Meanwhile there's unoccupied storefronts en-masse all over my city (DC). Its not something I thought I d miss in the world, but this small retail store thing seems like it's totally crushed out, between Walmart-ification & Amazon.
What I haven't seen is the return of more affordable interesting local spots. We have a couple dive-y places that've hung on, but there's been very few below-average cost places that have opened. It seems unlikely but maybe someday there'll be some rebalancing, rents will go down, people will start trying to put up more down to earth accessible experiences & options.
Residential and commercial real estate will price what the market can bear. Raise the min wage... Housing will follow suit.
Commercial, as I understand it, can't lower prices because that devalues the unit / building. To them, empty is better than offering a lower lease price
It's not only that particular market, it's effectively the whole credit based economy, underwritten by a financial system that fuels it. When credit and large assets are involve, these system(s) are intentionally tuned to avoid decrease in price. That would ccompletely undermine those entities making the loans.
The Fed is on record as saying, "Our target is 2% interest". Imagine that, we're going to devalue your hard earned money 2% a year, and no one cases (because it's passed off with the euphemism "inflation"). We get more efficient and more effective and prices go...up??!!
I highly recommend the book "Broken Money". Not so much for the Bitcoin and crypos stuff, but for the lessons on the history of money, the financial system, etc.
Real estate is owned by large firms that use the real estate as loan collateral. If you rent out space for less than you state it’s worth you have to restate the asset value and possibly put up more collateral which you don’t have or is better allocated elsewhere. There are a lot of shell games being played and eventually the music stop, assets get liquidated, loses get realized but until then property stays empty.
There is no natural clearing mechanism that forces firms to take market value losses when they happen so the incentive is to pretend there are no losses until they are so spectacular that the entire firm goes bankrupt
Exactly, came here to say this. For many that do operate the real estate there are loans to leverage the property and those loans come due if rental rates (or sale prices) fall below a limit stated in the loan. That's part of why you'll get free months rather than a reduced rate, but also why so much is empty.
Often the commercial part of 5/1 and 5/2 designs is a loss where all the profit is in the residential above it (and for code acceptance).
This is not true. Lenders are not stupid, they are not going to be fooled by giving away 11 months free and charging a higher rent for 1 month. Or for giving away 1 month and charging a higher rent for 11 months.
Commercial real estate loans will have a provision to periodically analyze the property’s revenue (not just monthly sticker price). See debt service coverage ratios.
It's not about fooling. It's about the contract. The property can have met the debt service (cash flow) ratio, but still be in violation of the the rental price covenant. Those covenants require immediate repayment of the loan.
So back to ZIRP, let's supersize this cyst until it pops all on its own, and then we can spend the entire federal budget on a bailout and hyperinflate the currency, but damn those equities will moon!
I know I left the analogy, but the point is being "careful" and being unwilling to endure productive pain is what got us here.
If you told me my options were go bankrupt now with a chance at long-term recovery, or retire into/put my kids and grandkids into the worst depression in US history after a few more decades of can-kicking and treating the symptoms over the disease, you're damn right I'd be the first to sign up so long as the necessary reforms were made.
But hey, I think long term. Which in our system means I'm not in charge of anything substantial.
The people who began this "perma-bubble" were Alan Greenspan and Ben Bernanke, thirty years ago. The poison is in every imaginable part of the economy. No only would the "pain" be catastrophic to a large part of the economy but it would be impossible to get a consensus among the governing parties to even begin creating the pain.
Pretty much. And with the boomers retiring (and being the largest voting bloc right now), getting any ‘bandaid ripping’ consensus is even more impossible.
It'll be even more catastrophic the longer we indulge. I'm hoping higher for longer is measured in decades so the markets can be brought to heel, but as you say that's probably wishful thinking. They're already talking about agency backed second mortgages, which would primarily give seniors with paid-off homes one last big credit infusion on the way out.
So I guess try to ride the various distortions and get out at or near the top, and hope whatever you end up with is enough to weather what comes next.
This is the perfect storm, commercial landlords versus small business owners. Commercial landlords doing their thing, while many small business owners think that they are a sacred cow to the country and are constitutionally entitled to a profitable enterprise.
Many small business owners are just so tight on cash flow that trying to raise rent on them is akin to squeezing blood out of a stone.
Fwiw, I know a small business owner who closed his bakery/restaurant because his landlord raised prices and he couldn't find another place where the financials would have worked for him. Raising prices isn't an option if your customers don't accept higher prices.
Yup, and a lot of them have been burning what little cash they have remaining trying to do the same thing the commercial landlords have been trying to do - get business going again post-COVID.
There are exceptions. One of my favorite live music venues - and a very popular local one - was basically driven out by their landlord: at the start of COVID, when we had actual lockdowns, they literally doubled the rent, knowing this - and mostly because they wanted that revenue themselves - they got absolutely pilloried when they re-opened (without their tenant), and used all the publicity and photos and name from the tenant's business to say "come here and enjoy our great live music", basically freeloading off the tenant's work.
But I do also know plenty of small business owners who act like their business failing is anyone's fault but their own. I watched another business collapse and they were literally posting on Facebook, "It is sad to see that our dream with so much potential collapsed because the community wasn't willing to support it."
>> A majority of 54 percent of small business owners surveyed by Alignable said that their landlords were charging them more now than six months ago, with 11 percent saying their rent has increased by over 20 percent.
>> According to Alignable, only 32 percent of small businesses founded before March 2020 are now earning as much every month as they were before the pandemic.
So landlords are probably rotating financing onto higher rates and trying to pass their interest charges to tenants, who haven't sufficiently increased prices to compensate.
From what I understand, commercial real estate is also going through some devaluing so maybe those rents should be going in the other direction? This seems like a last ditch attempt to keep things together long enough until rates come down (I'm not sure they'll come down enough in the near term.). I'm hoping businesses choose to move - or maybe go storefront free for a while - to speed up the correction. (I've noticed several businesses operating (purely?) out of a nearby storage place for a while now.)
Intuitively, it seems rare for any rent-seeking business (such as a landlord) to decrease prices, especially for an active tenancy. But even for a vacancy, they will only do that when they are absolutely forced to, and they will delay it for as long as possible (better to wait two months to fill a $1k/month vacancy than to reduce it to $800/month).
On the other hand, they will happily increase prices without being forced to, especially since they can do that while they have an active tenant.
Why would a landlord ever decrease the price of an active tenancy? It would only happen if the tenant threatened to end the tenancy. That’s more likely for commercial tenants than residential, but it still requires a higher “activation energy” than its corollary, where the landlord increases the price on a whim.
The answer is when the market turns - from going up or steady, to down.
If they can.
The big issue with rents right now IMO, is that commercial real estate typically has short length adjustable rate (or even ballon) financing, which causes catastrophic problems when you have a combination of:
Which is common when we enter a recession due to increasing borrowing costs.
The landlord either has to burn their free cash hoping for a recovery, or default. If it’s a short period of time, the first can happen. If it’s a fake out, then they’re left with no cash and still go bankrupt - so then need to liquidate, but it’s often when a bunch of other folks are doing the same, so prices go through the floor and it’s a bloodbath for existing investors.
And since the low interest rate environment was going on so long (with QE even!) almost everyone was leveraged to the gills on cheap credit, often to the point they had little to no free cash flow even at that point. It wasn’t just commercial of course - residential properties stopped having positive cash flow in some cases nearly a decade ago, but still kept going up. Residential financing offers more opportunities to insulate oneself from this kind of crazy though.
It happens normally of course due to the business cycle, but this has been an exceptionally long time without real monetary tightening (since well before ‘08), so the overhang is bigger.
It’s why all those dead malls are still sitting there.
So, in the fashion of wil-e-coyote off the cliff, no one wants to look down. Because it’s a long way down.
Yep. Importantly, employment contracts. Employees are extremely resistant to wage decreases but they'll passively tolerate it in the form of inflation. Without inflation, they'd have to be fired and replaced with someone else just to get around that psychological obstacle.
Moving for most small businesses comes with a heavy cost. If you’re in a high regulation area like California, even moving down the block would first of all require a ton of permitting and time. Second, foot traffic is not equal everywhere. Even if you move buildings in the same neighborhood, availability or lack of something as simple as parking, can affect your business significantly. Lastly, even if you figure everything out, moving comes with the costs of making the new place up to date to align with your business. For some businesses these costs can run into millions (big restaurants). In most cases, businesses will either pay the higher rent or simply shut down.
When I had a commercial building mortgage it was on a 30-year note that rate adjusted every 5-years. Landlord's whose mortgages are adjusting this year are going to have to increase rents to keep their cash flow in place as rates are a _lot_ higher than 5 years ago.
Additionally, I believe you can also get a margin call on your financing if you lower the rent, so there are perverse incentives to keep spaces empty which can push against a correction in prices.
Calling out stats like this makes me suspicious about the quality of the statistical analysis:
>> A majority of 54 percent of small business owners surveyed by Alignable said that their landlords were charging them more now than six months ago
Doesn’t rent, even at the best (worst?) of times, basically always rise every year, at least matching inflation? Half of businesses experiencing a rent rise in half a year would be normal.
It doesn’t have to match inflation, and there is a little circularity here, since (residential) rent is factored into inflation. I don’t have any insight into commercial rents, but my experiences in residential renting in the 2000s and 2010s would indicate no, yearly rent increases are not expected. They happened from time to time, but far from yearly. Maybe Twice in 10 years? And rents have gone down when the housing market drops, though you might have to move. I’m not sure this really means anything though. It’s more like, how often do you want to evaluate the market. It’s made easier by (possibly cartel creating) software that automates the process now though, so things could be different. But the survey question does seem like it doesn’t mean that much on its own to me as well.
Do you think they’re using monopoly adjacent companies to set/analyze rents like real page to collude for rent pricing with other real estate companies, but for commercial rather than residential?
So much real estate investment was made by extending way beyond relatively minuscule net worth, based solely on ZIRP.
For the longest time, income-generating properties provided positive cash flow at returns lower than the current interest rate has risen to.
Now all of these speculators are in trouble at the same time.
And if small-business tenants were providing the cash flow, lots of them were barely viable, and only as long as expenses and interest rates on other loans did not rise at a faster rate than during the ZIRP period when things had been considered stable for quite some time.
It's a death trap. Commercial real estate pushes higher interest rates into SMB rents, but many SMB customers are super price sensitive and will go elsewhere if prices increase. The only businesses that can survive this are the already-huge ones.
Marginal land value taxes, with even higher taxes the longer the space stays empty.
Wonder if enough young/working people will ever wake up to realize earned income tax is penalizing them for working, and flat (and extremely low) land value taxes with myriad loopholes like 1031 exchange, senior discounts, and faux exemptions for things like agriculture are basically a feudal system to maintain the socioeconomic order.
That's a proposed solution not a problem definition. What's the "landlord problem" that needs to get fixed and why is a land value tax the best option?
I'll just quote from Adam Smith as to the problem. I think the proposed solution is good. I think "best option" is needlessly specific, and subjective. No need to let the perfect be the enemy of the good.
“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them, and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities, makes a third”
Fundamentally that's the problem of allocating scarce resources. If they're not allocated to whoever pays the most, it would be some other way which still excludes people. Maybe it's to the people who promise to fight for the king, or the winners of a lottery but at the end of the day, those other ways aren't better because someone still misses out.
It also creates disincentives for letting land lay unused. Why would we have forests or parks or homesteads when we have to pay taxes based on what someone else thinks the potential value generation of the land is?
And how to we make sure that such a tax doesn't just push us further down the path of using as many natural resources as we can? A land tax is based on the assumption that all land should be used to its maximal financial value. I don't know about you, but I fundamentally disagree with that and don't want to live in a world where we've codified the need to use up whatever we have.
The western US states all have urban growth boundaries for this reason.
> just push us further down the path of using as many natural resources as we can?
Using more surface area is using as many natural resources as we can.
Energy = mass * distance. The further people live away, from each other, the more energy is consumed, for doing everything.
A land value tax would incentivize density, and density reduces the use of as natural resources.
The people living in 10x10x10 homes in Honk Kong are using magnitudes less natural resources than hundreds of millions of people in US suburbia and exurbia.
> Energy = mass * distance. The further people live away, from each other, the more energy is consumed, for doing everything
That only holds if things stay just as centralized as they are today. If people live further from each other they have more potential for producing their own goods. That also means everyone around then has that potential as well. For example, living in a dense area means any lumber you buy was shipped in, and likely even crossed national borders. Living in a less populated area can mean access to lumber from a local lumber yard that processes trees grown locally.
I think the real challenge we have today is that we are stuck in the middle, our society is neither designed for dense populations or low density populations. There's nothing that I've seen that can definitively show that dense populations will always work better than less dense, more independent populations. Either can work well and either can be much better utilized than what we have today.
What I really take issue with is a central authority forcing one approach on us. Because we can't show why one path has to be the best, and because we don't know what we don't know, the decision should never be made at all by those in charge. The beauty of a federal model is to allow smaller regions to go their own way and try different approaches. I wouldn't balk at all if Los Angeles wanted to try a land value tax, let's see what happens. I personally don't think it will work well and I think there isn't a good answer for how to appropriately value the land, but I also don't live there and as long as my federal tax dollars aren't given to LA I have no dog in that fight.
> If people live further from each other they have more potential for producing their own goods.
I think this is extremely unlikely because it is so much cheaper to mass manufacture and ship things across literally half the entire world than to make them locally.
Energy/resource usage is not dominated by low frequency lumber trips, it is the every day push and pull of the mass of people, water, sewage, garbage, food, etc.
Without reverting to 1400s lifestyle where you only consume stuff made within a few hundred miles of you, I don’t think there is any way a modern populace consumed less by using more space.
So you would push for centralization and higher density not because its the only good solution, but because you think people wouldn't want the alternative, right? I don't see anything wrong with your guess that people wouldn't want it, but should that option be effectively removed from us through programs like a tax that incentivizes high density?
There's a sawmill I get lumber from about 10 minutes from my house. He gets all his logs from arborists within a few hours of here. They all give him the logs for free because the alternative is either burning them or having to pay by the truckload to take them to the dump. I don't live in the 1400s but I do very much appreciate the ability to get lumber that was milled locally and would otherwise have just been dropped in a hole with a bunch of garbage.
I don’t see why your lumber mill has to be affected?
Land value tax proposals would mostly just change things in urban areas, where land is scarce and valuable. There are no lumber mills there, just rich people who own the land from either having inherited it or an REIT owning it, waiting for it to appreciate.
I’m assuming you live in a rural area, which have (relatively) low land values.
It’s the strip mall suburbs that are highly inefficiently developed due to no penalty on the inefficiency (caused by low density).
I wasn't trying to say my lumber mill would be affected by a land tax, though presumably they would if a land tax was imposed here and a different business could theoretically extract more value from that land.
I raised a local mill as an example of how a less dense area can also lead to higher efficiency and lower resource use.
I was responding to the idea that we need a land value tax to push us towards higher density living because that's the most efficient. Its only efficient if we have centralized infrastructure that will always have to be shipped across the country or around the globe to get basic goods to people. I used my local mill as an example of how lower density can lead to resource efficiency that will simply never be beat no matter how efficient a centralized industry and shipping is.
Does it scale? Well I have no idea. Do people want the life in a less dense area? Again, no idea and I think most people living in a dense area don't really know what that life would look like to answer that question. I have plenty of uncertainties for either approach, what I don't want is for a central planner to push one path on us when its not clear the right way to go
>what I don't want is for a central planner to push one path on us when its not clear the right way to go
It is not possible to not have this. Land plots and road grids and design have to be designed for dense living, or less dense living, or rural living. You can’t mix and match.
What we have now is the worst of all worlds, where a little, tiny bit is dense, and then there is an unsustainable medium density where people want to have their cake and eat it too (but physics does not allow for it). And that is where 95% of the population of the world is.
That's absolutely false, humanity existed before central planners drew property lines and build state-run roads.
It might be reasonable to say that we can't have what we have today without central planning, but that's a very different discussion. You don't even have to go back that far, most roads were created by people just trying to get from point A to point B, there was no central planner.
Fair, I didn't intent to zero in on the word "best" there. I think its still important to know why its the best of the options we have today though.
There's a huge blind spot in only applying that Adam Smith quote to private landlords - the government. Functionally they own all land, between property taxes which act much like rent, and more extreme measures like eminent domain, the government has staked a claim to all land and offers us the privilege to live on it as long as we play by their rules.
We have to pay rent in the form of property taxes. We have to pay taxes on any value crested from the land, and often have to get licensed and/or inspected when doing so.
Adam Smith's writings are much better used as an argument against many of today's government structures rather than against private land owners renting it out to other private citizens. And it makes sense, Smith was writing in opposition to the monarchy of his time.
I'm not saying that there aren't plenty of terrible private landlords or that our housing market seems reasonable. But if we stop complaining about private land ownership at the point of the individual we haven't gone far enough. The government shouldn't be claiming ownership over everything and everyone within its borders. Fix that, then we can really worry about what any one land owner does with the smaller pieces of land they own.
every individual who gets their money by taking it from someone else through withholding shelter is a drain on the economy when they could be working a job that produces goods or services like everyone else
I assume that extends to the government as well? They get their money by taking it from everyone else, including property taxes which must be paid with the penalty being eventually losing you shelter.
The "landlord problem" is more the "speculation problem".
Real estate has become based on "how much it will appreciate"--which is disastrous to society--rather than "the useful value of land and cashflow"--which is beneficial to society.
The land value tax breaks the speculation side of the equation which leaving the usefulness intact.
How do values get set for a land value tax without effectively still speculating? Is the idea usually that the tax would be based on what the potential value of the land is, for example to incentivize building businesses rather than parking lots?
Investors will always speculate. A land value tax just adds another cost they have to account for, it doesn't prevent them from speculating and doing with thr land whatever they think most benefits them.
We already do it with property tax, there is a land portion of the property value assessment. It is not perfect, but it is easily doable.
The only work that happens is that land value gets multiplied by another number. Any dispute about assessed land price gets adjudicated like it does now with any property assessment dispute.
That's an estimate of the current fair market value of the property though, not the value of the potential producible value.
I'm probably describing that poorly, but when I've seen arguments for land value tax its meant to tax what the property could be worth if optimally developed, incentivizing banks over parking lots for example. We already do a questionable job valuing tax assessments for current value, coming up with future value will be a lot harder. I'd honestly expect them to just make some blanket multiplier over current value which seems pretty useless.
Potential producible value is fair market value. That is the price someone would pay for land, presumably calculating the potential income they can earn from building (or buying) a business on it.
I think it is close enough to move things in the right direction. The desirable end result is to make high transit, high impact land used more productively, rather than leave it as a patch of weeds for 1 person’s benefit when they sell it at an appreciated price in the future.
And obviously this number is constantly moving, just like property tax assessments move.
If we want to assume that today's fair market value is already adjusted for expected potential value, don't we already have this land value tax then? Is the argument here that we just need higher property taxes rather than a new type of tax or a new type of property valuation?
The idea is to disincentivize using land to hoard wealth at the expense of society, for example an empty plot or abandoned building in the middle of a busy city or intersection.
Tens of thousands of people could benefit by making it a destination, versus being harmed by making it extra distance to travel around to get to a destination.
So the tax is on the land instead of the improvement on the land. A person who sits on it and a developer who builds something like apartments with shops underneath pay the same property tax (aka land value tax).
Are you just describing property tax as we have it today then? We already pay property taxes as a combination of the estimated raw land value and "improvements" made to the land.
If that's the case I don't really have a problem here, but there's also no debate to since we already impose that tax on land owners.
Property tax as we have it does not punish leaving land empty or underutilized.
Property tax needs to be updated so that it is a land value tax, so people cannot use prime real estate as a piggy bank at the expense of everyone else.
> So the tax is on the land instead of the improvement on the land.
Your last comment seems to contradict this one though. You were describing a tax based on the value of the land rather than the value of improvements. That's precisely what we have today.
If you're wanting to punish people for leaving land underutilized you do in fact need to tax based on what the potential value of the land is when fully utilized. Thst runs smack into the challenge of how to value potential value if the land was fully utilized and the question of whether we can be so sure that high density is the answer that we disincentivize lower density living.
Edit: reading this again I think we're either saying the same thing in slightly different ways or I just misunderstood you. When I'm talking about improvements I do mean potential future improvements that could be made to the land, I think that's what most people mean by a land value tax. Meaning, taxing a person for the value of a piece of land as if there were already a condo on it because we'd rather them build that than leave it empty or build a single family home. I see that as a huge problem, both because it requires a massive amount of accurate (and oppressive) central planning and because it's impossible to know what the land would be worth when "fully utilized". We would have to define what fully utlizied means, accepting that it's entirely based on personal preference, and then envision what the whole community would look like if built out that way and what that would then be valued at.
I think we're alluding to making private property ownership more accessible, by making it more favorable, tax and otherwise, to own one house or small-business-zoned property, but less favorable to own many.
Maybe communism, or something, is the way to go. The economy is the lifeblood of our society. Surely we don't want its form to be dictated by something as whimsical as a marketplace.
Assuming that distributed control is invariably going to turn into a fight (spending every available resource in the process), yes, centralized control seems to be the answer.
Yep, worked perfectly for East Germany, USSR and works great for North Korea.
An omniscient committee of a dozen party members will know better than hundreds of millions what is better for the hundreds of millions because humans are alike and predictable. /s
Try to drive a bus by having the dozen passengers fight with each other. That probably isn't going to work.
I think that governance by having everybody fight with each other only serves the strongest fighters. And of course these strong fighters will tell everybody that this system is the best of all possible systems.
> Try to drive a bus by having the dozen passengers fight with each other
A bus is a different from a country. Also, in a bus, imagine the bus driver dictating where the passengers should get down and what they should listen to, what they should think, if their windows should be rolled up, etc.
I get your point. You need a bus driver (I agree that we need regulated markets), but the bus driver shouldn't be overbearing.
That is downright megalomanical in assumptions that the central power will know better than everyone else AND have their best interests at heart. We tried that for power and it was called "absolute monarchy" and worked worse than the alternatives.
How about building places? My grandfather built his own house. The Zoning system restricts where and how houses can be built. Open up more land and incentivize people to build - maybe eliminate capital gains on first home construction for first time home buyers. You would have a lot more people who gain experience building homes and thus a lot more home building happening as they may continue after the first one.
Lots of people can't change a light bulb much less build a home. Most of the cost of building one is labor - the underlying materials are actually pretty cheap. I've seen home kits for as low as $8k that includes the lumber, trusses, cabinets, siding, etc.
I’m not doubting you - I just don’t think I’m looking in the right places. But where have you seen these home kits ?
I say this having just built cabinets, an 8x12 shed, and a few other things where the lumber alone… for example, the subfloor for a room I redid the flooring in was $400 alone. But I may be buying things the wrong way and I would love to find a better way!
I think the situation you allude is something like the "buying without caring whether you are a landlord" problem. A combination of speculation and the US printing money to backstop property values results in a situation where large and small investors buy property primarily for the appreciation and, sure, they'd like to get rental income but getting rental income is a high priority so they're OK pricing tenants out of the market and behaviors that result in empty buildings that still increase in value.
> That only happens because the govt. in cahoots with NIMBYies restricts new development while we have a rising population.
there is plenty of unused housing inventory. the problem is that people can no longer afford rents.
> When are we going to address the government overregulation problem?
don't worry, the supreme court just overturned the chevron doctrine. hope you weren't for right-to-repair or net neutrality! but pesky "overregulation" right? it's all bad if it comes from "the government."
We’re following along with the pseudoscience and propaganda of the prior generation of post war shellshocked Cold War paranoids
Supply demand has more to do with real supply. Even if there’s plenty of housing in BFE no one wants to live there. Where the supply is and other variables matter. Cherry picked social media and corporate news may as well be throwing spaghetti at the wall. This is the colloquial equivalent to p-hacking.
I suppose if that’s the case then human society is a hallucination. It only has as much reality and value as we decide as a group to give it. Any bit of human construct can be considered a hallucination beyond realities like eating, drinking, and expelling without which we cease to exist.
Yeah it is. It’s highly mutable. No need for it to be what you believe it to be.
My point is the endless possibilities and only one real reality matters; enough people feel served by society or they’ll forget the words and reach for guns.
Your grasp of contemporary memes is not armor against physics.
You and the person I replied to post 0 out of these "8 billion official and academic resources."
Feel free to add just one of the "8 billion official and academic resources" that you and OP ignored.
If you say supply and demand doesn't work for housing (science proven over centuries in human societies all over the world), you are similar to vaccine deniers.
The people who are cheering for that decision likely won’t be cheering when their tap water looks gray with heavy metals and sulfur/methane gas coming through.
Look up the history of why Chevron deference was made in the first place (hint: you won't like it). This forces the legislature to be less lazy and do their jobs well.
A big problem is Real Estate Investment Trusts. They buy up properties, shorten leases, and raise rents. They borrow money against future rents so they rather a space stay vacant than lower a single rent. If they lower a rent it signals that they are borrowing against an inflated asset, which would cause a domino effect on their loans. REITs are considered stable investments, so everyone's mutual funds and pensions are full of this stuff.
As a small business owner, I'm very lucky to have mostly decent landlords, but I worry for the day that they sell out to REITs. Our business won't survive that.
And then the problem is that the rent increase is limitless (unless limited by your lease).
If your business is doing well, they'll raise it to the maximum, and moving businesses is way harder than moving homes.
No wonder that all the restaurants in the nearby newly built strip mall are large chains. They can pay the rent. But there is no space for the local couple that has a taco place. They can't compete on cost ingredients with say Chipotle.
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[ 4.4 ms ] story [ 176 ms ] threadWhat I haven't seen is the return of more affordable interesting local spots. We have a couple dive-y places that've hung on, but there's been very few below-average cost places that have opened. It seems unlikely but maybe someday there'll be some rebalancing, rents will go down, people will start trying to put up more down to earth accessible experiences & options.
Commercial, as I understand it, can't lower prices because that devalues the unit / building. To them, empty is better than offering a lower lease price
The Fed is on record as saying, "Our target is 2% interest". Imagine that, we're going to devalue your hard earned money 2% a year, and no one cases (because it's passed off with the euphemism "inflation"). We get more efficient and more effective and prices go...up??!!
I highly recommend the book "Broken Money". Not so much for the Bitcoin and crypos stuff, but for the lessons on the history of money, the financial system, etc.
https://www.lynalden.com/broken-money/
Often the commercial part of 5/1 and 5/2 designs is a loss where all the profit is in the residential above it (and for code acceptance).
Commercial real estate loans will have a provision to periodically analyze the property’s revenue (not just monthly sticker price). See debt service coverage ratios.
https://www.investopedia.com/terms/d/dscr.asp
I know I left the analogy, but the point is being "careful" and being unwilling to endure productive pain is what got us here.
So are you signing up to go bankrupt first?
But hey, I think long term. Which in our system means I'm not in charge of anything substantial.
So, Japanese ‘lost decade’?
So I guess try to ride the various distortions and get out at or near the top, and hope whatever you end up with is enough to weather what comes next.
Fwiw, I know a small business owner who closed his bakery/restaurant because his landlord raised prices and he couldn't find another place where the financials would have worked for him. Raising prices isn't an option if your customers don't accept higher prices.
But I do also know plenty of small business owners who act like their business failing is anyone's fault but their own. I watched another business collapse and they were literally posting on Facebook, "It is sad to see that our dream with so much potential collapsed because the community wasn't willing to support it."
>> A majority of 54 percent of small business owners surveyed by Alignable said that their landlords were charging them more now than six months ago, with 11 percent saying their rent has increased by over 20 percent.
>> According to Alignable, only 32 percent of small businesses founded before March 2020 are now earning as much every month as they were before the pandemic.
So landlords are probably rotating financing onto higher rates and trying to pass their interest charges to tenants, who haven't sufficiently increased prices to compensate.
On the other hand, they will happily increase prices without being forced to, especially since they can do that while they have an active tenant.
Why would a landlord ever decrease the price of an active tenancy? It would only happen if the tenant threatened to end the tenancy. That’s more likely for commercial tenants than residential, but it still requires a higher “activation energy” than its corollary, where the landlord increases the price on a whim.
If they can.
The big issue with rents right now IMO, is that commercial real estate typically has short length adjustable rate (or even ballon) financing, which causes catastrophic problems when you have a combination of:
+ rising vacancies and/or decreasing rents (aka reduced cash flow)
+ increasing finance costs.
Which is common when we enter a recession due to increasing borrowing costs.
The landlord either has to burn their free cash hoping for a recovery, or default. If it’s a short period of time, the first can happen. If it’s a fake out, then they’re left with no cash and still go bankrupt - so then need to liquidate, but it’s often when a bunch of other folks are doing the same, so prices go through the floor and it’s a bloodbath for existing investors.
And since the low interest rate environment was going on so long (with QE even!) almost everyone was leveraged to the gills on cheap credit, often to the point they had little to no free cash flow even at that point. It wasn’t just commercial of course - residential properties stopped having positive cash flow in some cases nearly a decade ago, but still kept going up. Residential financing offers more opportunities to insulate oneself from this kind of crazy though.
It happens normally of course due to the business cycle, but this has been an exceptionally long time without real monetary tightening (since well before ‘08), so the overhang is bigger.
It’s why all those dead malls are still sitting there.
So, in the fashion of wil-e-coyote off the cliff, no one wants to look down. Because it’s a long way down.
The same thing happens on lots of different contracts.
Moving for most small businesses comes with a heavy cost. If you’re in a high regulation area like California, even moving down the block would first of all require a ton of permitting and time. Second, foot traffic is not equal everywhere. Even if you move buildings in the same neighborhood, availability or lack of something as simple as parking, can affect your business significantly. Lastly, even if you figure everything out, moving comes with the costs of making the new place up to date to align with your business. For some businesses these costs can run into millions (big restaurants). In most cases, businesses will either pay the higher rent or simply shut down.
>> A majority of 54 percent of small business owners surveyed by Alignable said that their landlords were charging them more now than six months ago
Doesn’t rent, even at the best (worst?) of times, basically always rise every year, at least matching inflation? Half of businesses experiencing a rent rise in half a year would be normal.
"owner of iconic Berlin department store KaDeWe has filed for bankruptcy, citing drastically increase renting costs"
https://www.dw.com/en/germany-kadewe-department-store-group-...
Increasing prices doesn't automatically result in more revenue for the business. Customers have choices, and small businesses are the most vulnerable.
So much real estate investment was made by extending way beyond relatively minuscule net worth, based solely on ZIRP.
For the longest time, income-generating properties provided positive cash flow at returns lower than the current interest rate has risen to.
Now all of these speculators are in trouble at the same time.
And if small-business tenants were providing the cash flow, lots of them were barely viable, and only as long as expenses and interest rates on other loans did not rise at a faster rate than during the ZIRP period when things had been considered stable for quite some time.
Wonder if enough young/working people will ever wake up to realize earned income tax is penalizing them for working, and flat (and extremely low) land value taxes with myriad loopholes like 1031 exchange, senior discounts, and faux exemptions for things like agriculture are basically a feudal system to maintain the socioeconomic order.
“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them, and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities, makes a third”
― Adam Smith, Wealth of Nations
And how to we make sure that such a tax doesn't just push us further down the path of using as many natural resources as we can? A land tax is based on the assumption that all land should be used to its maximal financial value. I don't know about you, but I fundamentally disagree with that and don't want to live in a world where we've codified the need to use up whatever we have.
> just push us further down the path of using as many natural resources as we can?
Using more surface area is using as many natural resources as we can.
Energy = mass * distance. The further people live away, from each other, the more energy is consumed, for doing everything.
A land value tax would incentivize density, and density reduces the use of as natural resources.
The people living in 10x10x10 homes in Honk Kong are using magnitudes less natural resources than hundreds of millions of people in US suburbia and exurbia.
That only holds if things stay just as centralized as they are today. If people live further from each other they have more potential for producing their own goods. That also means everyone around then has that potential as well. For example, living in a dense area means any lumber you buy was shipped in, and likely even crossed national borders. Living in a less populated area can mean access to lumber from a local lumber yard that processes trees grown locally.
I think the real challenge we have today is that we are stuck in the middle, our society is neither designed for dense populations or low density populations. There's nothing that I've seen that can definitively show that dense populations will always work better than less dense, more independent populations. Either can work well and either can be much better utilized than what we have today.
What I really take issue with is a central authority forcing one approach on us. Because we can't show why one path has to be the best, and because we don't know what we don't know, the decision should never be made at all by those in charge. The beauty of a federal model is to allow smaller regions to go their own way and try different approaches. I wouldn't balk at all if Los Angeles wanted to try a land value tax, let's see what happens. I personally don't think it will work well and I think there isn't a good answer for how to appropriately value the land, but I also don't live there and as long as my federal tax dollars aren't given to LA I have no dog in that fight.
I think this is extremely unlikely because it is so much cheaper to mass manufacture and ship things across literally half the entire world than to make them locally.
Energy/resource usage is not dominated by low frequency lumber trips, it is the every day push and pull of the mass of people, water, sewage, garbage, food, etc.
Without reverting to 1400s lifestyle where you only consume stuff made within a few hundred miles of you, I don’t think there is any way a modern populace consumed less by using more space.
There's a sawmill I get lumber from about 10 minutes from my house. He gets all his logs from arborists within a few hours of here. They all give him the logs for free because the alternative is either burning them or having to pay by the truckload to take them to the dump. I don't live in the 1400s but I do very much appreciate the ability to get lumber that was milled locally and would otherwise have just been dropped in a hole with a bunch of garbage.
Land value tax proposals would mostly just change things in urban areas, where land is scarce and valuable. There are no lumber mills there, just rich people who own the land from either having inherited it or an REIT owning it, waiting for it to appreciate.
I’m assuming you live in a rural area, which have (relatively) low land values.
It’s the strip mall suburbs that are highly inefficiently developed due to no penalty on the inefficiency (caused by low density).
I raised a local mill as an example of how a less dense area can also lead to higher efficiency and lower resource use.
I was responding to the idea that we need a land value tax to push us towards higher density living because that's the most efficient. Its only efficient if we have centralized infrastructure that will always have to be shipped across the country or around the globe to get basic goods to people. I used my local mill as an example of how lower density can lead to resource efficiency that will simply never be beat no matter how efficient a centralized industry and shipping is.
Does it scale? Well I have no idea. Do people want the life in a less dense area? Again, no idea and I think most people living in a dense area don't really know what that life would look like to answer that question. I have plenty of uncertainties for either approach, what I don't want is for a central planner to push one path on us when its not clear the right way to go
It is not possible to not have this. Land plots and road grids and design have to be designed for dense living, or less dense living, or rural living. You can’t mix and match.
What we have now is the worst of all worlds, where a little, tiny bit is dense, and then there is an unsustainable medium density where people want to have their cake and eat it too (but physics does not allow for it). And that is where 95% of the population of the world is.
That's absolutely false, humanity existed before central planners drew property lines and build state-run roads.
It might be reasonable to say that we can't have what we have today without central planning, but that's a very different discussion. You don't even have to go back that far, most roads were created by people just trying to get from point A to point B, there was no central planner.
There's a huge blind spot in only applying that Adam Smith quote to private landlords - the government. Functionally they own all land, between property taxes which act much like rent, and more extreme measures like eminent domain, the government has staked a claim to all land and offers us the privilege to live on it as long as we play by their rules.
We have to pay rent in the form of property taxes. We have to pay taxes on any value crested from the land, and often have to get licensed and/or inspected when doing so.
Adam Smith's writings are much better used as an argument against many of today's government structures rather than against private land owners renting it out to other private citizens. And it makes sense, Smith was writing in opposition to the monarchy of his time.
I'm not saying that there aren't plenty of terrible private landlords or that our housing market seems reasonable. But if we stop complaining about private land ownership at the point of the individual we haven't gone far enough. The government shouldn't be claiming ownership over everything and everyone within its borders. Fix that, then we can really worry about what any one land owner does with the smaller pieces of land they own.
The "landlord problem" is more the "speculation problem".
Real estate has become based on "how much it will appreciate"--which is disastrous to society--rather than "the useful value of land and cashflow"--which is beneficial to society.
The land value tax breaks the speculation side of the equation which leaving the usefulness intact.
Investors will always speculate. A land value tax just adds another cost they have to account for, it doesn't prevent them from speculating and doing with thr land whatever they think most benefits them.
The only work that happens is that land value gets multiplied by another number. Any dispute about assessed land price gets adjudicated like it does now with any property assessment dispute.
I'm probably describing that poorly, but when I've seen arguments for land value tax its meant to tax what the property could be worth if optimally developed, incentivizing banks over parking lots for example. We already do a questionable job valuing tax assessments for current value, coming up with future value will be a lot harder. I'd honestly expect them to just make some blanket multiplier over current value which seems pretty useless.
I think it is close enough to move things in the right direction. The desirable end result is to make high transit, high impact land used more productively, rather than leave it as a patch of weeds for 1 person’s benefit when they sell it at an appreciated price in the future.
And obviously this number is constantly moving, just like property tax assessments move.
Tens of thousands of people could benefit by making it a destination, versus being harmed by making it extra distance to travel around to get to a destination.
So the tax is on the land instead of the improvement on the land. A person who sits on it and a developer who builds something like apartments with shops underneath pay the same property tax (aka land value tax).
If that's the case I don't really have a problem here, but there's also no debate to since we already impose that tax on land owners.
Property tax needs to be updated so that it is a land value tax, so people cannot use prime real estate as a piggy bank at the expense of everyone else.
Your last comment seems to contradict this one though. You were describing a tax based on the value of the land rather than the value of improvements. That's precisely what we have today.
If you're wanting to punish people for leaving land underutilized you do in fact need to tax based on what the potential value of the land is when fully utilized. Thst runs smack into the challenge of how to value potential value if the land was fully utilized and the question of whether we can be so sure that high density is the answer that we disincentivize lower density living.
Edit: reading this again I think we're either saying the same thing in slightly different ways or I just misunderstood you. When I'm talking about improvements I do mean potential future improvements that could be made to the land, I think that's what most people mean by a land value tax. Meaning, taxing a person for the value of a piece of land as if there were already a condo on it because we'd rather them build that than leave it empty or build a single family home. I see that as a huge problem, both because it requires a massive amount of accurate (and oppressive) central planning and because it's impossible to know what the land would be worth when "fully utilized". We would have to define what fully utlizied means, accepting that it's entirely based on personal preference, and then envision what the whole community would look like if built out that way and what that would then be valued at.
Home ownership doesn’t produce anything.
Even without leaping to a hypothetical economic system it’s possible to allow owning one home for your residence and not another for renting out.
I don’t advocate anything here particularly
Yep, much better to be dictated by something less whimsical, e.g., a party committee. /s
Yep, worked perfectly for East Germany, USSR and works great for North Korea.
An omniscient committee of a dozen party members will know better than hundreds of millions what is better for the hundreds of millions because humans are alike and predictable. /s
I think that governance by having everybody fight with each other only serves the strongest fighters. And of course these strong fighters will tell everybody that this system is the best of all possible systems.
Surely it makes you think.
A bus is a different from a country. Also, in a bus, imagine the bus driver dictating where the passengers should get down and what they should listen to, what they should think, if their windows should be rolled up, etc.
I get your point. You need a bus driver (I agree that we need regulated markets), but the bus driver shouldn't be overbearing.
I say this having just built cabinets, an 8x12 shed, and a few other things where the lumber alone… for example, the subfloor for a room I redid the flooring in was $400 alone. But I may be buying things the wrong way and I would love to find a better way!
> Utilizing places as assets is so incredibly damaging to our society.
That only happens because the govt. in cahoots with NIMBYies restricts new development while we have a rising population.
This is simple math and economics.
simple transportation and ecology
there is plenty of unused housing inventory. the problem is that people can no longer afford rents.
> When are we going to address the government overregulation problem?
don't worry, the supreme court just overturned the chevron doctrine. hope you weren't for right-to-repair or net neutrality! but pesky "overregulation" right? it's all bad if it comes from "the government."
> there is plenty of unused housing inventory
False: https://www.reddit.com/r/badeconomics/comments/musne8/dispro...
What do you say about cities losing literally hundreds of millions on housing funds?
https://www.mercurynews.com/2024/04/13/audit-san-jose-failed...
> the problem is that people can no longer afford rents
And that is because supply is low. Go to the root cause of that:
https://sfstandard.com/2024/04/08/san-francisco-new-housing-...
> San Francisco approved just 7 new homes in 2 months. Why?
https://scott-wiener.medium.com/yes-supply-demand-apply-to-h...
Supply/demand is proven science in housing.
> it's all bad if it comes from "the government."
The other side of the coin is:
It's all good if it comes from "the government."!
https://southpark.cc.com/video-clips/9bipvp/south-park-the-g...
You should also read up on the case where the Chevron deference happened in the first place.
We’re following along with the pseudoscience and propaganda of the prior generation of post war shellshocked Cold War paranoids
Supply demand has more to do with real supply. Even if there’s plenty of housing in BFE no one wants to live there. Where the supply is and other variables matter. Cherry picked social media and corporate news may as well be throwing spaghetti at the wall. This is the colloquial equivalent to p-hacking.
How the species tries to blow itself up.
If we were meant to exist forever all these physics things would not be able to harm us. Constrain us to life on Earth. We couldn’t die.
Entropy is a bitch.
Using that logic, thanks for agreeing with me!
My point is the endless possibilities and only one real reality matters; enough people feel served by society or they’ll forget the words and reach for guns.
Your grasp of contemporary memes is not armor against physics.
Feel free to add just one of the "8 billion official and academic resources" that you and OP ignored.
If you say supply and demand doesn't work for housing (science proven over centuries in human societies all over the world), you are similar to vaccine deniers.
Your take is still filled with euphemism for such things
By all available evidence we have the opposite problem.
As a small business owner, I'm very lucky to have mostly decent landlords, but I worry for the day that they sell out to REITs. Our business won't survive that.
If your business is doing well, they'll raise it to the maximum, and moving businesses is way harder than moving homes.
No wonder that all the restaurants in the nearby newly built strip mall are large chains. They can pay the rent. But there is no space for the local couple that has a taco place. They can't compete on cost ingredients with say Chipotle.
Sad.