TEXAS MCCOMBS REAL ESTATE
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
TEXAS McCOMBS May 10, 2021
REAL ESTATE
Deciphering the America Jobs Plan
Mark G. Roberts, CFA, AIA, Executive Director, UT McCombs School of Business, Real Estate
Center
Introduction
At the beginning of the year, the theme for my 2021 market outlook was, “Welcome to the Roaring 20’s”. Back in
December and January, I speculated if the government delivered on their promise to administer 1.5 million COVID
vaccine doses per day, then the U.S. could reach 30% immunity by the end of April and 50% by the end of July.
As of this writing, 43% of Americans have the antibodies for COVID-19 as a result of contracting the virus or
receiving the vaccine1. The U.S. now appears on pace to reach between 50% to 60% immunity by the end of May.
At the same time, the amount of liquidity and fiscal stimulus from both the Federal Reserve and Congress is
unprecedented. Taken together, the outlook for the well-being of the economy looked promising. Indeed, the U.S.
Bureau of Economic Analysis (BEA) reported real gross domestic product (GDP) increased at an annual rate of
6.4% in the first quarter of 20212. This growth was fueled by the opening of many economies across the U.S.
With businesses reopening, initial unemployment claims decelerated and there was a dramatic increase in job
growth. In February and March alone, the U.S. Bureau of Labor Statistics (BLS) reported 1.2 million jobs were
created, an increase of 0.9%3. That amounts to an annualized pace of job growth of 5.4%, or 7 times the long-term
average amount of growth4. While the employment rate edged lower 0.2% to 6%, it still remains higher than its
pre-COVID-19 level of 3.5%.
The debate now taking center stage is the quantum of fiscal stimulus being proposed. In addition to the $1.9
trillion COVID-19 Stimulus Package passed by Congress in March 2021, the American Jobs Plan calls for $2.25
trillion in spending and investment, while the American Families Plan calls for $1.8 trillion in spending and tax
credits. Combined these packages total almost $6 trillion, or about 27% of current GDP5. This amount of fiscal
stimulus could almost certainly underpin another “Roaring 20’s” such as occurred in the 1920’s. At the same time,
some economists are concerned with the rise in the U.S. debt-to-GDP ratio.
The American Jobs Plan6 was released by the White House on March 31, 2021. The proposal itself is only 27 pages
long, yet it is densely packed with initiatives. At this stage, the plan is broad on generalities and light on specifics.
As Congress and the White House debate the plan into the summer, the specifics may become clearer. In the
meantime, we have to speculate what is intended.
While the plan has been presented as an infrastructure plan, some might characterize it as a capital improvement
plan for deferred maintenance and to cure physical, social and functional issues. We can debate the terminology,
but the plan represents a different type of “infrastructure” definition than we might normally see.
1 https://covid.cdc.gov/covid-data-tracker/#vaccinations, as of May 6, 2021
2 U.S. Bureau of Economic Analysis (BEA), April 29, 2021
3 U.S. Bureau of Labor Statistics, April 16, 2021.
4 Non-farm payroll data from the St. Louis Federal Reserve for 1990-2020, average annual job growth was 0.9%.
5 As reported by the BEA, gross domestic product (GDP) totaled $22.05 trillion as of March 31, 2021
6 https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/
1American Jobs Plan – Looking at the Plan through a different lens
The American Jobs Plan is segmented into five categories. Each category can be found in the appendix. The tables
in the appendix also list each of the 49 items I was able to identify in sequence as they are presented in the plan.
While the “categories” depicted in the plan are helpful for providing a broad overview, it is difficult to decipher
where the money is intended to flow.
To hopefully provide a better understanding, I re-grouped the line items into categories which may be more
familiar, such as; infrastructure, housing, education and schools, jobs, manufacturing, research and development,
and government spending. Those sections are highlighted below and I reference the specific line items in the plan
which correspond to these categories. In certain sections, I try to provide context to understand if the money
earmarked is enough to achieve the objective. In other cases, there is not enough information to provide context.
Infrastructure – Capital Improvements for New Infrastructure, Electricity, Telecommunications, and Rail
Transportation; $207 billion + tax credits. Electric Vehicles, $220 billion.
Electricity generation (items 16 & 19): The plan seeks to achieve 100% carbon-free electricity by 2035 and build at
least 20 gigawatt (GW) of power using carbon-free energy sources. The U.S. Energy Information Agency reports
the U.S. has 1,117 GW of capacity, 60% of which is carbon related.7
● The plan calls for investment tax credit incentives ($69 billion) to build at least 20 GW “right away”. This
amount represents less than 2% of the nation’s current capacity.
● In today’s dollars it cost $2.8 billion ($165 million in 1933) to build the Hoover dam which produces 2
gigawatts of power,8 which works out to roughly $1.4 billion/GW in today’s dollars. Because of high
unemployment at the time when the Hoover Dam was constructed, wages for dam workers were $0.625/hour
on average, or about $12/hour in today’s dollars9.
● The cost to build one GW of electricity using renewable energy is higher today and ranges from $1.9 billion for
on-shore wind, $3 billion for geothermal or hydropower, $4 billion for off-shore wind or biomass to $7 billion
for solar thermal. In contrast, a nuclear power plant or a coal plant with 90% carbon capture costs roughly $6
billion/GW.10
● While the goal of achieving 20 GW of power using renewable sources seems achievable given the resources
outlined ($69 billion in tax credits), the goal to achieve 100% carbon-free electricity seems less achievable
without significant technological and cost breakthroughs.
● To replace coal, natural gas and petroleum electricity plants implies building or retrofitting 60% of the
electrical producing capacity in the U.S. (670 GW), which could cost $2-$4 trillion and require the equivalent
of over 300 Hoover dams. Funds for this expenditure are not outlined in the plan.
● 40% of electricity capacity in the U.S. comes from natural gas and 32 states produce natural gas. The states
with 50% of gas production are Texas, Oklahoma, New Mexico, Wyoming and Louisiana and may be impacted
the most if the plan truly does reach its goal of replacing natural gas with carbon-free energy sources.
7 U.S. Energy Information Agency, 2020. The mix of fuel used today to create electricity comes from natural gas (40%), coal (19%), nuclear
(20%), renewables (20%), hydro and non-hydro (20%), petroleum and other (1%).
8 Source: Arizona Power Authority, cost information from U.S. Bureau of Reclamation
9 U.S. Bureau of Reclamation and the U.S. Bureau of Labor Statistics
10 Please see the U.S. Energy Information Administration analysis, February 2021. Figures from table 1 were converted by the author from
$Cost/kW and scaled to $Cost/Gigawatt. https://www.eia.gov/outlooks/aeo/assumptions/pdf/table_8.2.pdf. A longer report on capital
costs can be accessed here: https://www.eia.gov/analysis/studies/powerplants/capitalcost/pdf/capital_cost_AEO2020.pdf
2Telecommunications - Expand broadband (item 15). The White House estimates 10% of the population does not have
access to broadband and is earmarking $100 billion to provide broadband to everyone.
● If 10% of Americans do not have access, it implies wiring roughly 10 -12 million homes at a cost of $10,000/
home. While this seems costly, the Broadband Association estimates it costs $27,000/mile to lay fiber optic
cable.11
● Estimates to build a cell tower range from $50,0000 - $175,000. Rural areas don’t have the same density as
urban areas and more cell towers are required. Thus, it seems reasonable to expect a greater portion of this
funding is directed towards fiber optic cable lines versus cell towers.
● It may be a challenge to install fiber optic cable because state laws may prohibit cities from installing their
own fiber lines. To remedy this, the President is calling on Congress to approve non-profit ownership and
remove barriers to municipal ownership. One has to wonder is this is an ambition or a negotiating position
the President is taking with the telecommunication companies.
Transportation – Expand rail and bus rapid transit ($85 billion); provide an allowance ($25 billion) for shovel-worthy
projects (items 3, 9).
Electric Vehicles (EV’s) and Procuring Carbon-Free energy (items 5, 39). The plan proposes $220 billion, including
$46 billion in purchases by the federal government of electric vehicles, charging ports and technology
advancements in nuclear reactors and fuel.
● Of this amount, $174 billion is proposed to accelerate adoption of EV’s using tax incentives and rebates. This
attempts to create demand for the supply chains for battery production, storage and domestic production of
raw materials.
● Included is the desire to electrify 20% of yellow school buses. There are 480,000 school buses in the U.S. Based
on the average cost of a school bus, this could cost $7 to $8 billion.
● If the tax incentives for purchasing EV’s are similar to those offered in the past (c.$7,500), this might result in
demand for 20 million electric vehicles.
● The plan seeks to build 500,000 EV chargers by 2030. With 4 million square miles of land in the U.S., this
amounts to one EV charger for every 8 square miles. In addition, an individual’s home can become a charging
station. By comparison, there are more than 150,000 fuel stations in the U.S.12 Convenience stores with
filling stations may not experience a similar demise as Blockbuster just yet as there are 287 million vehicles
registered in the U.S. and adoption of EVs will take time.
● One key component in manufacturing EVs are rare-earth materials. From 2015-2018, the U.S. was dependent
on China for approximately 80% of its total rare-earth compounds and metal imports.13 To achieve the
objectives of the plan, domestic production of rare-earth minerals will need to increase.
● The plan aims to spur such production of rare-earth materials by increasing end-user demand for finished
goods. In the meantime, the U.S. has only one rare-earth mine in operation today in Mountain Pass, San
Bernardino, CA. Another rare-earth mine near El Paso, TX is in development (est. production 2023) while
further research and development is taking place in the North Appalachian basin and in northeastern
Wyoming. Suffice to say, if/as these mines and separation plants come on line, it could create demand for
real estate and jobs in these regions. As some of these regions are seemingly rural areas, it may provide some
context for the plan’s emphasis of rural areas.
11 US Telecom Broadband Association, Sally Aman, April 12, 2017.
12 American Petroleum Institute, 2018
13 NS Energy Business, December 2019.
3Infrastructure – Capital Maintenance on Existing Infrastructure and Land; $409 billion.
● $257 billion for Transportation Infrastructure (items 1, 2, 4, 6, 7): Repair and maintenance of roads, bridges,
road safety, back-log of Amtrak repairs, airport improvements, improving inland waterways and ports.
● $111 Billion for Water Infrastructure (items 12, 13, 14): eliminate lead pipes, upgrade aging water systems,
monitor and remediate harmful substances in water, build water and waste systems in rural and tribal areas.
● Of this amount, $45 billion is allocated to eliminate lead pipes. The Environmental Defense Fund citing
statistics from the EPA14 indicates 9.2 million homes in the U.S. have lead pipes and receive water through
lead service lines. If lead pipes were replaced in each of these residences, the amount proposed would amount
to less than $5,000/home. This amount does not seem sufficient to replace plumbing in a home, let alone the
cost of water mains and service lines. Perhaps funding outlined elsewhere (e.g., upgrade of public housing and
schools) might provide additional money to achieve this objective.
● $41 Billion for Infrastructure Clean-up (items 8, 17, 18): Reconnect neighborhoods, plug orphan gas wells,
clean abandoned mines; remediate/redevelop brownfield and superfund sites
Housing, Real Estate – Building and VA Hospital Retrofits, Child Care Facilities, $266 billion. (items 21, 22, 23, 24, 27,
28, 29).
● There are 1.1 million public housing units in the U.S.15 and the plan calls for $40 billion for capital
improvements. This equates to spending $36,000/unit. Presumably money for replacing lead pipes outlined in
the “water infrastructure” section might provide additional funds.
● $20 billion in tax credits to build 500,000 affordable homes. If the cost per unit is c. $225,000, this tax credit
could provide a meaningful average incentive of $40,000 per home.
● In comparison, the plan also calls for $126 billion to build or retrofit +1 million affordable homes. At
$126,000/unit, this objective seems underfunded if it excludes private investment.
● Provide $27 billion in incentives to retrofit commercial, residential and municipal buildings to clean energy.
With over 6 million commercial buildings and 122 million homes in the U.S., it’s hard to envision what’s called
for in this provision.
● Finally, the proposal provides incentives for employers to build childcare facilities. As noted, employers (or
landlords) would receive 50% reimbursement for the first $1 million of costs per facility for on-site childcare.
Employers and landlords would invariably bear the annual operating costs. Still, this provision seemingly
serves to facilitate parental labor force participation and it could provide a meaningful amenity for employees.
14 Lead Pipes and Environmental Justice”, Environmental Defense Fund, March 2020.
15 As estimated by The Center on Budget and Policy Priorities. This amounts to 0.9% of the 123 million households in the U.S. as reported
by the U.S. Census Bureau.
4Schools, Job Training, Government Labs, R&D at HBCU’s and MSI’s. $227 billion + $50 billion in bonds to upgrade
schools, HBCU’s and community colleges, build new schools, upgrade government research labs and research
grants to HBCU’s and MSI’s (items 25, 26, 33, 35, 46, 47, 48).
● There are 101 HBCU’s in the country mostly stretching from Texas, through the Southeast and up through
the Middle-Atlantic states. As the President has noted, these schools do not typically have large endowments.
Inclusive of building upgrades and money for R&D., these schools could receive $35 billion, or an average of
almost $350 million/school.
● Elsewhere, the National Center for Education Statistics16 reports projections for undergraduate enrollment
between 2000 – 2029. In their report, the number of students enrolled is expected to increase from 16.6
million students in 2018 to 17 million by 2029.
● A recent report also detailed projections for high school graduation rates.17 From 2020 to 2025, the number of
students graduating from high school is expected to increase from 3.77 million to 3.93 million per year, before
declining to 3.52 million by 2037.
● With the population of high school and college students expected to remain generally flat, one can only
speculate on the need to build more schools. Three reasonable reasons come to mind; 1) migration shifts across
the U.S.; 2) expanding education to international students; 3) draw students from the labor force for workforce
retraining.
● As $100 billion is also earmarked for job training, the plan may envision using high schools and community
colleges for job training and apprentice programs.
Jobs - Home and community healthcare employment and Climate Corps (items 20, 30, 32, 44). Provisions for
healthcare jobs is the largest single line item in the plan ($400 billion) and it calls for increasing wages and
hiring more healthcare workers. In addition, there’s another item for “Climate Corps” jobs ($54 billion) in rural
areas for infrastructure improvements (presumably for water, roads, broadband expansion, mining for rare-
earth, capping wells, etc.).
● Per the National Direct Care Workforce Center as published by PHI National18, there are more than 2 million
home and community healthcare workers in the U.S. who earn an average annual salary of $13,300. PHI
reports one-in-four home care workers lives below the federal poverty line and over half rely on some form of
public assistance.
● The current population of persons over the age of 65 is roughly 48 million and is expected to nearly double to
88 million by 2050. To service demand, this provision is intended to create healthcare jobs and also increase
wages and benefits by enabling healthcare employees to join a union.
● To improve the productivity of home healthcare, there may be investment opportunities to provide additional
training and make investments in technology to service patients.
Research & Development, Manufacturing, $237 billion. Throughout various sections in the proposal, research and
development proposals are offered.
● $35 billion in climate-science focused research in carbon-free energy technology and emission reduction (34).
This is the one item in the document where rare-earth separation is mentioned.
● $50 billion for semiconductor manufacturing and research (37). Please see commentary below.
● $30 billion for medical R&D related to pandemic countermeasures and bio-preparedness (38)
● $20 billion for technology development at a minimum of 10 regional innovation hubs which link rural and
urban economies (40).
16 National Center for Education Statistics, “The Condition of Education”, May 2020.
17 Knocking at the College Door, December 2020.
18 U.S. Home Care Workers: Key Facts, as published by PHI National and using data from the BLS as of March 2016.
5● $52 billion to invest in manufacturers to modernize supply-chains, including the auto-sector. Create new
financing programs (42). This program may leverage government incentives to expand domestic supply chains
for medical, semiconductor, renewable and raw materials. It’s too general at this stage to identify specific
industries or geographic locations as to where this money could flow.
● $50 billion to the National Science Foundation (NSF) to start a “technology directorate” to collaborate with
and build on existing government programs with a focus on semiconductors, quantum computing, advanced
communications, energy and biotech technologies (50).
Semiconductors production incentives: While the U.S. remains a leader in market share of final chip sales19, Taiwan
comprises the bulk of chip foundries globally with market share of 70% or more. Various sources peg the U.S.
market share of chip wafer fab foundry capacity at roughly 12%20.
The cost to build a chip foundry is steep. One currently planned in Phoenix is c. $15 billion. The Samsung plant in
Austin reportedly cost $16 billion in 2011. If the goal of the plan is to significantly increase the U.S. share of chip
foundries, $50 billion might only buy 3 plants. Thus, it seems reasonable the plan may try to accelerate an increase
in market share by leveraging this amount with private capital. In the U.S., there are chip foundries in Austin,
Phoenix, San Antonio, the Bay Area, Portland, Lubbock and New York. It seems reasonable to expect these cities
or regions as potential locations for future plants.
Funds for Government Agencies and other Spending, $167 billion. In several places in the document, funds are
identified for additional government oversight or to replenish resources. These line items raise several questions,
such as, “what is a critical good?”, or “what additional regulatory requirements will be applied to businesses to
ensure fair and equal pay?”. Or, what does it mean to “link” industry, academia and government on technology
R&D? Does this mean breaking-down barriers to communication, or sharing intellectual property? If so, what
does this imply for patents? Suffice to say, more clarity is required.
● Department of Commerce to monitor supply chains and support production of critical goods (36);
● Expand government oversight of employers to ensure fair and equal pay and safe workplaces (49);
● Funding for small business incubators in underserved communities (43);
● Funding for the National Institutes of Standards to “link” government, academia and industry to advance
technology innovation (41).
● Funding for essential services in communities vulnerable to natural disasters (10).
Key Regulatory Provisions
● Eliminate exclusionary zoning (minimum lot sizes and parking, prohibition on multifamily)
● Requires goods and materials including steel, cement and component parts are made in America and shipped
on U.S.-flagged and U.S.-crewed vessels.
● Facilitate unionization
19 Estimated at 47% in 2019 as reported by the Semiconductor Industry Association (SIA) 2020 annual report; https://www.semiconductors.
org/wp-content/uploads/2020/06/2020-SIA-State-of-the-Industry-Report.pdf.
20 U.S. SIA and Boston Consulting Group as reported by Semiconductor Engineering, October 26, 2020
6Putting the Plan in Perspective
Parts of this plan look like FDR’s New Deal (e.g., power, broadband and semiconductor chip production). Other
parts are reminiscent of LBJ’s Great Society (housing, water), while still other parts look like Eisenhower’s
Interstate Highway act (roads and bridges). Just as those previous initiatives re-ordered the deck chairs of the
economy, so too could this plan.
The American Jobs Plan is a bold plan and is more than 3 times the size of FDR’s New Deal. In 2020-dollar terms,
FDR’s New Deal Cost $848 billion ($42 billion at the time21), or a little more than one-third of the $2.25 trillion
outlined for American Jobs plan. However, the population of the U.S. was about 125 million in 1933 and today it is
about 330 million. On a per capita basis, the size of the America Jobs plan is roughly similar to the cost of FDR’s
New Deal.
In contrast, the New Deal amounted to 40% of GDP in 1929 while the American Jobs plan represents about 10.5%
of GDP (as of year-end 2020). However, adding in the COVID-19 stimulus package passed in March and the
recently announced American Families Plan, the three plans combined equal almost 30% of GDP.
When FDR’s New Deal was passed in 1933, the unemployment rate in the U.S. stood at 24.9% (BLS). Today, the
unemployment rate stands at 6.1%. Still, the number of unemployed persons in 1934 was 12 million persons
compared to today where it equals 9.8 million. The size of the labor force in 1934 was 52.5 million persons and the
cost of the New Deal per labor force participant in today’s dollars was $13,735.
The size of the labor force today is 160.6 million persons and the cost of the American jobs plan is similar at
$14,000 per labor force participant. However, when you add in the COVID-19 Stimulus bill and the American
Families plan, the cost jumps 2.7 times spent on the New Deal to $37,350 per labor force participant.22
Further, the New Deal increased the Federal debt by 30% and the debt-to-GDP rose to a then historic high of
44%23. By contrast, the federal debt in 2019 was $23 trillion and represented 107% of GDP. By the end of 2020,
national debt had risen to almost $28 trillion and represented 129% of GDP24.
Compared to the G-7 nations, while Japan (237%) and Italy (135%) have a higher debt-to-GDP ratio than the U.S.,
the debt-to-GDP ratio of the remaining G-7 nations is less than 100%, with Germany the lowest at 59.8%.25 The
debt-to-GDP rose faster in the U.S. over the last year compared to Western Europe. At the same time, each of the
other G-7 nations saw their economies shrink more than the U.S. in 2020, with the exception of Japan. Despite
better economic conditions than its G-7 counterparts, the U.S. dollar declined in value against the Euro, British
Pound and Canadian dollar by c. -9%, -10% and -12.8%, respectively26.
It is reasonable to expect the proposed policies for both the American Jobs and America Families plans could
significantly increase the debt-to-GDP ratio in the U.S.27 If the debt-to-GDP ratio of America’s trading partners
held steady, then rising debt in the U.S. could exert downward pressure on the U.S. dollar and give rise to higher
import inflation in the U.S. However, the White House proposes to implement the American Jobs plan over 10
years and to increase taxes. Thus, the increase in debt-to-GDP could be gradual.
21 St. Louis Federal Reserve, May 30, 2017. Current figure updated to reflect 2020 dollars.
22 BLS Labor Technical Note; Labor Force, Employment, and Unemployment, 1929-39: Estimating methods estimates, BLS 1948. The more
recent data comes from table 3 from the BLS as of March 2021.
23 The Atlantic, “The Long Story of U.S. Debt, from 1790 to 2011, November 13, 2012 using data from the Congressional Budget Office.
24 St. Louis Federal Reserve as of March 25, 2021. https://fred.stlouisfed.org/series/GFDEGDQ188S
25 World Population Review, as of year-end 2020
26 Bloomberg as of 30 April 2021 for Euro vs USD and British Pound to the USD.
27 The Committee for Responsible Federal Budget reported the Congressional Budget Office’s estimate on debt-to-GDP on Feb. 16, 2021,
noting under current laws (not including the $6 trillion of measures this year) the federal debt held by the public (not including Federal
Reserve holdings which currently stand at c. $5 trillion as noted by the St. Louis Federal Reserve) could increase to 145% by 2041 and 202%
by 2051. If Federal Reserve holdings are included, it could raise these figures 20%-30%.
7Potential Inflation Implications: If the plan is implemented over 10 years, the risk of an abrupt increase in our
debt-to-GDP ratio seems lower. The risk of a weaker dollar and higher import inflation might be contained if the
plan results in sustained higher economic growth as more people are drawn into the labor force. If this occurs, the
plan could be positive for investment flows and the dollar. On the other hand, higher corporate income and capital
gains taxes might reduce foreign investment flows and have a negative impact on the dollar.
Adopting 100% carbon-free energy could result in an excess supply of oil and gas as the transition takes place and
exert downward pressure on inflation. Still, oil trades on a global market and it’s reasonable to expect OPEC could
restrict supply to manage prices, as it has done many times before. Longer term, while the cost of an EV is higher,
the energy cost per mile for driving an electric vehicle is currently lower than combustion vehicles.
Conversely, there could be a sharp increase in the price of other commodities and materials due to demand as
well as supply chain shocks. During the pandemic, we’ve seen the impact of supply shocks on lumber, copper and
aluminum. Given the amount of construction anticipated, prices for steel, cement and iron could also rise higher.
Labor cost inflation may also rise, although the impacts could be bifurcated as workers are dislocated in certain
industries, such as oil and gas production. From a structural perspective, the U.S. economy has shifted from a
manufacturing-based economy to a service-based economy over the last 30 years. If this trend reverses, more
skilled labor may be required. With low unemployment levels, this could push labor costs higher. Given the
provision outlined for home healthcare, it’s almost certain we’ll see wage inflation in the healthcare if the plan is
adopted.
Finally, allowing goods and materials shipping on only U.S.-flagged and U.S.-crewed vessels seems inherently
inflationary. It remains to be seen which goods are affected. However, if transportation options are restricted, it
could lead to higher shipping costs.
Potential Real Estate Implications: There are several. With a few new or expanded government agencies as well as
an increase in government mandates and oversight, real estate tenant demand should increase in Washington D.C.
due to an increase in federal workers and lobbyists.
More broadly, the increase in demand for building materials and upgrades across a range of building types would
almost certainly increase the cost of construction from both a labor and materials perspective. This cost-push
could restrict the supply of new commercial real estate and drive values on existing real estate higher. Elimination
of 1031 tax-exchanges could reduce liquidity and impact valuations. Still, from an asset allocation perspective, the
plan could lead to an increase in investor demand from tax-exempt investors.
The for-rent residential sector could benefit from a number of provisions outlined, such as the tax credit
incentives for affordable housing. If exclusionary zoning laws are amended, it could also create some investment
opportunities. Still, we are likely to see a debate between the federal government and state and local governments
regarding zoning policies.
Geographically, the word “rural” is mentioned thirty times in the document, while “urban” is only mentioned five
times. Real estate opportunities could increase in those rural areas mentioned as potential sites for rare-earth
mining and processing. Likewise, the “10 innovation incubators” locations may provide investment opportunities
too. Other areas to monitor include those where chip manufacturing foundries might be built.
8Conclusion and Critical Success Factors
The American Jobs plan is ambitious. Some may suggest even inspirational as it seemingly aims to enhance the
health, safety, security and well-being of Americans. There are many questions left open. In some instances, the
plan does not seem to outline enough resources to actually fund its aspirations. I think we’d all agree replacing
lead pipes is essential, but has there been enough money allocated? Similar observations can be drawn regarding
other initiatives such as 100% carbon-free electricity or on-shoring of chip foundries.
Another open question relates to the on-shoring of pharmaceutical manufacturing in the U.S. There are several
cities in the U.S. which are seen as the top pharmaceutical and bio-tech industry hubs.28 There is also a longer and
more complicated story about the intersection between tax policy (section 936) and Puerto Rican statehood which
goes back decades. Section 936 freed manufacturers from taxes on profits made in Puerto Rico which transformed
the island into a hub of pharmaceutical manufacturing starting in 1976. However, Congress began phasing out
the tax break in 1996. The epitaph of this decision has been a decades long recession in Puerto Rico and a shift in
pharmaceutical manufacturing to India and China.
While I have not highlighted tax policy, Puerto Rico’s experience provides an example of the incentives and
repercussions associated with tax policies. In terms of critical success factors for the American Jobs plan, tax
policy is probably at the top of the list alongside the federal government’s ability to administer the plan. To achieve
the carbon-free initiatives, access to and processing of rare-earth materials is another critical success factor.
Expanding chip foundries is another as is expanding the skills of the labor force.
28 Proclinical, March 2016 lists Boston, San Francisco, New Jersey, San Diego, Maryland, Philadelphia, Seattle, Raleigh, Los Angeles and
Chicago as the top-10 hubs.
9Appendix – Sections and itemization of initiatives
$621 Billion - Transportation
$Billion Description
$115 1. Repair of bridges, highways, roads and main streets
$20 2. Road safety to reduce crash and fatalities, particularly for cyclists and pedestrians.
$85 3. Modernize existing transit; help agencies expand systems to increase rider demand. This
expenditure doubles federal funding for public transit to reduce the backlog in repairs and
bring bus, rapid transit and rail service to communities and neighborhoods across the country to
reduce traffic congestion, less reliance on autos.
$80 4. Cure Amtrak’s repair backlog; add capacity to the Northeast corridor; add connections between cities;
grant/loan programs to support rail safety, efficiency and electrification.
$174 5. Accelerate adoption of electric vehicles (EV’s); improve domestic supply chains ranging from domestic
production of raw materials, batteries, parts and retooling factories. Provide point-of-sale rebates and tax
incentives to buy EV’s. Build a national network of 500,000 EV chargers by 2030; Replace 50,000 diesel
vehicles and electrify 20% of yellow school buses.
$25 6. Airport improvements and terminal renovations for multi-modal, car-free access to air travel.
$17 7. Improve inland waterways, coastal ports essentially to nation’s freight.
$20 8. Reconnect neighborhoods that have been separated by roads and highways
$25 9. Money for shovel “worthy” projects that have benefits to a regional or national economy
$50 10. Provide money for essential services such as the electric grid, urban infrastructure, community health and
hospitals and food systems in communities vulnerable to climate-driven disasters.
$10 11. $10 billion for other (?)
$311 Billion - Home, Schools & VA Hospitals: Water, Broadband, Carbon-Free Electricity, Clean-up
$Billion Item# & Description
$45 12. Eliminate all lead pipes and service lines in the country
$56 13. Grants and loans to upgrade aging water systems in communities across the U.S.
$10 14. Monitor and remediate harmful substances in water and to build water systems, wells and wastewater
systems in rural areas.
$100 15. Fully build out high-speed broadband. White House estimates 10% of the population does not have
access (rural and tribal lands in particular). Prioritizes support for public non-profit internet providers. Lift
barriers to municipal-owned providers by requiring private internet providers to disclose prices they charge.
$69 16. Tax credits to build at least 20 Gigawatt of high voltage capacity and transmission lines; achieve 100%
carbon-free electricity by 2035.
$16 17. Plug orphan oil and gas wells; clean-up abandoned mines
$5 18. Remediate/redevelop brownfield and superfund sites in distressed, disadvantaged locations
Tax Credits 19. PPP in 15 decarbonized hydrogen demonstration projects. 10 pioneer facilities for carbon capture retrofits
for steel, cement and chemical facilities.
$10 20. Civilian Climate Corp. jobs – preserve public lands; community resilience; environmental justice
10$328 Billion – Housing stock, Schools, Childcare, Upgrade Hospitals and Federal Buildings
$Billion Item# & Description
$213 Build, preserve and retrofit more than 2 million affordable homes. Seek to eliminate state and local
exclusionary zoning laws.
$126 21.Build, preserve, retrofit +1 million affordable and energy efficient housing units. Extend afford
able housing rental to underserved communities.
$20 22.Tax credits to build or rehab +/-500,000 homes to create pathways for families to buy a home
and build wealth (Neighborhood Homes Investment Act)
$40 23.Capital improvements of public housing
$27 24.Mobilize private investment into distributed carbon-free energy, retrofits of residential, com
mercial and municipal buildings
$115 Upgrade and modernize schools, hospitals and federal buildings
$50 25. Grants to upgrade and build new schools (plus a further $50 billion in bonds. Seeks to provide
money for capital improvements for HVAC, kitchens, energy efficiency and build lab space.
$12 26. Capital improvements in community colleges facilities and technology upgrades.
$25 27. Upgrade child care facilities. Encourage businesses to build child-care facilities.
$18 28. Upgrade and modernize VA hospitals
$10 29. Modernize federal buildings
30. $400 Billion – Homecare, Healthcare Jobs and Wages: Expand access to and improve wages for home healthcare
and community healthcare providers.
$590 Billion – R&D for Manufacturing, Small Business and Job Retraining
$Billion Item# & Description
$180 Investment and spending for a 21st century economy
$50 31. National Science Foundation (NSF). Creates a “technology directorate” to collaborate with and build on
existing government programs with a focus on semiconductors, quantum computing, advanced communi
cations, energy and biotech technologies.
$30 32. Spur innovation and job creation, including in rural areas.
$40 33. Upgrade government and historically black colleges and universities’ (HBCU) research facilities to
include computing capabilities and networks
$35 34.Climate-science focused research in carbon-free energy technology and reducing emissions. Includes
$15 billion in demonstration projects for climate priorities: utility-scale energy storage, carbon capture and
storage, hydrogen, advanced nuclear, rare-earth element separation, off-shore wind, biofuel, quantum com
puting and EV’s
$25 35. $10 billion for HBCUs and $15 billion for 200 research incubators at HBCUs and minority-serving
institutions (MSI’s) to eliminate race and gender inequality in R&D for STEM education.
$300 Strengthen U.S. supply chains
$50 36. Dept. of Commerce to monitor domestic industrial capacity, supply chains and support production of
critical goods
11$50 37. Semiconductor manufacturing and research.
$30 38. Medical R&D countermeasures, manufacturing for bio-preparedness, add to national stockpiles,
accelerate research timelines, test technologies for rapid scaling of vaccines, pandemic response
$46 39. Government to procure and enable production of EV’s, charging ports, electric heat pumps, advanced
nuclear reactors and fuel to achieve net-zero emissions by 2050. Use money to also help create jobs in rural
areas
$20 40. Leverage private investment for technology development, link rural and urban economies in at least 10
regional innovation hubs and business centers beyond a handful of high-growth centers
$14 41. National Institute of Standards and Technology to link industry, academia and government to
advance technology innovation
$52 42. Invest in domestic manufacturers with a focus on supporting rural manufacturing and clean,
carbon-free energy; modernize supply chains including the auto sector; create a new financing program to
support debt/equity investing in manufacturing.
$31 43. Small businesses and small business incubators to access credit and venture capital; support
entrepreneurship in communities of color and underserved communities.
$5 44. Create jobs in rural and tribal communities through Rural Partnership Program to improve broadband,
roads, bridges and water
$2 45. Other manufacturing investments.
$100 Workforce Development
$40 46. Sector-based training (clean energy, manufacturing, care giving) for a new Dislocated Workers Program
$12 47. Workforce training in underserved communities and job training for formerly incarcerated individuals
$48 48. Additional development in apprentice programs. Career pathways in middle and high schools in
STEM sectors, partner with community colleges. Worker protection – expand labor enforcement to protect
against discrimination, protect wages and benefits, promote union organizing and collective bargaining
$10 49. Expand federal government oversight to ensure employers are providing jobs with fair and equal pay,
safe workplaces and workforce equality. Calls for increased penalties when employers violate health and
safety rules.
12Performance Indicators
Friday, May 7, 2021 Total Return
10-Year Weekly Weekly z-
Asset Class 1 week 1 month 3 month YTD 1 Year 5 Year Average Risk score
Fixed Income TR
BBG Barclays US Treasury 0.3% 0.6% -1.7% -3.2% -3.7% 2.3% 2.8% 0.6% 0.4
BBG Barclays US Agg Gov/Credit 0.4% 0.7% -1.5% -3.1% 0.6% 3.4% 3.6% 0.6% 0.5
BBG Barclays Municipal 0.2% 0.6% 0.0% 0.7% 6.8% 3.4% 4.3% 0.6% 0.2
BBG Barclays US Intermediate Credit Baa 0.4% 0.7% -0.7% -1.0% 8.1% 4.5% 4.4% 0.6% 0.5
BBG Barclays US Corp High Yield 0.3% 0.7% 1.2% 2.2% 19.3% 7.6% 6.4% 1.0% 0.2
BBG Barclays REIT Investment Grade 0.4% 1.1% -0.8% -1.5% 10.8% 4.9% 5.1% 0.6% 0.5
BBG Barclays CMBS Investment Grade 0.5% 0.9% -0.4% -0.7% 4.8% 3.6% 4.0% 0.5% 0.8
Equity Performance - Listed Market
S&P 500 TR 1.3% 2.6% 9.3% 13.3% 46.8% 17.9% 14.6% 2.3% 0.4
DJIA TR 2.7% 3.0% 12.2% 14.3% 45.9% 17.4% 13.5% 2.3% 1.0
Nasdaq TR -1.5% -1.0% -0.6% 6.9% 51.9% 25.1% 18.6% 2.5% -0.7
DAX Index 1.7% 1.1% 9.6% 12.3% 41.2% 9.1% 7.8% 2.9% 0.5
Nikkei 225 1.9% -1.4% 2.7% 7.7% 47.8% 14.5% 14.0% 2.9% 0.6
MSCI Emerging Net TR USD 0.1% 1.5% -3.0% 4.9% 51.0% 13.7% 4.1% 2.5% 0.0
FTSE NAREIT All Equity REITs TR -0.7% 5.1% 12.6% 16.3% 34.3% 8.5% 9.8% 2.9% -0.3
BBG REIT -0.8% 4.8% 11.4% 15.0% 29.7% 3.9% 5.4% 2.9% -0.3
BBG Apartment 0.3% 4.9% 14.8% 22.5% 17.1% 3.0% 4.8% 3.3% 0.1
BBG Diversified 0.7% 5.8% 4.6% 8.1% 14.6% 10.9% 7.4% 2.8% 0.2
BBG Healthcare -1.9% -0.1% 7.6% 8.3% 42.0% -0.4% 2.0% 4.1% -0.5
BBG Hotel -1.5% 2.1% 17.0% 19.0% 78.8% -0.8% 0.3% 4.6% -0.3
BBG Industrial -0.9% 4.8% 8.5% 14.2% 31.2% 17.8% 12.9% 3.3% -0.4
BBG Manufactured Homes 0.0% 8.2% 11.9% 10.4% 20.0% 16.1% 15.6% 3.1% -0.1
BBG Office -1.0% 2.8% 11.4% 11.1% 16.7% -2.8% -0.2% 3.3% -0.3
BBG Retail - Mall 2.4% 7.8% 26.1% 45.5% 105.2% -11.4% -1.1% 5.0% 0.5
BBG Retail - Shopping Center 2.3% 11.0% 29.7% 40.7% 76.4% -5.4% 0.9% 4.4% 0.5
BBG Storage -1.0% 7.3% 21.4% 22.3% 51.0% 3.7% 11.2% 3.0% -0.4
Equity Performance - Non-Listed Market as of most recent Quarter - 4Q2020
10-Year Quarterly Quarterly
Asset Class 3 month 6 month YTD 1 Year 5 Year Average Risk z-score
NFI-ODCE 2.1% 3.4% 2.1% 2.3% 6.2% 9.7% 2.2% -0.1
NPI 1.7% 2.9% 1.7% 2.6% 5.8% 8.8% 1.8% -0.2
NPI - Apartment 1.7% 2.7% 1.7% 2.6% 5.3% 8.4% 1.8% -0.2
NPI - Apartment - Garden 3.1% 5.8% 3.1% 7.0% 8.2% 10.3% 1.6% 0.4
NPI - Apartment - High Rise 1.0% 1.2% 1.0% 0.3% 3.8% 7.3% 2.0% -0.4
NPI - Industrial 4.7% 9.6% 4.7% 14.1% 13.3% 13.2% 1.3% 1.2
NPI - Warehouse 4.8% 9.8% 4.8% 14.3% 13.5% 13.5% 1.3% 1.2
NPI - Office 1.0% 1.5% 1.0% 1.3% 5.3% 8.1% 1.8% -0.5
NPI - CBD Office 0.6% 0.7% 0.6% -0.2% 4.6% 8.0% 2.1% -0.6
NPI - Suburban Office 1.5% 2.6% 1.5% 3.4% 6.2% 8.4% 1.5% -0.3
NPI - Retail -0.5% -1.7% -0.5% -6.0% 1.4% 7.1% 3.6% -0.6
NPI - Neighborhood 1.0% 2.2% 1.0% 0.0% 4.7% 8.4% 2.8% -0.4
NPI - Power Center 0.2% 0.4% 0.2% -1.8% 2.6% 6.8% 2.7% -0.5
NPI - Regional Mall -2.3% -4.3% -2.3% -10.0% -0.6% 6.2% 4.7% -0.8
NPI - Super Regional Mall -1.1% -3.7% -1.1% -8.8% 0.3% 7.4% 4.8% -0.6
Source: Real Estate Center, McCombs School of Business, Bloomberg, Federal Reserve, NCREIF Property Index, May 7, 2021
13Technical Indicators
Friday, May 7, 2021 Current & Historical Levels Historical Averages
Weekly/
Current 1 month 3 month 6 month 3 Year 5 Year 10-Year Quarterly Current
Technical Indicators As of Date Value 1 week (4 wks) (13 wks) (26 wks) 1 Year Average Average Average STD z-score
US Economic Indicators
GDP Quarter over Quarter Annual Rate 1Q2021 6.4 4.3 33.4 -5.0 1.9 2.2 2.3 7.6 0.5
GDP Year Over Year 1Q2021 0.4 -2.4 -2.8 0.3 0.3 1.1 1.7 2.2 -0.6
Business Investment ex-Residential 1Q2021 9.9 13.1 22.9 -6.7 2.6 3.6 4.6 7.8 0.7
Retail Sales less Autos/Gas 3/31/2021 8.2 -3.3 -2.9 1.3 -2.4 0.7 0.5 0.4 2.3 3.4
Core CPI 3/31/2021 1.60 1.30 1.60 1.70 2.10 1.97 1.98 1.93 0.28 -1.2
Core PCE (current is median estimate) 3/31/2021 1.83 1.37 1.41 1.53 1.65 1.67 1.68 1.63 0.26 0.8
5 Year Breakeven Inflation 5/7/2021 2.39 2.39 2.32 2.22 1.76 1.39 1.84 1.83 2.10 0.43 0.7
PMI-Manufacturing 4/30/2021 60.7 64.7 58.7 59.3 41.5 54.3 55.0 53.9 3.9 1.8
PMI-Services 4/30/2021 62.7 63.7 58.7 56.2 41.6 56.3 56.5 55.9 2.7 2.5
Capacity Utilization 3/31/2021 74.4 73.4 74.7 72.5 73.6 75.9 76.0 76.5 2.3 -0.9
Change non-farm payrolls 4/30/2021 266 536 233 680 -20679 -115 7 106 1994 0.1
Unemployment rate 4/30/2021 6.1% 6.0% 6.3% 6.9% 14.7% 5.5% 5.1% 6.0% 2.1% 0.1
Initial Unemployment claims (est. current value) 5/7/2021 498 498 586 863 728 2,315 658 493 412 543 0.2
Continuing Insurance claims 5/7/2021 3,690 3,690 3,652 4,592 6,389 23,128 4,898 3,732 3,293 3,236 0.1
WTI Crude Price 5/7/2021 65 64 59 57 37 25 53 53 67 23 -0.1
Gold Price 5/7/2021 1,831 1,769 1,744 1,814 1,951 1,703 1,534 1,431 1,416 228 1.5
Risk signals
Yield Curve Slope in bps (10 Year vs 3 mo) 5/7/2021 156 161 165 113 73 56 53 87 150 81 0.1
TED Spread bps 5/7/2021 35 35 35 35 35 35 35 37 33 10 0.3
VIX Index 5/7/2021 17 19 17 21 25 28 21 18 17 7 0.2
Gold-to-Oil Price Ratio 5/7/2021 28 28 29 32 53 69 32 29 24 11 0.3
Credit Market (OAS) Spreads bps
BBG Barclays US Agg Gov/Credit 5/7/2021 37 37 38 40 51 88 51 51 55 13 -1.4
BBG Barclays US Intermediate Credit Baa 5/7/2021 83 84 86 87 118 254 132 129 152 48 -1.4
BBG Barclays US Corp High Yield 5/7/2021 289 291 292 333 442 725 425 416 468 124 -1.4
BBB REIT Investment Grade 5/7/2021 91 92 97 100 140 302 139 137 158 51 -1.3
BBG Barclays CMBS Investment Grade 5/7/2021 71 73 77 85 119 187 97 92 127 67 -0.8
BBG Barclays US Securitized MBS/ABS/CMI 5/7/2021 14 11 15 17 56 52 44 38 44 20 -1.6
Fixed Income Rates/Yields
3-month LIBOR 5/7/2021 0.16% 0.18% 0.19% 0.19% 0.21% 0.43% 1.54% 1.43% 0.89% 0.81% -0.9
3-month T-Bill 5/7/2021 0.01% 0.00% 0.01% 0.02% 0.09% 0.09% 1.26% 1.11% 0.58% 0.80% -0.7
10-Year Treasury 5/7/2021 1.58% 1.63% 1.66% 1.17% 0.82% 0.69% 1.81% 1.99% 2.09% 0.60% -0.8
30-Year Fixed Rate Mortgage 5/7/2021 3.18% 3.18% 3.27% 2.96% 2.98% 3.43% 3.93% 4.02% 4.07% 0.48% -1.9
BBG Barclays US Agg Gov/Credit 5/7/2021 1.42% 1.45% 1.48% 1.20% 1.15% 1.46% 2.20% 2.30% 2.15% 0.56% -1.3
BBG Barclays US Intermediate Credit Baa 5/7/2021 1.65% 1.70% 1.75% 1.42% 1.61% 2.96% 2.90% 2.98% 3.04% 0.63% -2.1
BBG Barclays US Corp High Yield 5/7/2021 3.91% 3.99% 4.02% 4.03% 5.01% 7.88% 6.01% 6.01% 6.37% 1.13% -2.1
BBG Barclays REIT Investment Grade 5/7/2021 2.03% 2.09% 2.17% 1.80% 2.01% 3.56% 3.07% 3.19% 3.24% 0.59% -2.1
BBG Barclays CMBS Investment Grade 5/7/2021 1.58% 1.66% 1.71% 1.45% 1.65% 2.31% 2.56% 2.66% 2.64% 0.65% -1.5
BBG Barclays US Securitized MBS/ABS/CMI 5/7/2021 1.64% 1.66% 1.73% 1.23% 1.30% 1.15% 2.38% 2.52% 2.60% 0.59% -1.6
Real Estate Fundamentals as of most recent quarter - 1Q2021
NPI - Apartment Occupancy 1Q2021 92.9 92.1 93.6 93.4 93.5 93.8 0.7 -1.3
NPI - Industrial Occupancy 1Q2021 96.5 96.5 96.5 96.7 96.4 94.3 2.7 0.8
NPI - Office Occupancy 1Q2021 87.7 89.2 89.9 89.5 89.2 87.8 1.7 -0.1
NPI - Retail Occupancy 1Q2021 90.1 91.7 92.4 92.3 92.6 92.0 1.3 -1.5
NPI - Apartment NOI Growth 1Q2021 4.1% -0.5% -14.0% -1.2% 0.5% 3.8% 5.9% -3.0
NPI - Industrial NOI Growth 1Q2021 3.5% 4.9% 6.9% 7.6% 7.5% 5.7% 2.9% 0.4
NPI - Office NOI Growth 1Q2021 5.8% 3.5% 3.0% 5.2% 4.8% 4.2% 2.6% -0.5
NPI - Retail NOI Growth 1Q2021 1.7% 6.0% -17.2% -6.3% -2.8% 0.5% 8.7% -2.0
NPI - Apartment Cap Rate 1Q2021 3.7% 3.8% 4.3% 4.2% 4.3% 4.7% 0.5% -2.0
NPI - Industrial Cap Rate 1Q2021 4.4% 4.7% 4.6% 4.7% 4.9% 5.4% 0.5% -1.9
NPI - Office Cap Rate 1Q2021 4.8% 4.9% 4.9% 4.9% 4.9% 5.2% 0.4% -0.9
NPI - Retail Cap Rate 1Q2021 5.0% 4.6% 5.2% 5.0% 5.1% 5.6% 0.6% -0.9
NPI - Cap Rate 1Q2021 4.4% 4.5% 4.7% 4.7% 4.8% 5.2% 0.5% -1.6
NPI - Cap Rate less 10-Yr Treasury Yield: Spread 1Q2021 3.1% 3.9% 3.3% 2.8% 2.8% 3.1% 0.7% 0.0
Source: Real Estate Center, McCombs School of Business, Bloomberg, Federal Reserve, NCREIF Property Index, May 7, 2021
14You can also read
