no increase in size or value of infrastructure would likely cause chaos.

But beyond serving homes, infrastructure also pumps the lifeblood of America, the movement of goods along roads, highways, railroads and runways. The nation’s framework is extensive, but is aging.

Existing infrastructure was built using engineering safety standards based on extreme loads seen in the past centuries. Historic flooding, hurricanes, and wildfires of 2017 showed those margins are easily exceeded when Mother Nature hits hardest.

The insured value of properties in 100 eastern coastal counties is estimated at $10 trillion – with New York and Florida accounting for $3 trillion each. Infrastructure runs into the trillions, and any major disruption could be crippling.

In the past, politicians tried to put the onus on public transportation to help cover the costs of this much needed expansion of the support structure. Time and experience show mass transit is often unable to generate enough capital even to cover its own costs.

More recently, developers have been asked to bear the load as part of the permitting process, but too many regulatory fees crimp profits, leading to a proliferation of pricier homes.

President Trump’s rebuilding blueprint allocates $200 billion in federal seed money that the administration argues will lead to a $1.5 trillion infrastructure overhaul.

But the U.S. government has struggled for decades to move major infrastructure initiatives forward, to little avail.

Unlike real estate, infrastructure investment doesn’t have any comparative value to other pieces of property, but in fact, it’s what makes real estate useable, even possible.

Politics aside, long-term private/public investment in infrastructure will key the future of real estate for everyone.