Infrastructure investments will be driven by new technology

These four innovations will be imperative to stretching public dollars and convincing private investors of above market returns on infrastructure opportunities.

COVID-19 has highlighted many once (nearly) invisible issues. Inequality in our communities. Lack of health care capacity. The negative effects of isolation. While these issues are now widely discussed, there is one issue that has remained obvious for years: the United States needs to invest in critical infrastructure systems.

Prior to the outbreak, the United States was well behind developed countries in terms of infrastructure investment. Annually, the U.S. spends around $450 billion on infrastructure, only 2.3% of U.S GDP, far below the 5% of European countries’ GDPs. The U.S. needs over $2 trillion of infrastructure investment by 2030 just to keep pace with the country’s economic activity.

Even as that economic activity has slowed down with COVID-19, there is increasing need for Congress and the White House to stimulate infrastructure investment. This is not only needed to repair and maintain critical infrastructure assets strained by pandemic conditions, but also to provide jobs for thousands of Americans.

It’s no joke that infrastructure investment is a huge boost to the economy. A 2010 report found that 10 months after the American Recovery and Reinvestment Act, nearly 16,500 job-months were produced for every $1 billion spent on public transportation. A study by the IMF estimated that 1% GDP investment in infrastructure leads to a .4% increase in GDP in that year and 1.5% increase over the next four years. And, without these investments, GDP decline during a recession can reach an additional 8% decrease.

Even with new federal infrastructure legislation, there is an even greater need for these dollars to be stretched. Local, state, and federal governments are cash strapped as budget reserves shift to address critical health care and unemployment needs. To meet the infrastructure demand and spur economic recovery, the government is looking towards shovel-ready projects. But, are infrastructure industries, which are continuously criticized for being slow to move, ready to meet the investment call?

We can say that the conditions are definitely better. Over the last 12 years, infrastructure industries (comprising architecture, engineering, construction and real estate) have evolved, now poised to see more efficient investments in infrastructure. This is how they have done it:

1. Deployment of new technology: Construction technology is supplementing and catalyzing infrastructure investments. These technologies, from drone surveying services to 3D printing of construction materials, are expediting construction processes. As more contech start-ups deploy products in the industry, research shows that investment in these technologies could improve returns on infrastructure projects by 10%. These technologies will be imperative to stretching public dollars and convincing private investors of above market returns on infrastructure and real estate opportunities.
2. Implementing new organization practices: Technology deployment has been made possible through new organizational practices, including structural changes that push specific economic, social and environmental outcomes. As we work within this new normal, achieving these outcomes will mean implementing new methods to reduce contact between construction professionals and stave off the spread of COVID-19. Good thing the industry has been growing its modular practices and responding to project needs with decentralized technologies that will reduce working risks and increase efficiencies. While these practices have been a long time coming, construction companies are currently rebalancing supply chains towards resilience, increasing inventories for long-lead items.
3. Investing in climate change infrastructure: COVID-19 has impacted our behaviors in extreme ways, reducing air and transit travel and requiring more space for public areas. In a rapid paradigm shift, local governments have moved quickly to implement slow streets, wider sidewalks, dedicated bicycle lanes, and car free zones. To pandemic-proof other assets, governments and investors have diversified their energy assets with more investments in renewable energy sources. These greener alternatives are made possible because of public opinion. Since the 2009 recession, there has been a 14 point boost among Americans who see climate change as a priority. The success of climate change projects has hinged on how AEC industry leaders have trained up and incorporated new methods and materials to “green” projects.
4. Emergence of new investment pathways: In 2019, infrastructure and real estate investments reached record highs. Institutional investors, like pension funds, insurance companies and large capital allocators, closed on over $81 billion for infrastructure and real estate projects. These numbers don’t include the nontraditional investments into these markets. Since 2009, nearly 30 crowdfunding platforms in the U.S. have been created to allow individual investors to contribute billions of dollars to infrastructure and real estate opportunities. Increasing confidence in such financing/funding sources has made them a viable source for infrastructure projects. Even as demand for transit, aviation and transport projects temporarily wane and the real estate market shifts between traditional office and work from home office, the need for healthcare, energy, and (accelerated deployment of) 5G networks demands infrastructure investment. As the government tees-up investments in shovel ready projects, providing support, regulation and confidence to the market, institutional investors and nontraditional investors will need to follow suit.

We stand at a pivotal point. For the economy to progress, infrastructure investment will be key. And, with the last 12 years of progress, infrastructure industries are prepared for the challenges of this new normal.

Source: Construction Dive