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Why do commercial spaces sit vacant?

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Re: Why do commercial spaces sit vacant?

#141

Post by bobthepanda »

triceratops wrote: post #94
bobthepanda wrote: post #55

Earlier quoted context omitted.

Commercial loans are not like residential mortgages and often the loan is based on a minimum rent. If you go below that then you are in default.

How do they make mortgage payments without rent?

* own a portfolio of real estate, so losses in one area can be offset

* own a mixed use building, so an empty ground floor retail space can be offset by multiple floors of apartments

also, if the rise in equity outpaces the losses in rents it can still be net positive

Re: Why do commercial spaces sit vacant?

#142

Post by spwa4 »

ImPostingOnHN wrote: post #133
spwa4 wrote: post #100

Earlier quoted context omitted.

So it does not help with commercial property? How does that work? I don't understand the reasoning. Because this is of course not true unless it lowers the value of that land to below zero. And if it lowers the value of that land even just to zero, it'll just be undeveloped entirely ...

> So it does not help with commercial property? The opposite: It does help with commercial property > if it lowers the value of that land even just to zero, it'll just be undeveloped entirely It's not that the value of the land is zero, but rather the price can drop to zero. The price is a factor of both the land value and the taxes on the land. For example, suppose you buy land for $50, and you wish to 10x your inve…

But ... none of this affects this problem in a good way. The problem here is that it's cheaper to leave financed buildings empty, rather than fill them up at cheaper rents, eating the bigger loss. If anything land value tax makes the problem worse, as it would immediately become part of the financing, driving up the price. (the price, obviously, is the price the buyer paid. That the seller doesn't receive the money for the land value tax just sucks for them, it makes no difference)

Land value tax, in a world where buildings are financialized (ie. have a mortgage) and used for speculation will make things worse by making everything more expensive, hence making the big losses on underwater mortgages ... bigger. Which, you have my personal guarantee, won't affect the community in a good way at all.

Empty lots aren't empty because their owners hate you, it's because the land value is too low for the mortgage and needs to drop, but can't, they're unwilling or unable to eat the loss. The problem is investors prefer small yearly loss over eating the big loss now. Land value tax supposedly solves that ... by making everything more expensive? Of course it will do the reverse.

Re: Why do commercial spaces sit vacant?

#143

Post by ImPostingOnHN »

spwa4 wrote: post #142
ImPostingOnHN wrote: post #133

Earlier quoted context omitted.

> So it does not help with commercial property? The opposite: It does help with commercial property > if it lowers the value of that land even just to zero, it'll just be undeveloped entirely It's not that the value of the land is zero, but rather the price can drop to zero. The price is a factor of both the land value and the taxes on the land. For example, suppose you buy land for $50, and you wish to 10x your inve…

But ... none of this affects this problem in a good way. The problem here is that it's cheaper to leave financed buildings empty, rather than fill them up at cheaper rents, eating the bigger loss. If anything land value tax makes the problem worse, as it would immediately become part of the financing, driving up the price. (the price, obviously, is the price the buyer paid. That the seller doesn't receive the money f…

> The problem here is that it's cheaper to leave financed buildings empty, rather than fill them up at cheaper rents

Exactly! So we make it more expensive to leave their building empty. Land value tax makes it more expensive to hold the land vacant, thus encouraging the speculator to either use the property (improving the community), or continue lowering rental/sale prices until it rents or sells, or pay higher taxes to the community they're ruining.

> Empty lots aren't empty because their owners hate you, it's because the land value is too low for the mortgage and needs to drop, but can't, they're unwilling or unable to eat the loss.

They're empty because the speculators are asking so much above market price for rent or sale that nobody can afford it. The solution is to institute forces which coerce them to either use it or sell it (potentially at a loss, but not as high a loss as holding it vacant).

> Land value tax supposedly solves that ... by making everything more expensive?

No, land value tax only makes it more expensive to leave the property empty. It doesn't make anything else more expensive. Indeed, it makes it cheaper for a business to buy up an unused property, because the seller would rather sell at a loss than incur a sufficiently larger loss (land value tax) over time.

Re: Why do commercial spaces sit vacant?

#144

Post by tokioyoyo »

Ekaros wrote: post #128
tokioyoyo wrote: post #77

Earlier quoted context omitted.

Other than some of the residents who don’t want to see empty storefronts, who is incentivized to push for a correction in this case? It’s a “everybody loses” scenario, this everyone pretends to believe the numbers.

Everyone but current holders of property and loans. Lower property values are good thing. As that means lower rents, meaning lower overheads. Leading to cheaper goods and services for everyone. Overall property values closer to reality is good for everyone including current owners.

But supermajority of the US (and almost majority of the world, I guess?) are property owners in their respective countries. So, by that logic, most people wouldn't want that, no?

By the way, I am very supportive of lower property values. I've just mostly given up on this issue, since from my conversations with random people all around the world, most people don't really want that to happen. Like, they want the property values to go down, but they don't want THEIR property to go down.

Re: Why do commercial spaces sit vacant?

#145

Post by tokioyoyo »

mcphage wrote: post #121
tokioyoyo wrote: post #77

Earlier quoted context omitted.

Other than some of the residents who don’t want to see empty storefronts, who is incentivized to push for a correction in this case? It’s a “everybody loses” scenario, this everyone pretends to believe the numbers.

> who is incentivized to push for a correction in this case? Well, the government at the very least. From the article: > Banks are highly regulated, so they can’t just loan whatever they want. The government insists that banks keep high margins of safety in their portfolio, and commercial loans are risky, so the terms they can offer are designed to limit risk. […] Second, the bank must keep a strict loan-to-value (LT…

Looking from the perspective that government is a representative and reflection a the general population (yes, i understand it's not the case everywhere and so on), doesn't it mean people don't want this to be enforced, as it would lead to declining property values, which would devalue majority of population's assets?

Re: Why do commercial spaces sit vacant?

#146

Post by tokioyoyo »

dec0dedab0de wrote: post #136
tokioyoyo wrote: post #77

Earlier quoted context omitted.

Other than some of the residents who don’t want to see empty storefronts, who is incentivized to push for a correction in this case? It’s a “everybody loses” scenario, this everyone pretends to believe the numbers.

Other than some of the residents who don’t want to see empty storefronts, who is incentivized to push for a correction in this case? That is a tad dismissive. Instead of not wanting to see empty storefronts, consider residents who would like to start a local business, but can not because the rent on commercial properties is prohibitively expensive. Then remember that there are residents who would like more jobs in th…

But residents understand that if that property value goes down, their own property value will go down as well, no? Unless they're a renter, which is the minority of the population. So, even if they'd want to open a business, they'd need to be ok with the devaluation of their environment as well.

Re: Why do commercial spaces sit vacant?

#147

Post by spwa4 »

ImPostingOnHN wrote: post #143
spwa4 wrote: post #142

Earlier quoted context omitted.

But ... none of this affects this problem in a good way. The problem here is that it's cheaper to leave financed buildings empty, rather than fill them up at cheaper rents, eating the bigger loss. If anything land value tax makes the problem worse, as it would immediately become part of the financing, driving up the price. (the price, obviously, is the price the buyer paid. That the seller doesn't receive the money f…

> The problem here is that it's cheaper to leave financed buildings empty, rather than fill them up at cheaper rents Exactly! So we make it more expensive to leave their building empty. Land value tax makes it more expensive to hold the land vacant, thus encouraging the speculator to either use the property (improving the community), or continue lowering rental/sale prices until it rents or sells, or pay higher taxes…

> No, land value tax only makes it more expensive to leave the property empty. It doesn't make anything else more expensive. Indeed, it makes it cheaper for a business to buy up an unused property, because the seller would rather sell at a loss than incur a sufficiently larger loss (land value tax) over time.

You're disregarding everything I said. The problem is that "selling at a loss" is a much, much higher loss than the tax over time, which is what's sustaining the bubble for 1.5 years now. Investors are showing the opposite behavior of what you claim, and you are unwilling to even consider the data.

There effectively a land value tax on commercial property. It's called a mortgage. It's just being paid to banks (and the money "destroyed") instead of going to government. It has the opposite effect of what you claim: it makes land values higher despite no development.

You are also totally not considering what happens if your "forced to sell" shit actually goes through. That money is people's pension money and money that is used for social security. If your tax results in those loans disappearing, yes, you may be able to buy the lot cheaply, but only at the cost of destroying a large amount of people's livelihoods.

Re: Why do commercial spaces sit vacant?

#148

Post by Aunche »

jayd16 wrote: post #138
Aunche wrote: post #68

Earlier quoted context omitted.

A vacancy tax would work on areas with high demand, but it also punishes areas that are already struggling.

Why is that? It would devalue property but renters want that. It would only hurt the rent seekers and speculators, no?

Imagine a half empty mall where there simply isn't enough demand for any more stores. If you add a vacancy tax that bankrupts the mall owners, then the mall shuts down and the renters lose out as well.

Re: Why do commercial spaces sit vacant?

#149

Post by ImPostingOnHN »

spwa4 wrote: post #147
ImPostingOnHN wrote: post #143

Earlier quoted context omitted.

> The problem here is that it's cheaper to leave financed buildings empty, rather than fill them up at cheaper rents Exactly! So we make it more expensive to leave their building empty. Land value tax makes it more expensive to hold the land vacant, thus encouraging the speculator to either use the property (improving the community), or continue lowering rental/sale prices until it rents or sells, or pay higher taxes…

> No, land value tax only makes it more expensive to leave the property empty. It doesn't make anything else more expensive. Indeed, it makes it cheaper for a business to buy up an unused property, because the seller would rather sell at a loss than incur a sufficiently larger loss (land value tax) over time. You're disregarding everything I said. The problem is that "selling at a loss" is a much, much higher loss th…

> The problem is that "selling at a loss" is a much, much higher loss than the tax over time

You don't know what the tax is, so there's no way that you can make that assumption. Like folks here are saying, we just make the tax enough that it's an even higher loss than that.

> There effectively a land value tax on commercial property

Commercial property isn't the issue here. We're talking about penalizing unused commercial property.

> That money is people's pension money

I didn't force people to put their pension money into Blackstone so Blackstone could ruin communities with their speculation. More importantly, communities being ruined here, and the people living in them, are more important than investors in speculation which ruins them. The livelihoods are already being destroyed by them.

Re: Why do commercial spaces sit vacant?

#150

Post by mcphage »

tokioyoyo wrote: post #145
mcphage wrote: post #121

Earlier quoted context omitted.

> who is incentivized to push for a correction in this case? Well, the government at the very least. From the article: > Banks are highly regulated, so they can’t just loan whatever they want. The government insists that banks keep high margins of safety in their portfolio, and commercial loans are risky, so the terms they can offer are designed to limit risk. […] Second, the bank must keep a strict loan-to-value (LT…

Looking from the perspective that government is a representative and reflection a the general population (yes, i understand it's not the case everywhere and so on), doesn't it mean people don't want this to be enforced, as it would lead to declining property values, which would devalue majority of population's assets?

Well, fundamentally no, I don’t think it reflects the will of the general population, since I don’t think they’re aware that this is how it works. At least, I wasn’t before reading this.

And beyond that: people’s assets are mostly residential real estate, not commercial real estate. So I don’t know that people will get that worked up about commercial real estate devaluing.

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