The CHIPS Act Could Kick Off A Comeback For Factory Towns
President Joe Biden is poised to sign the $280B CHIPS and Science Act of 2022 into law this week, and when he does, he will kick off a spending spree that could spur economic development booms in cities and towns across the country — especially ones with electricity and water aplenty.
The bill has a provision that funnels $53B toward the manufacturing of semiconductors — vital components in the microchips used in cars and all manner of electronic devices. The funding is expected to fuel the development of new factories across the country, and new housing development and satellite businesses are likely to follow.
“The way to think about this is: It’s the most important, significant industrial policy initiative in several decades,” said Mark Muro, a senior fellow with Brookings Metro. “This is a way to anchor regional economic development.”
While the CHIPS Act devotes billions to new science, technology and energy research and development, its most impactful provisions on commercial real estate are the manufacturing and research grants to the semiconductor industry to develop new or expand existing plants, dedicated funding for R&D and workforce development programs and the creation of a 25% investment tax credit for chipmakers.
The bill's backers hope it turns around decades of manufacturing competitiveness lost to other countries. The U.S. made 40% of the world’s semiconductors in 1990, but has just a 12% market share today, according to data from the Congressional Research Service. As of 2019, nearly four-fifths of all semiconductor fabrication occurred in Asia, with South Korea’s market share at 28%, Taiwan’s at 22%, Japan’s at 16% and China’s at 12%.
The pandemic exposed the vulnerability for U.S. companies having chip production concentrated across the Pacific Ocean. When factories in Asia shut down, the effects rippled through the entire economic system.
As more consumer products also rely on semiconductors, with the proliferation of connected appliances and electric vehicles, factories have been unable to keep up with consumer demand, causing prices to spike.
Major chip manufacturers have been increasing their capital expenditures in recent years — the three largest players expect to spend more than $200B through 2023 to beef up production, according to a 2022 semiconductor industry report by Deloitte. The researchers estimated that $500B of potential revenue was lost by industries that rely on semiconductors over the last two years.
Mark Granahan, co-founder and CEO of high-voltage chipmaker startup iDEAL Semiconductor, said chipmakers will naturally gravitate toward places that have a lot of power for their fabrication plants, or fabs for short, such as in Pennsylvania and Ohio, where Intel recently announced plans for a semiconductor manufacturing megacampus.
“One of the major expenses in running a manufacturing facility for semiconductors is the cost of energy,” Granahan said. “Would you drop a fab in California? Probably not.”
The federal incentives piled on the semiconductor industry will likely be a boon for the Midwest and other semi-rural areas, said Michelle Comerford, a project director with the site selection consulting firm Biggins Lacy Shapiro & Co. Plants generally need as much as 1,000 contiguous acres and the ability to access huge amounts of both electricity and water.
Many of the undeveloped sites that would be ideal for chip manufacturers have been taken in recent years by electric vehicle makers, who have similar land and energy requirements. Those deals have largely been concentrated in the Southeast.
Comerford said some of the brownfields of the Midwest — the remnants of the Rust Belt’s industrial prime — could be revitalized with a new, federally backed factory.
“You’re talking locations that have a lot of electric infrastructure in place or are able to upgrade to those levels within a timely fashion,” she said.
Chipmaking giant Intel plans to build a semiconductor manufacturing campus in Licking County, Ohio, with the first two plants expected to open in 2025 — after which the locals expect an economic windfall, Licking County Commissioner Tim Bubb told Bisnow.
The county, just east of Columbus, is part of the Central Ohio region experiencing a surge of growth that could see as many as 2 million new residents by the middle of the century, Bubb said.
“The region was doing well before we won the Super Bowl and hit the Intel sweepstakes,” Bubb said.
Licking County commissioners are now attempting to model growth projections for the county on Chandler, Arizona, and Washington County, Oregon, outside of Portland, where Intel previously opened manufacturing facilities, Bubb said. Chandler local officials estimate Intel’s presence in the Maricopa County city, where it has operated a plant for 42 years, is responsible for roughly 55,000 jobs, Spectrum News in Columbus reported. Intel’s annual impact there is pegged at over $8B.
Since Intel’s Ohio announcement, at least one developer has announced plans to build a new office and industrial park nearby to offer space for companies looking to be near Intel. Bubb said the county is anticipating that the Columbus region will get another 50 new businesses to set up shop near the Intel facility.
“Intel just does not exist in a vacuum. They have suppliers. They will be looking here to be in proximity,” he said. “A lot of the major housebuilders now are looking for opportunities. We feel like we're there's a target here, and we're sort of in the bull's-eye.”
Muro said he expects many chipmakers will want to locate near major metropolitan areas in order to ensure there is enough of a talent pool to fill all the roles in the plants.
“You’re not going to see them popping up in the middle of cities. Semiconductor companies are poking around places like Upstate New York. I think we’re going to see moves into the industrial Midwest because water is available,” Muro said. “We’re talking about a significant amount of [federal] subsidization, so there’s likely to be a number of announcements in the coming years.”
Late last year, Boise, Idaho-based Micron Technology, with two plants in the U.S. already, said it intends to build a third domestic chip factory. It is eyeing sites in Arizona, California, Texas and North Carolina, the Triangle Business Journal reported.
Granahan, whose company designs high-voltage semiconductors, said the subsidies the CHIPS Act devotes to the semiconductor industry help close the competitiveness gap for U.S. companies against the competition in Southeast Asia. Without incentives, the cost to build and operate a chip plant in the U.S is up to 50% higher than in other countries, according to data from the Semiconductor Industry Association.
“One of the things I hope is that with this CHIPS Act is that more foundries spring up or existing foundries expand and become more available for startup companies like us,” Granahan said. “I'm a capitalist. But the fact of the matter is all of Asia subsidizes their semiconductor industries.”
That federal funding will likely have a multiplier effect on local economies, Brookings’ Muro said, with huge plants drawing other businesses to their region — especially producers of the equipment and chemicals that are used in the fabrication process.
“That's been the problem with our offshoring of these industries. You lose not only the particular plant, but you lose these connections to it,” Muro said. “This turns out to be an industry that has quite a significant clustering around plants with employment-related entities.”