Office real estate crash will be so sharp, values unlikely to recover by 2040 • Hacker News Board

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#131

Post by Aloha » Sun, Jun 25, 2023, 3:22 PM UTC

RyanAdamas wrote: post #4

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 ad…

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.)

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#132

Post by [deleted] » Sun, Jun 25, 2023, 3:24 PM UTC

rmbyrro wrote: post #93

RyanAdamas wrote: post #4

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 ad…

> 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 th…

[deleted]

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#133

Post by dragonwriter » Sun, Jun 25, 2023, 3:25 PM UTC

klodolph wrote: post #119

andsoitis wrote: post #85

Earlier quoted context omitted.

> 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…

> 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…

> 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.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#134

Post by lamontcg » Sun, Jun 25, 2023, 3:25 PM UTC

williamcotton wrote: post #49

xbmcuser wrote: post #5

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…

How is it a ponzi scheme? There is actual real estate being bought, sold and rented. What has happened is that demand for office space has dropped dramatically. The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. Then these properties will more likely find tenants.

> The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential.

That would be very expensive. To be able to afford that, the prices need to crash seriously hard.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#135

Post by CameronNemo » Sun, Jun 25, 2023, 3:25 PM UTC

dmbche wrote: post #24

endisneigh wrote: post #18

Earlier quoted context omitted.

[flagged]

OC says "for less than 2 F-35s" - small budget cut to convert buildings into massive amounts of housing, seems reasonable at first glance

The only part of the budget not getting cut is the military portion, so good luck with that.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#136

Post by jcranmer » Sun, Jun 25, 2023, 3:25 PM UTC

AnimalMuppet wrote: post #54

RyanAdamas wrote: post #4

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 ad…

> 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. Thi…

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.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#137

Post by spacemadness » Sun, Jun 25, 2023, 3:27 PM UTC

spokeonawheel wrote: post #6

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 If only politicians had an iota of strategy.

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.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#138

Post by dmbche » Sun, Jun 25, 2023, 3:31 PM UTC

endisneigh wrote: post #115

dmbche wrote: post #84

Earlier quoted context omitted.

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…

From what you’re saying it doesn’t sound like it would be lucrative. Lotta conjecture and hand waiving here

Yeah - I'm spitballing on what to do with empty office space that no one would possibly want to buy if we don't go back to offices.

I garantee you that keeping em empty isn't lucrative, so we gotta do something with them. Housing makes some sense.

What are you suggesting?

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#139

Post by gedy » Sun, Jun 25, 2023, 3:34 PM UTC

zzzbra wrote: post #130

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.

> employees who are also serious about their work.

Come on, office attendance is not a sign of being "serious about their work."

Farting in an office chair all day is frequently a performance to feel busy or fill other needs in their lives.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#140

Post by bushbaba » Sun, Jun 25, 2023, 3:34 PM UTC

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.