Real estate expert reveals what 'matters' to developers for homebuilding as Big Tech buys in

As Big Tech makes its foray into the housing sector — tackling the demand for affordable housing — one real estate expert explained what's important for developers who jump on these types of opportunities.

"Well, first of all, incentives matter," Madison Ventures Plus managing director Mitch Roschelle said during an interview on "Varney & Co." Wednesday. "So if you give a developer an incentive to build homes, they'll build homes."

HOME PRICES JUST SMASHED ANOTHER RECORD HIGH IN JUNE

The expert's comments come amid Amazon's $3.6 billion investment in its Housing Equity Fund, an initiative that addresses affordable housing through funding the building and the preservation of homes.

As these Big Tech companies foot the funds, Roschelle said that providing incentives to developers might encourage them to build affordable housing.

"The thing that I always say, the term home builder or developer, it's more of a verb than it is a noun," he said. "That's their business, right? They want to be in the business of building, so if you provide them incentives like a low-interest loan, perhaps they'll build affordable housing."

However, Roschelle did make note of an issue developers may run into. 

"The problem is, all of the costs that go into building a home require rent to be at a certain level for them to make money doing what they do," he said. "You're not going to build a home for $400,000 and sell it for $350,000. They're not going to do that, so the market needs to be there, but their costs are so high, so one of the ways you can fix that is if you lower the interest rate for them or give them tax incentives."

The expert recalled the investment tax credit, which was seen as an incentive. 

He explained that the credit "gave developers and other investors in… durable goods an incentive for buying them."

"So people built hotels because they could get an immediate tax credit for putting in beds and televisions and all of those personal property items," he explained.

"Same thing with home builders," Roschelle added. "That's what works when you give somebody a dollar-for-dollar credit that they can get immediately, that works."

He also explained how a credit would be applied when it came to home renovation.

"The way the investment tax credit worked back in the day, you could get it as an individual taxpayer. You could get it as a developer. So if you renovated your home and you put in a new kitchen and you put in a new bathroom, a lot of the cost of the materials that you purchased, you got a dollar-for-dollar credit for doing it," he said. 

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Roschelle also weighed in on Vice President Kamala Harris' plan to address housing by creating three million homes in four years. 

"The only way to fix the problem, and I sound like a broken record, is to fix the supply side and not the demand side and all of these plans. And if you look at some of these initiatives that Amazon has in their funds and stuff like that, they're also giving interest-free loans to buyers, first-time homebuyers and stuff that does nothing to keep home prices down." 

Roschelle concluded by warning that "every dollar you pump into the demand side of the economy creates inflation in the price of whatever they're buying."