Current market prices for a lot of commercial real estate seems to be a ponzi scheme especially in the US. It is not in the interest of any of the players to decrease prices only the renters.
Local government need higher prices as without the high property prices their property tax receipt will tank making them unable to meet their budgets.
Banks need higher prices as they are highly leveraged and will be on the hook for billions.
Same for most landlords they cant decrease the rent too much as that would decrease the value of the property and make the bank come after them to top up as they are also leveraged.
Then we have got black money parked in real estate of western countries where such owners do not care much about rental income they are okay with their money being safe so dont care about renting.
Then we got the countries themselves they turn a blind eye to this black money parked in their countries as it helps their economies. Plus if the black money/corruption money is from a politically exposed person they are able to be controlled/blackmailed by the 3 letter agencies of these countries.
> Current market prices for a lot of commercial real estate seems to be a ponzi scheme especially in the US
A ponzi scheme is fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
Where is the nonexistent enterprise? How is money from later investors used to hoodwink the first investors by pretending there's quick returns?
I think you are looking for a different characterization of commercial real estate for it isn't a ponzi scheme.
> A ponzi scheme is fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
If you’re going to copy/paste a dictionary definition, you should probably cite the dictionary you are using (Oxford, it looks like).
I think the correct term here is “speculative bubble”, but there are deep similarities between a speculative bubble and a Ponzi scheme. The similarities run deep enough that I do not think it is worth fighting over the difference between a Ponzi scheme and a speculative bubble. In both a speculative bubble and a Ponzi scheme, early investors are paid out with funds taken from later investors, for an asset which does not have enough utility to justify those payouts.
In a Ponzi scheme, it’s one person or entity running it, and in a speculative bubble, it’s just “the market”. But the market is just a bunch of people. And I don’t think the bad faith component of Ponzi schemes should be considered a necessary component.
> I think the correct term here is “speculative bubble”, but there are deep similarities between a speculative bubble and a Ponzi scheme.
There are deep differences, too, most obviously the one highlighted by the “scheme” in ponzi scheme.
> In both a speculative bubble and a Ponzi scheme, early investors are paid out with funds taken from later investors, for an asset which does not have enough utility to justify those payouts.
In a ponzi scheme, money is deliberately directed to early entrants to cover the conscious absence of any mechanism to produce actual value.
That's not true of speculative bubble; yes, the usual market mechanisms involve movers out of market get money from those moving in, but outside of fraud (which can make usual market action ponzi-like) its not conscious cover for an absence of a return-generating mechanism. Yes, a ponzi-operator produces deliberately a conditions similar to that which is retrospectively observed when the market misperceives value for a time, but that's the same as saying fatal accidents produce the same results as murder plots. We call them different things for good reason, and it is worth distinguishing them.
> And I don’t think the bad faith component of Ponzi schemes should be considered a necessary component.
Someone having advance and certain knowledge of the absence of return mechanism is quite relevant and distinct from a market misperception, especially when looking at a prospective bubble that hasn’t popped (so its the differences between “there is specific concrete evidence someone engineered this fraudulently” and “my perception of the future differs from the consensus”.)
Redefining terms so you can use terms that communicate greater certainty and have higher emotional valence than is warranted by what you are actually describing is bad, in much the same way as an (actual, proper definition) ponzi is bad. Its an attempt to mislead and motivate action based on misleading people.
> In a ponzi scheme, money is deliberately directed to early entrants to cover the conscious absence of any mechanism to produce actual value.
I don’t think the “deliberate” part is particularly important. It sounds like you disagree. There’s a whole discussion to be had here about mens rea, and that discussion is important in the context of criminal justice, but I think it’s less important when discussing systemic problems because you need a different toolset (besides intent) to discuss problems with economic systems.
> it’s less important when discussing systemic problems
It’s unimportant whether commercial property owners are fraudulently or not inflating their property values? That seems incredibly important to what kind of solution is appropriate.
It’s just not true that every market price is fair. There are all sorts of sources of market inefficiencies, and this is one of the reasons why governments spontaneously arise or form.
It is a ponzi scheme in the sense where the last person to buy in will be left with something that is worth a lot less than what they bought it for. In practical terms they lose all their money as most people would buy real estate with financing now. You pay $10million for $50million property. The property value drops to $35-40 now the bank owns the property you have $0.
The transaction volume is near zero. So price discovery can’t happen. Similar to how during the the last crisis there was almost no market for cdo and all sorts of other shit paper so holders could pretend the asset was worth more dispite not being able to sell it.
There is an element of ponzi because none of the actors have an interest to break the cycle. Mutual hallucination might be a better term though.
Like you would think the asset buyers would have an incentive to stop holding the loans and the whole thing would collapse, but because the buyer are investing with other peoples money they are also incentivized to keep the cycle going.
The people whose money is eventually going to be lost have no way to stop this because the money is either in a pension fund or they aren’t knowledgeable enough to understand the issue
> If you discover you’re in a Ponzi scheme, it’s in your interest to get your money out first.
You can either cut your losses and not get your money back (if you're an ethical operator), of you can actively or passively allow other people topit in their money so you can get yours out first. There are similarities where rational vested actors want the charade to continue for a little while longer - the more money you put in, the longer your commitment to the mirage is.
Yeah but here it’s never actually your money and if the cycle breaks you are screwed anyway. If you fail with everyone else then you can say that nobody could have ever predicted this.
Can we call it ponzi pyramid? Or speculative pyramid?
I agree this isn't a scheme, as it wasn't done out of maliciousness, but it share so much property with it (including who will have to hold the bag) that I kinda like the image.
It would be expensive but so would a banking and general financial crisis caused by empty office buildings and CMBS turning into toilet paper. The government will pay for it either way and the currency will be inflated either way. God forbid the money be used for housing instead of never ending wars.
I mean I agree, but I can also predict the screaming at politicians if the government starts giving handouts to developers (particularly from the people with vested interest in keeping residential real estate inflated).
Who benefits from lack of inventory vs conversion condos? I can't think of anyone but residential REITs and home builders. The average SFH owner in some neighborhood doesn't see new condos downtown as a threat.
But every other vested interest is aligned with the developer handouts. Eg, construction, government for more taxes, unions, office REITs that want less competition, big finance who want the CMBS problem to go away. Even the mortgage industry would profit more from selling tons of new condos vs fewer more expensive resales.
Lots of major players who really don't want the Ponzi pyramid to collapse? Yes.
But, long-term, no Ponzi pyramid can avoid collapse. Black money is not infinite, and can get skittish when the music starts fading. A central bank printing money can prop the pyramid up...for a while. But that only makes the collapse bigger, and takes more of the central bank's economy down with it when it finally does go.
>> Current market prices for a lot of commercial real estate seems to be a ponzi scheme
> Ponzi scheme? Yes.
How in the world are these the top comment and top reply? Commercial real estate isn't a ponzi scheme. Like, at all. In any way, shape, or form.
There are disparate actors making separate, uncoordinated decisions. There are single transactions being made delivering real value. There's no long term holdings falsely being promised under the guise of stealing short term value by adding more customers.
The commercial real estate market changed. Money is going to be lost. There are bad contracts on the books. Correlated markets are going to suffer. Leveraged losses are going to exponentiate. None of this has anything to do with a ponzi scheme.
Would not completely write out the possibility of collusion, even if non-Ponzi in nature. DoJ has been sniffing around various actors that have been increasingly found to be acting in a cartel-like manner to keep rents high.
In common parlance, an asset bubble is called a Ponzi scheme. Actual Ponzi schemes should be referred to as “rob peter to pay Paul” scams to prevent confusion.
In a ponzi scheme, some actors go to jail for the rest of their lives and in a speculative bubble they do not. There are good reasons to have separate words for these separate concepts.
Dishonest people will always use hyperbole when describing the world. That hyperbole is not justification for honest people to abandon technical definitions. And that is what you are proposing. Having everyone "evolve" on the definition of 'ponzi scheme' means that the current definition is erased. But the current definition is still in use!
If a speculative bubble was later found to be a victim of pump and dump, then people also can go to jail.
At that point did it stop being a speculative bubble?
The reality is, reality doesn't have such distinct boundaries as you are trying to enforce.
At the end of the day, what is the point of a word's definition? To help communicate an idea to other people and society. The US financial and legal systems are intentionally designed to segregate the less educated. Confusion is their primary strategy to make more money! You can either choose to help them continue the segregation, or you can chose to liberate financial and legal concepts to everyone.
How can you help? By understanding what parts of the concept were easy to understand, what colloquial language is most used to describe it, and then realizing the gaps between the coloquial and technical definitions.
Trying to resolve those gaps with "you're using ponzi wrong" continues the segregation and confusion. Trying to resolve the gaps with "Oh.. you think a ponzi scheme is any scam using obfuscated financial instruments. Ok fair enough lets start the conversation there." you would then continue and say "A typical ponzi schema has a single power structure with a single voice and name e.g. Bernie Madoff. However, in this case it is a ponzi scheme with a distributed set of actors i.e. no one is working together, but still there is large scale issue occurring - we typically call this a speculative bubble / coordinated pump and dump - its not always easy to know what exactly is going on".
You could even continue "Realestate in general has actually been a generational pump and dump scheme. Its not that grandma's everywhere meant to harm anyone, but the common advise to 'buy a hose at any cost' is in favor of the realestate owning elderly (i.e. most of them) and as such is difficult for them to say anything else. Additionally, because its been generational, it seems to have been working for quite some time giving it even more credence. At the end of the day tho, it is a distributed ponzi scheme - if you go to withdraw your money and no one is willing to add even more money (i.e. how much you want, and the "processing fees" around it) - you will not get your money."
If your goals is to communicate an idea to other people or society and you are the one talking, you can and should choose to not use incorrect language. Even if the other person sometimes uses incorrect language. You insistence on using incorrect language as a means of "resolving" segregation and confusion is absurd. There is no such thing as "a distributed ponzi scheme" and telling people that will increase, not decrease, "segregation and confusion".
> reality doesn't have such distinct boundaries as you are trying to enforce.
It really does, as defined by law and consequences. A ponzi scheme necessarily involves fraud and a speculative bubble does not necessarily involve fraud. The fact that some speculative bubbles do involve dishonesty and manipulation (a pump and dump, like you mentioned) does not change that!
> In common parlance, an asset bubble is called a Ponzi scheme
This is a crypto phenomenon. Porting crypto’s corruptions of financial and economic terms, from Ponzi to inflation and market cap, given the benefit of hindsight, doesn’t make sense.
Here’s, mechanically, why it’s not a Ponzi scheme: there is no incentive to get your money out first.
>But, long-term, no Ponzi pyramid can avoid collapse.
Both politicians and industry leaders know it will inevitably pop at some point, but since they have short terms while they're in charge and won't be accountable for long term consequences of their actions, they just want to make sure it doesn't collapse while they're in power, so they keep kicking the can down the road as long as their short tenure last, then it becomes the next guy's problem, rinse and repeat. They're hopeful they can make the problem big enough that the government will have to bail them out when it crashes.
It's a result of chasing maximized short term returns at the expense of long term consequences in a zero accountability system. Basically, it's what our system rewards.
I doubt it: Amazon isn’t on good terms with Seattle’s city government. They wouldn’t mandate RTO if it wasn’t in their self interest, Amazon isn’t one for needless charity.
> Local government need higher prices as without the high property prices their property tax receipt will tank making them unable to meet their budgets.
California is the only state facing this due to Prop 13. Most jurisdictions are able to adjust real estate tax rates in response to the drop in valuations and many did so when property values dropped in the Great Recession.
A lot of jurisdictions work on a budget: they need X dollars from property taxes, and use your assessed value to determine the rate they need to get X dollars. So if a recession hits, your property taxes don’t go down even if your home falls in value (your rate simply goes up). In a housing boom, your property value goes up, but so does everyone else’s, since X is fixed your rate goes down.
It’s the opposite in California. Even if prices drop 30%, if a property wasn’t traded in the last few (5-7?) years, it’s probably worth more than the assessed value.
Property taxes won’t change if these values collapse. A city may reassess values in the future but that just means some people go up and some go down with the final receipts the same.
An owner may walk away from a Mortage and the bank will pay the taxes. If taxes are not paid you move into tax liens that trade and may be able to get the property just for the taxes on it. In the end property taxes get paid.
Taxes don’t change on the day to day swings of the properly value of the house. There is a set value and a set rate regardless of the worth of the house. Now it could be every 10 years a city needs to re-assess. So they go and value all the houses then they make a tax rate that gets to what the tax amount will be. So some go up and some go down based on the new value. There are some outliers - your taxes may change if you expand your house under a permit or so some upgrades. If you buy a house and believe its value is too high you can try to argue the total amount to lower the taxes. But nothing automatically is happening that is lowering anyone’s price except a total reassessment of the area. This is how gentrified areas may push people out with high taxes because a reassess changed the total tax amount and then your house may suddenly need to pay substantially more taxes * except in California as they have different laws.
Property taxes are usually set as a fixed amount to be collected, and the tax % is back calculated. In practice, this means that the only thing that matters is the value of a property relative to the rest of the city.
Does the US use the same rates for all property types? At least in Canada (and in Sim City 2000…), the tax % is different for residential, commercial, industrial and often subcategorized further.
That may be what “usually” happens but in california, which is a major commercial real estate market, we have this thing called proposition 13 which screws up everything.
This is a stupid response. Remember 2009 when the housing bubble popped and it effected the entire economy? With billions tied up in commercial real estate, it will have a wider impact then just office buildings and retail locations
Almost nobody does. A lot of immature people think they do, because they’re not aware that it can get much, much worse for them without getting too bad for the people they hate.
And the opposite of suicidal, the “carpe diem” idea, rather hedonist, is equivalent in that they believe in “no tomorrow”.
A lot of people suffer dissociation since Trump, which was crystallized in The Joker movie. Or perhaps it was due to social media. In any case, wanting to “see the world burn” is a recurrent idea, I’d like a study on how many people seriously adopt this attitude.
Except that the saying "cause and effect" is using the other (noun) meaning of "effect": it's drawing a line of causality, from a prior occurrence (the cause) to the later occurrence that is a consequence of that cause (the effect).
No one uses "cause and effect" like "cease and desist".
> This is a stupid response. Remember 2009 when the housing bubble popped and it effected the entire economy? With billions tied up in commercial real estate, it will have a wider impact then just office buildings and retail locations
A lot of people are so disenfranchised from the wealth that the world could crash and they could care less. They are already at the bottom with nothing to lose.
And they are posting on HN? More likely they are posting on behalf of the oppressed person from their imagination. An economic crisis hits those at the bottom the worst, even if in absolute numbers the losses at the top may be greater. Rich people did not put all their money in commercial real estate anyway. If anything, they are reducing real estate exposure and are piling into treasuries right now.
> They are already at the bottom with nothing to lose.
If they have access to running water and a roof over their head, this is a wildly misinformed perspective. The people at the bottom typically feel the most pain during economic wipeouts.
You are right that that there are too many incentives for trusted players to delay acknowledging reality (even if people are quibbling with the word “ponzi”). I am reminded of the scenes in Big Short when the banks for some time refuse to acknowledge reality and write down their mortgage bond positions.
Usually this sort of soft corruption is dealt with in real estate by incentives. For example the developer offers to pay your HOA fees for a year or two, or throw in some appliances, or whatever. The goal is always to artificially support a higher price through a back door discount that won’t devalue the whole building. There are commercial real estate equivalents to this like the developer paying for more customizations and improvements to the office space which are typically borne by tenants.
But my reckoning is this downturn is way too big and fundamental for those stunts to be enough. If it’s true office real estate values have not been written down then I suspect we are in for a shit show when everyone is forced to acknowledge reality.
(I am not in real estate but spoke regularly to industry folks and wrote reports during the last boom 2002-2008)
> It is not in the interest of any of the players to decrease prices only the renters.
They don't have to increase rents as long as values kept increasing.
If office values go up x% per year, even if you're steeply cash-flow negative, as long as you're adequately leveraged and have low interest rates, you're still probably printing money.
It's almost as if artificially low interest rates manipulated the economy.
I don't disagree, but on the other hand, so is the fiat money. Precious metals market is somewhat complicated and prone to manipulation. So real estate provides solid value that won't go away (simplifying). Groceries and such production keeps getting optimized with quality decreasing, I think the real inflation is not that easy to estimate.
It's price gouging and they are trying to hold out as long as possible, but eventually they will have to give in and accept that they need to use the space for something different and/or drop the rent.
This is why changing zoning laws is so important. These buildings and their underlying values can be saved by 'going condo' or conversion to smaller unit spaces for the purpose of housing so many who are struggling with massive increases to rent. Most rent does not increase because of increased asset expenses, it increases because of increased owner expenses and that quickly becomes a slippery slope in the face of advancing inflation and housing prices.
Rent is becoming a social tool for class stratification and it began in classically liberal cities when they started asking for First+Last+1Mo Dep which often equaled $5k+ in one shot. That used to be a down payment for a house and it's absolutely ridiculous given the amount of money rental income sucks out of the economy that would otherwise be used for production and consumption.
In the United States, the government holds hundreds of millions of acres of land in trust and it needs to be relinquished in part to help grow the actual base of humanity they hold stewardship over, even if it means reducing investment values for the rich and powerful who have amassed so much through manufactured crises. Blackrock and other hedge funds should have never been given the power to buy homes the way they did by the Fed; it was just another shell game to hide their incredible myopia.
So much so, they are now backtracking on a labor advancement which is remote work in order to stabilize their personal portfolios in real estate. That's a conflict of interest that can be tantamount to investor fraud considering the Board is not acting in the best interest of the shareholders, but in the market for which they are beholden through consolidated power at hedge funds and banks.
Develop the conserved federal land? No way. Let's redevelop some of the effing parking lots and one-storey strip malls that take up half the land space in most US cities.
Zoning is basically irrelevant - the problem is that the cost of converting an outmoded commercial building to residential is usually within the same order of magnitude as knocking it down and putting up something built for purpose. I would bet real money that there aren’t more than a handful of municipal governments that would die on the hill of maintaining existing zoning restrictions if they had viable proposals to convert vacant commercial buildings.
Those millions of acres owned by the government are mostly desert and national parks and in any event there’s no shortage of privately owned undeveloped land closer to existing cities (or hollowed out existing cities that are ripe for a renaissance).
Also, just nitpicks, but when was $5k a down payment for a house? 1955? And BlackRock isn’t a hedge fund. You might be thinking of Blackstone (also not a hedge fund, but they own portfolio companies that are buying up a lot of single-family housing and turning them into rental properties, which is evidently extremely lucrative but I find incredibly distasteful).
the problem is that the cost of converting an outmoded commercial building to residential is usually within the same order of magnitude as knocking it down and putting up something built for purpose.
If you look at the urban core of many cities, they are full of old commercial buildings converted to lofts/residentia. The old bank district in LA was empty and in disrepair for decades, then a huge conversion boom in the 2000's. Soho in NYC. Many buildings south of Market in SF.
The question is why can't we accelerate the process so the buildings don't sit unused for decades before it becomes worth conversion. <- though maybe that is the crux, the prices need to decline enough to make it worth it.
Yeah, I could have been more specific when I said “outmoded commercial buildings.” I meant the typical open floor plan office towers built during the ‘60s-‘80s. Those are challenging, though not impossible, to convert to residential. But absent incentives it’s almost always cheaper to start from scratch.
More recent commercial buildings, particularly anything from the last decade, are generally fine in terms of valuation/viability - there’s been a very noticeable flight to quality in commercial real estate. Lots of tenants are giving up space in the slightly obsolete buildings and moving into new flagship towers.
Your average modern commercial skyscraper is less amenable to this kind of conversion than those older, shorter, smaller floor plate industrial/commercial buildings, though. And there's still a lot of opportunity cost in renovating a modern class A commercial building that isn't there for renovating a long-abandoned older industrial/commercial space; those have basically no opportunity cost because the existing uses are worthless.
Many of today's office buildings are not built to last, honestly. There is a good chance that a glass/concrete tower will collapse in 100 years, while the old brick factories are basically indestructible.
Yes, I'm making a reference to the time when these massive residential building projects began as a juxtaposition for today. The costs of just becoming a renter today are similar to what it took to own a home previously. Zoning is not irrelevant it is the absolute cause of these areas essentially becoming Special Economic Zones which are now, in historic fashion, about to flounder and fade unless the powers that be command workers back to the office, back to the commute, back to the grind.
So? LA is a desert and requires the rest of the region to support their needs; which is really just their real estate values through sustained population growth - which would otherwise not happen without sucking H2O from everywhere else. Knock down the buildings and repurpose the materials for other areas then; though people will claim that's not "profitable" either so it will just be melted, crushed and buried instead of repurposed.
Converting buildings creates jobs! Isn't that the point of much of this, job creation so we can keep all these devious little beings busy? Jobs means they can afford the new constructs. Even at increased costs, how many of these buildings are paid off? How many change hands as a means of transferring debt, buying out equity and essentially playing a Fastowian shell game? The idea that, "we can't profit off that" is absurd given how much the governments of this country subsidize profitability for the people who are wrecking so much.
LA really isn’t a desert. It is definitely near a desert, but the city itself isn’t very desert like. LA’s water use is a lot smaller than the farms around LA, so converting farms to residential use would actually save a lot of water.
>so converting farms to residential use would actually save a lot of water.
Pray tell, where would you source the food required to support said new residents if you're going to convert farm land already dedicated to supporting people who are already there?
Not sure about California's import/export situation with Ag output.
LA at least gets a lot of its food from Mexico. Most of the farms in that region are for specialty crops that get exported anyways. Like almonds. I like almonds, but most people don’t live on them.
But the point isn’t to get rid of the farms, just that LAs water usage as a city is tiny in comparison to California’s agricultural water usage in general.
> In the United States, the government holds hundreds of millions of acres of land in trust...
True.
> ... and it needs to be relinquished in part to help grow the actual base of humanity they hold stewardship over
Almost entirely false. See, the land they hold, they hold because nobody ever claimed it under the Homestead Act. Nobody could figure out how to grow enough to feed a family, even with 168 acres of it. This mostly means that there's no water there.
I'm pretty sure that the solution to the housing crisis is not a few square miles of waterless sagebrush in private hands. If you build a city there, where are the people in it going to work? (If they're currently homeless, they're probably not going to get hired for the kinds of jobs where work from home is possible.) How is it going to integrate into the surrounding economy? Where is the food going to come from? Where are the roads for the food going to come from? Where are the power and the water going to come from?
And even if that is the answer... what private hands? Mine? I don't have the money to develop it. Blackrock's? The banks? I don't think you're going to think that approach is the answer, either.
(True, some of that land is forest rather than just sagebrush. But if the federal government sells it, it will be bought by someone wanting to log it flat for the timber. That won't leave it with cities on it, either.)
Wikipedia has a map of the ownership of federal lands here: https://commons.wikimedia.org/wiki/File:US_federal_land.agen..., the yellow lands are the lands never sold and largely represent the stock of available federal land. The green lands are parks and US forest (which is often, but not always, parkland as well in some sense); the red isn't the federal government's, it's Indian; and the other land is owned by agencies for their own purposes (most notably the military, and the resale value of former weapons testing ranges isn't great).
As you say, a lot of that yellow land is basically desert or semidesert and uninhabitable. Although that understands the nature of the problem, since the US did manage to sell off a large swathe of uninhabitable land--the High Plains was sold off in the late 19th century, only for the Dust Bowl to happen and people to realize that in fact, no, this wasn't good farmland.
I live in a state where the federal government owns a lot of that land that nobody could figure out.
The feds still try to sell it. Nobody buys it, because it's _still_ useless. It's a bad investment to buy shriveled land, build a residence on it that's incredibly far from basic necessities like gasoline and food, and then pay money to have water trucked out to your remote ass.
> the government holds hundreds of millions of acres of land in trust and it needs to be relinquished
How would relinquishing that help, is access to land a real issue? You can probably already buy a lot for cheap right now, but it will be far from urban centers and won't be habitable without a ton of investment. Would have zero effect on housing.
Conversion of office property to residential also requires a lot of capital which seems forgotten by a lot of the folks championing this kind of conversion. It's not as simple as building some interior walls and calling it a day
It is not more costly than having Hoovervilles and desperate people living hand to mouth in a world of rapidly advancing technology which was the promise of this whole societal endeavor to begin with. The governments of this world already subsidize the production costs of corporations to the tune of billions of dollars a year so they can continue to "make profit" from their productive efforts they would otherwise be failing at in spectacular fashion.
- Autos
- Airlines
- Banks
- Farming
They all require massive injections of liquidity for the purpose of subsidizing poor stewardship. "Costs" is not a feasible excuse for continued economic oppression.
Most major conversions will require gutting out drywall, ceilings, etc back to the main architectural structure, making new electrical and plumbing much easier to accomplish versus a finished space.
You mean like 15 minute cities? We don't need classical infrastructure as we once did when considering the reduction in the costs of solar, wind, and in many places accessible geothermal energy, plus septic tanks, water table access, and satellite based internet, we no longer require massive right of way projects to build these places.
Initial investment in locality based infrastructure creates the market; expansion through time with connected systems, if so desired, would then be an increased capital cost over time, not an upfront requirement. We can generate competition in building whole new cities, like corporations are attempting to do today, which can help stabilize and reduce the growing costs of rent and housing in major metropolitan areas. It absolutely would have an impact - just not when you construct a fallacious form for it to exist in as a failure by design; which is most of commercial and residential real estate given zoning requirements and the massive middle-man industry surrounding it.
This is usually a libertarian knee jerk response. For some reason they are jealous that land can be community owned and controlled. Trust me it's a bad idea and results in stuff like in Texas with 97% of the land being owned privately and hoarded with "no trespassing signs" and fences up everywhere
There are only a handful of cities in the United States where federal trust land is meaningfully important - and they're all in the American West - Phoenix and Albuquerque are the two that come to mind - both of those are limited by water, before land.
I will note however, I'm somewhat sympathetic to states like Nevada, Arizona and Utah who would like some of the BLM land given over to state stewardship - but its a very regional issue, and fractious enough that its hard to get enough people nationally behind (people outside of these regions hear 'federal land' and think 'Yellowstone' when the reality is closer to a 640 acre square of semi-arid grassland, in a checkerboard pattern).
Federal land holdings are statistically non-existent east of the Mississippi - and even east of the rockies, less relevant.
I don't disagree that private equity gobbling up some sizable percentage of single family homes is a very bad thing - but it'll take some will by congress and the state legislatures to unwind. The one thing that should give people hope here, is while its not yet widely reflected in the political class, there is broad grassroots support for limiting concentration of land holding and other physical assets (think anti-trust). It's just gonna take some time for that consensus to filter up. The current intensity of energy being expended on the so-called 'culture wars' isn't helping speed this process along.
(The 'culture wars' is probably the largest impediment to us working together to solve the fundamental economic issues present in the nation - the consensus of what to do is largely present - but until you can get people in the room to hash out the details, we're basically blocked from making progress.)
> the amount of money rental income sucks out of the economy that would otherwise be used for production and consumption
Renting is a service, a productive economic activity that yields net positive value to the society. The building did not fall from the sky and someone "claimed" it. Someone actually had to put in work and time and take risks for it to exist and be rented. Those enjoying the building benefit from these previous efforts, which in turn are compensated by receiving rent.
Nonsense. There are properties that have doubled in price over the last 2-3 years for no significant reason other than the flooding of cheap money into the economy. Landlords did nothing special or productive to earn this huge share of people’s income. They require little labor or outlay relative to other business markets. Furthermore, housing is a necessity like water and food; such resources cannot be allowed to rise in cost disproportionately or a unstable society is guaranteed where the populous will simply seize the properties during a civil war.
Property owners have no control over prices. It's all dictated by supply/demand.
Yes, government printing money inflates overall prices. More recently, this happened because governments needed to pay for covid. During inflationary cycles, money flocks to assets like real estate. Simply because they are good protection against inflation.
Property owners don't become richer because of that, since everything else became expensive as well.
There are economic systems where price-setting is controlled and/or centralized. To my knowledge, all of them failed in producing better outcomes than a free market for anyone in society.
knockdown and rebuild for new purposes, ie better quality cities would be better, because you'd get the opportunity to fix stoads, and generate jobs from the rebuild.
A collapse or real estate would be a good thing for the economy. It would free up middle class paychecks to be spent on more goods, driving long term growth of our businesses.
The risk is without the correction you end up like many EU countries whos main GDP growth is real estate which only takes you a few generations to fall apart.
Its an abberation. This is a failure of GDP as a measurement tool. Growth in realestate prices makes us poorer
This is like saying that economy has geown because food got more expensive, so people can lo longer save.
its like saying that when I give poor people mt used clothes, I am damaging the economy because they no longer have to buyt clothes, so gdp will go down.
> Here's another arresting thought. None of this really matters because GDP is in any case a perfectly useless measurement All that it is, literally, is a crude measure of national income - 'the dollar value of finished goods and services', as the textbooks put it - over a given period.
> Any kind of economic activity adds to the gross domestic product. It doesn't matter whether its a good activity or a had one It has been estimated, for instance that the O.J. Simpson trial added $200 million to America's GDP through lawyers' fees, court costs, hotel bills for the press and so on, but I don't think many people would argue that the whole costly spectacle made America a noticeably greater, nobler place.
> In fact, bad activities often generate more GDP than good activities. I was recently in Pennsylvania at the site of a zinc factory whose airborne wastes were formerly so laden with pollutants that they denuded an entire mountainside. From the factory fence to the top of the mountain there was not a single scrap of growing vegetation to be seen. From a GDP perspective however, this was wonderful. First there was the gain to the economy from all the zinc the factory had refined and sold over the years. Then there was the gain from the tens of millions of dollars the government must spend to clean up the site and restore the mountain. Finally, there will be a continuing gain from medical treatments for workers and townspeople made chronically ill by living amid all those contaminants.
> In terms of conventional economic measurement, all of this is gain, not loss. So too is overfishing of lakes and seas. So too is deforestation. In short, the more tirelessly we use up natural resources, the more the GDP grows.
> As the economist Herman Daly once put it, 'the current national accounting system treats the earth as a business in liquidation.' Or as three other leading economists dryly observed in an article in the Atlantic Monthly last year 'By the curious standard of the GDP, the nation's economic hero is a terminal cancer patient who is going through a costly divorce.'
> So why do we persist with this preposterous gauge of economic performance? Because it's the best thing that economists have come up with yet. Now you know why they call it the dismal science
Always love a Bill Bryson quote in the wild. And it's true: I contribute less to GDP by living frugally with my family than I would spending away my savings in Vegas while paying alimony and managing messy divorce.
It really is incredible how damaging it is that we use GDP as a measure for how well a society is doing. Heart surgery? Yay! GDP! The endless hamburgers, Doritos, and misc junk that helped contribute to heart surgery being needed: also great little GDP contributors.
The middle class didn't really benefit much from the real estate collapse in 2008, what do you think would make the next one different? Residential vs. commercial real estate is one difference, I guess, but how would a commercial real estate crash free up middle class paychecks anyway?
"A collapse or real estate would be a good thing for the economy."
I disagree.
Periodic recessions and repricings would be good for the economy - just as periodic small fires are healthy for forests.
But we snuffed out all of the recessions in the same way we snuffed out all of the small fires - and now we have accumulated so much "fuel load" that the inevitable fire will be an uncontrollable catastrophe.
(I love this analogy, by the way)
So it will occur but it won't be good or healthy. A large number of otherwise healthy business firms and otherwise reasonably employed people will all get burned while they would have survived a series of smaller recessions.
> The risk is without the correction you end up like many EU countries whos main GDP growth is real estate which only takes you a few generations to fall apart.
Hard to grow out of it when they already have more built sqft per person than Europe, and they're projected to have about half the population in 60 years...
Canada’s real estate sector is massive. The economy seems to run on digging things out of the ground to sell to other countries, buying nice things made abroad, and then selling houses to each other. All of this fun is backstopped by a government only too keen to keep the good times rolling.
If you look on loopnet, the cost of office versus warehouse per sq ft is staggering. It's a large visual indicator of a bubble.
I've been looking for 1500-3000 sq ft for a light manufacturing space for around two years. In my area warehouse $/sqft is $5-7 a year. Office space is $13 for old and dated layouts. I have no use for that dotcom era conference room. I need 10 ft dock doors, tall ceilings, and reliable 3 phase power.
Buying land outside my metro area and building new is becoming the only option for me until this crash actually happens. Sprawling out of the metro would only bite me down the line because the labor market is even tighter in rural areas.
In 2022 I would have accepted $10 per sq ft if it ticked all the boxes. There's been a few spaces I kicked myself over not signing soon enough ($6 per sq ft, 3200 sq ft, large with ample power 480v with 600 amp service, concrete roof, dock door)
“ Office occupancy fell less than a point last week to 49.7%, according to Kastle’s 10-city Back to Work Barometer. Occupancy dipped across seven of the 10 tracked cities — except for Chicago, Dallas, and San Jose, Calif. Chicago continued its post-pandemic climb and rose half a point to 54.7% occupancy, surpassing last week’s record high. Dallas and San Jose also rose nearly half a point to 54.5% and 39.4% occupancy, respectively. The average daily high was Tuesday at 59.2% and the low was Friday at 32.8%.”
That’s from KASTLE Systems, an office access management company. The office occupancy rates across the US have stagnated and don’t seem to be increasing. I don’t see why occupancy rates would go back to pre-Covid levels ever again. The work from home transition is permanent.
Therefore, valuations of office space will eventually have to be marked down and given the leveraged nature of the market, the markdown’s impact on commercial real estate corporate valuations ought to be magnified considerably.
What I think is interesting, at least in the case of Veritas default in SF, is that they are then allowed to bid to buy the debt at a discounted price. They are using a different financial backer and likely just management on the properties, but still it seems like if you mismanage your portfolio so bad you default you probably then shouldn't be allowed to rebuy those same properties. If they wanted a debt restructuring they should have been forced through bankruptcy.
Fine by me, turn them into homes if possible. Or would that lead to yet another devaluation now on the residential housing market as well? Do we need another bailout soon or what?
It seems to me that one big reason why companies want their employees to return from home office so badly is to secure their investments in real estate. The benefits of having leaner office spaces are in conflict with the investment made into these office spaces.
That's one issue with parking your capital into speculative assets, it ties down your freedom of action tremendously.
There are prime real estate locations that have set vacant for years instead of lowering rates. I hope the commercial real estate is crash spectacular and ends the extortionate racket that it's become.
Good. The US commercial real estate bubble is killing small shops and small business owned retail.
It's pretty unlikely it will actually crash though. Too many of the elite have too much money dumped into it. We will continue to see small closet sized shops with rents of $20,000 for the foreseeable future I suspect.
So what, we’re all supposed to be happy going back to a miserable life of commuting 2-3 hours a day to work in miserable open office layout nightmare factories to “soften the blow” (that might not happen) for everyone else?
Nah. I’m good. The world has changed. Adapt or die.
Frankly, between AI and remote work, I’m happy to watch our miserable current instance of the world burn to the ground.
This is by institutional change, not fundamental balance sheet change.
In 2023, if Bank A comes to the Fed/FDIC/SEC/Treasury/Congress in the middle of night after a huge margin call, our institutions now have the processes in place to declare different accounting or collateral rules for that specific bank at the stroke of a pen.
"Ok Mr. Dimon, as of midnight tonight, you no longer have to mark all of your shit paper to market. Carry it at the valuation you think is cool, bro"
That's a different definition of "stable" than we had prior to the GFC.
lol was that sarcasm? how many banks just failed including the bank most sv startups used and 16th largest? I think we'll adapt and hopefully build housing where offices used to be.
Without commenting one way or the other on the strength of the system, a large bank failing and life more or less carrying on as normal isn't a sign of systematic weakness
We have had multiple bank failures this year. And so many banks are holding large amounts of commercial real estate and also long term bonds they can't mark to market without suffering monster losses.
We were told (unofficially) that the whole reason we were being brought back into the office three days a week was because they needed to make their real estate holdings worth something again.
I wish in discussions like these, people expressing an opinion on whether they think it would be better overall if real estate prices fell or rose, would also disclose whether or not they're a homeowner.
The prices will crash and foreign companies like Samsung and Huawei will scoop them up, opening offices and bringing much-needed careers to distressed areas.
crazy idea: us govt scoops up all the office real estate at the crash and converts to low income housing for free. Solve two crisis at once, the obviously coming real estate crisis and the homeless crisis. All for the cost of a handful of F35s
Cheaper to tear down commercial RE and rebuild multi-family than to attempt a conversion. Floor plates made of high tension steel can’t be broken up for replumbing, usually you’ll want or need elevators & interior courtyards needed for lighting. There are very different water & electrical requirements
Maybe there’s a creative way to do low-income housing meaning only a window or two in the whole unit, no individual HVAC control (set by building) lots of artificial light, and someone more knowledgeable than me would need to explain the power & plumbing tradeoffs. Maybe you could basically replumb & wire on top of the floorplates, taking a few inches from ceiling height?
There are important exceptions to this. Old industrial era commercial buildings often have large spaces and big windows that make them relatively easy to convert. This is why lofts as a form make sense while also being desirable. Much of the cost of converted units comes from the high cost of acquiring the property, but that is less of a problem if the properties lose their value or are possessed by the government. And it is worth remembering that all properties are depreciating assets that get rebuilt or refurbished every 15-45 years or so on average anyway.
There are solutions that redirect actual sunlight from outside, into dark interior spaces. They use them in many modern metro stations, and they work pretty well to get the feeling of actual overhead windows. AFAIK some of these solutions successfully channel almost the entire spectrum of real sunlight. I always feel that this is way under utilized - I could hardly name a building that wouldn't benefit from additional sunlight in some of the interior spaces. The systems are currently quite expensive, so that's probably part of it.
As for plumbing, like you I also speculate if they could not just do a raised floor, or possibly inside/along walls, to increase the reach. They already do this in some renovations of very old buildings where they want to create a large central kitchen (resulting in almost horizontal plumbing that clogs like nobody's business).
Code requirements for housing are far more strict. One of the reasons you don't regularly see office building conversions is because homes require things like windows for each bedroom or at least one bathroom per home.
While the bathrooms can be fixed with effort, windows mean a lot of office spaces would have empty cores as only the square footage near the outer edge of the building would be used.
(This isn't my area of expertise. I'm leaning on there being someone closer to this topic here on HN to opine, but this is at least how I understood it from real estate developers who noted to me why they're avoiding office space conversions)
Right, you demo the existing building and rebuild one that will satisfy the window per bedroom requirement efficiently. I'm sure people reading HN can imagine a multitude of solutions.
We just need to reach the tipping point where the demo/rebuild cost is lower than the expected gain.
Not only is this a massive fire safety concern (considering why the requirement for two means of egress exists in residential building code), it's also a massive optics concern to stuff unhoused people into what'll effectively be written up by the press as a prison cell.
There is no egress from windows in tall buildings. They don't open, it is too high for ladders. So it adds no safety in this context, so change the code.
Also, if you need a window for a bedroom to be safe, why not an office? People spend 8 hours in an office without a window. Mitigating fire risk in tall buildings is a serious issue, but you have sprinkler systems, internal stair exits, etc.
Imagine the layout of a large office building. Some of them have the same footprint as an entire city block. The "empty cores" make up the majority of the interior of the building itself, it can't all be repurposed as storage areas.
I feel like the notion "the govt should turn empty offices into housing!!" comes up on places like reddit _all_ the time, it takes very little explanation to show why it's not that simple.
If the govt can scoop up all CRE, then wouldn't government also be able to work loopholes around code? An executive order is all it takes tbh. I'm certain a sincere homeless person doesn't give a rats ass about whether his home has a window or not. As for building safety, high rise office buildings tend to be high up wrt safety codes.
ignoring code for a minute, for the most vulnerable, having a roof over their head is a serious challenge, and only getting worse as more and more people get kicked out onto the streets. Additionally, I am suggesting that this would be a government social service. USA is a deplorable example of how to view and treat homeless.
It can be better than the status quo, but there will still be major newspapers running stories about the homeless being warehoused in lightless holes with bad bathroom access and no kitchens.
Lol I lived in a basement with no windows for half of my college education, it was fine. People adapt. Shelter is almost as important as food and sometimes more important, otherwise you freeze to death.
Which developed country whose population experiences similar rates of homelessness to the US do you think the US should be modeling their policy off of? The UK or NZ I guess?
This is a pyramid scheme that only works until you run out of undeveloped land. Also, this is already done in the form of suburban sprawl. You generate a bounded one off income but end up burdened with yearly maintenance obligations that never end.
Instead of doing this, it would be far more logical to just charge for the services being provided in the form of a yearly fee proportional to the amount of land that is being occupied.
> pyramid scheme that only works until you run out of undeveloped land.
The whole point of a pyramid scheme is they don't create value.
Developing the undeveloped is a productive contibution to the economy. Solving the housing crisis is a productive activity
> this is already done in the form of suburban sprawl
You have to create high-density housing, apartments, and local amenities. Pulling expensive underground rail tlinto a group of suburban homes is a waste
This assumes Governments want to make boatloads of money. Why would they?
Governments want to help their friends and hurt their enemies. Doing this almost never involves making money - sometimes and only sometimes it involves helping their friends make money.
In your example step 1 and 2 are fine but 3 is awkward. Selling or renting things doesn't make anyone happy. It's better to just give it away - there's no profit to be made but again - the point isn't profit.
I do love the idea of the American Government giving a damn about low income folks. Unfortunately, any time a politician cares, our entire system destroys them to keep the inequality machine fueled.
The problem is that many offices - especially open plan offices - are difficult to convert to living spaces. Few people would want to live in a windowless apartment.
Given the inverted demographics and an aging population... is the housing crisis a long term issue?
I'd guess in a few decades people are going to be trying to come up with solutions for all the people who overpaid for their houses, and can't find an adequate buyer.
Love this idea. Feels very reasonable, but most likely politically impossible so some Governor or someone with executive power and discretionary funds needs to just do it.
They have a strategy; the strategy is to help bring about the next crisis, either by manufacturing it, or allowing it to happen, so voters can be scared into whatever it is the government wants to do. For example, while Biden is president, Republicans are rooting for an all-out economic collapse so they can seize power again in 2024. And if there is no collapse, they'll tell you we're on the precipice of one, and to be afraid.
This will never happen. Also it's not about "iotas of strategy", it's about politicians not caring. You can't make conservatives care about homeless housing, it simply doesn't compute, "get a job" is their answer to the chronically homeless who are usually either completely addicted to a substance or suffer severe mental issues.
Sure - that's also a great option, the government will make money on the permits and taxes from converting and selling/renting. Still better than keeping everything empty.
It's possible the owners wouldn't want to start running a renting to tenants business if they were renting office space, since it's less money per client and more maintenance/running costs. The governement could very well be better at handling this than private companies, and would companies would sell for liquidity instead of future profit, and go into something else.
Esit: I'm no expert on housing, but this would disrupt wildly the value of housing in the city, since the benefit of being close to offices vanishes and housing is all over. Profits from exploiting the buildings could very well be less than interesting for private companies.
It could also be governement policy to sell this housing to individuals instead of renting, creating a lot of capital to be used by individuals (since mortgages are tough to reach for most people today, this could be nice economic leverage for individuals, if they could buy cheap housing and mortgage it.
Not sure what that'd do to the economy but I doubt it would be bad.
I’m not suggesting anything. I don’t think turning office space into housing makes sense. I also don’t think getting the government involved makes sense either. The government is responsible for the current housing crisis to begin with with excessive zoning and enablement of small communities to block development.
I don't want more low income housing and fewer F-35s though- in fact I want the exact opposite.
Low income housing comes with associated costs to the city and the people who inhabit them pay essentially no taxes so everyone else's taxes need to go up.
Unless we go with a very cheap option (kill all the houseless), housing them is actually a net positive for the city. Being houseless as a lot of negatives that cost us directly or indirectly. Think police enforcement, garbage cleanup, emergency rooms, even lost productivity.
I'm from a state with a long history of manufacturing and aerospace. The people who make F-35s are paid at least 75k without any qualifications and can take home much more than that if they choose to work OT. Definitely no need for low income housing for that crowd.
I never really thought about the tradeoffs, but given that the F-35 is mostly used to destroy low income housing of government undesirables, I suppose there is some tension there.
What conflict are you thinking of exactly when you reference F-35s being "mostly used to destroy low income housing of government undesirables"? I have no doubt the US military using fighter jets to mow down their own civilians would be well reported, so I'm sure there are lots of sources for the incident you're referencing.
Please be as specific as possible, I'd be surprised if you'd be ignorant enough to make such an accusatory comment if you didn't have an example ready to go.
Strictly speaking it is true that the F-35 is an air superiority fighter. At a more general level it is only a component of a larger war machine. Air superiority is typically asserted as part of a planned force projection. Civilian mobility and assets are commonly lost during military operations. None of this has much application to urban land use policy either way.
Probably more ground - but that's not the point. The f-35 is built to be good in all conditions, have long range and carry quite a lot of ordonance, all the while being quite stealthy. It's a do-it-all plane.(80-120M usd)
The f16 is made to stay close to airbases and defend against intrusions. Kinda cheap - relatively.(60 M usd)
The f22 is the peak stealth air superiority fighter. It's made to go anywhere and murder anything. Much, much more expensive. Does not carry that much ordonance.(150M usd)
F18A are made to be do it alls on carriers.(66 M usd)
Kraut has a video which explains why the position "US should leave the rest of the world alone" is a pretty elementary one which doesn't hold up to scrutiny.
So what are you referring to then? No need to be evasive - just point out the conflict you had in mind. Like I said, it'd be ignorant to make the suggestion without some kind of example, so I'm giving you the floor for an explanation. Remember, your statement was that F-35s are mostly used for mowing down the housing of undesirables, all you need to do is explain where you got that idea from.
I'm referring to the experience of a lifetime - they load these things with bombs, but the examples of them falling on those with high-income individuals is vanishingly rare. To be honest, I wasn't referring to the F-35 all that specifically, it just seems to happen when you give governments bombs and planes; they aren't about to let them sit idle.
Strategy requires a goal. Naively your goal might be to house more people.
NYC tried that with lots of projects built in the mid 20th century. True it provided apartments for a number of people during that time. However the projects were a terrible dangerous place to grown-up and many who grew up in them weren't able to enter mainstream society (and thus then subsequent generation requires even more such housing)
Meanwhile the areas near these projects are also dangerous and blighted - doing that at scale would condemn the entire downtown and send the city into a tax death spiral.
This prediction comes from comparing offices to malls - and the future 17 years of demand for office space to recent changes in shopping traffic at malls. Clearly good logic.
The reasoning in this article seems specious. Malls and offices are not the locus of the same activities. fwiw I've RTOed for three to four days a week and I love it. I think it will continue to gain currency with a lot of folks who are serious about their work at companies with other employees who are also serious about their work.
I don't think RTO and "serious about work" are directly proportional. Some people are much more productive away from a noisy and distractive environment. I think it just depends on the person
>I think it will continue to gain currency with a lot of folks who are serious about their work at companies with other employees who are also serious about their work.
If your job is not face-to-face with a client/customer, then the only thing you are "serious" about at the office is socializing. That is great if you work with all your friends. If not, you and everyone else there is wasting time. It is simple to have meetings, get instant feedback, ask questions, share data, call, anything really from remote. At one time that was not true, but in 2023 people that are demanding office time are either trying to justify the cost of an office or are micromanagers with some sort of complex.
I only go into the office when I'm not feeling serious about work. If I have shit to get done, I do it at the place with zero commute time and substantially less distractions. When I'm light, it's nice to go into the office to shoot the shit and hang out with coworkers.
