2020 was a tough year. In addition to facing a worldwide pandemic and threat of economic collapse, challenging discussions over racial inequality were brought to the surface after peaceful protests and riots broke out across the country.
The United States, which has a rather dark and controversial past deeply rooted in social and racial inequality, has made significant strides over the past century to help reduce the inequality gap, particularly in housing through programs like the Fair Housing Act, but the Biden-Harris administration believes there is still a long way to go. The White House recently shared its new actions to narrow the racial wealth gap and advanced racial equality, starting with housing. Here's what real estate investors need to know.
Bridging the gap
The current administration recently revealed new updates to the American Jobs Act that specifically focus on advancing social and racial equality in housing, including:
- A $10 billion Community Revitalization Fund to create and support community-based infrastructure projects.
- A new Neighborhood Homes Tax Credit aimed at investors in hopes to promote the creation of affordable homes for low- and moderate-income families.
- $15 billion in grants to help improve existing infrastructure in communities.
- $5 billion for the Unlocking Possibilities Program, a grant which uses flexible funding to reduce the barrier of entry to housing for low- to moderate-income earners.
The president has stated his intention to strengthen protections provided through the Fair Housing Act and ensure the laws are being implemented. However, further guidance as to exactly what his plan is, in partnership with the Secretary of Urban Housing and Development
(HUD), is still needed. Additionally, the president plans to improve appraisals to eliminate discriminatory practices within the housing appraisal process through the Real Estate Valuation Fairness and Improvement Act.
How it impacts real estate investors
The latest briefing gave detailed color about how the funds would be allocated within each grant program and clearly shows the focus and opportunities for investors is in improving infrastructure and creating affordable housing in low- to middle-income neighborhoods across the country. Investors interested in participating in these opportunities can utilize adaptive reuse, turning vacant buildings or land into commercial projects that benefit the community, such as clinics, small businesses, or affordable housing.
The Community Revitalization Fund would work with local municipalities to issue the funds to qualifying entities, which could include community-based organizations and not-for-profit organizations, meaning most investors wouldn't directly be able to participate as-is. However, other programs including the Neighborhood Homes Tax Credit would allow any investor to participate, as long as the investment meets the tax credit criteria.
Programs like these lead the way for the private sector
History has proven that if you want the private market to participate, one of the best ways to do so is to provide motivation. Tax credit programs like opportunity zones, which were introduced by the Trump Administration in 2017 as part of the Tax Cut and Jobs Act, have pushed billions of dollars into some of the country's lowest socioeconomic census tracts.
Removing the barrier for homeownership among people of color and addressing the continued racial and social inequities in housing improves the real estate market and society as a whole. It means tenants and homebuyers have access to safe, affordable housing as well as new business and economic opportunities with the help and participation from the private market, including real estate investors.
The American Jobs Act hasn't formally passed, meaning the specifics of the bill could, and very likely will, change if and when it's passed. However, it's unlikely the focus for addressing racial inequities through housing will go away anytime soon, meaning investors should continue to educate themselves on how to participate in this sector.