3 ms·

Sorry, it seems that i explained my ideas badly. This is exactly what i am saying - it is economically suboptimal. They will be there until they are profitable

by ex3ndr 8y ago

Sorry, it seems that i explained my ideas badly. This is exactly what i am saying - it is economically suboptimal. They will be there until they are profitable. But problem not in the land price itself, but also waiting for 3 years until you will be able to start new construction, this delay will increase actual price of this piece of land up to 30%. There are many ways to reduce this delay.

timr 8y ago
"This is exactly what i am saying - it is economically suboptimal. They will be there until they are profitable." No, you believe they're economically suboptimal, and you're making up excuses why reality disagrees with your theory. "But problem not in the land price itself, but also waiting for 3 years until you will be able to start new construction, this delay will increase actual price of this piece of land up to 30%." Proof of work required. You're going to have to prove that three years is a typical delay; that this results in the stated 30% price increases; and that this is the actual reason that your hypothetical auto-repair shops aren't all apartment complexes. There's a simpler explanation: just as commercial rents are higher than residential rents, commercial uses of land are typically far more valuable than apartment buildings. If a redevelopment doesn't pay landowners a significant multiple of their current (commercial) revenue, they're not going to do it. Most apartment projects can't come close.
- ex3ndr 8y ago
  > this is the actual reason that your hypothetical auto-repair shops aren't all apartment complexes. Sorry, i am not native speaker, but isn't it the same as "economically suboptional"? > There's a simpler explanation This neighbourhoods are mostly commercial districts that requires the first story to be commercial and other stories to be residential. Building up doesn't change commercial use of this buildings but just add more housing. > No, you believe they're economically suboptimal, and you're making up excuses why reality disagrees with your theory. I am not "believing", this is just a one hypothesis. I could be wrong, of course.
  - timr 8y ago
    "Sorry, i am not native speaker, but isn't it the same as 'economically suboptional'?" I'm saying that on average, whatever you observe in the world is already "economically optimal". You may believe that there's a better way to use land, but if reality doesn't agree with your beliefs, there's usually a good reason. "This neighbourhoods are mostly commercial districts that requires the first story to be commercial and other stories to be residential. Building up doesn't change commercial use of this buildings but just add more housing." It doesn't matter. If the trade doesn't benefit the current owner, it won't happen. Someone has to pay for the redevelopment, and I'd wager that in most cases, owners have to take on debt in order to finance redevelopment. So they go from having an annuity (fixed cash flow), to payments on debt, for a (possible) future gain. Maybe this is attractive for some owners. For many others, probably not. So what about selling? Couldn't an enterprising developer buy the land and re-develop it for them? Sure! Except: the current owner is making significant income from the business right now. That will go away, and they're going to want to be compensated for the loss. They're also not stupid, and know that the buyer is going to redevelop the land and charge more for it. Thus, they will (logically) ask for the buyer to pay them now for many years of future cashflow under the new use of the land. In other words: owners know what the land is worth, and they're going to ask for it. The buyer is going to be paying not just for years of lost business income, but also, a significant percentage of her future revenue. And she's going to pay for redevelopment. And maybe that pays off, but it certainly doesn't pay off quickly -- and it isn't necessarily obvious that an apartment building is worth more than an auto repair shop. It depends on the health of the business! This is why you can't just look at an auto-repair shop and say that it "should be" an apartment complex. It has nothing to do with regulation.
    - ex3ndr 8y ago
      > I'm saying that on average, whatever you observe in the world is already "economically optimal". You may believe that there's a better way to use land, but if reality doesn't agree with your beliefs, there's usually a good reason. I got it, this is just misunderstanding. I meant that upbuilding is "econimically suboptimal", but current situation is optimal. > In other words: owners know what the land is worth Actually, no. Some of developers told us that the problem with market is that most of the land is not for sale because owners just don't know that they can sell on a good price, they are not thinking about this at all. Developers are willing to buy land up to x10 more that they are currently buying. > It has nothing to do with regulation. In regions where there are a huge crisis in housing local government can introduce a new type of a Tax - Underdevelopment Tax. This will reduce margins of the owners that hold their land for "investing" opportunity and force them to sell their land to developers. Even if this tax will be low, they will start to think about selling their land right now and this help to the market a lot.

by ex3ndr 8y ago

timr 8y ago

"This is exactly what i am saying - it is economically suboptimal. They will be there until they are profitable." No, you believe they're economically suboptimal, and you're making up excuses why reality disagrees with your theory. "But problem not in the land price itself, but also waiting for 3 years until you will be able to start new construction, this delay will increase actual price of this piece of land up to 30%." Proof of work required. You're going to have to prove that three years is a typical delay; that this results in the stated 30% price increases; and that this is the actual reason that your hypothetical auto-repair shops aren't all apartment complexes. There's a simpler explanation: just as commercial rents are higher than residential rents, commercial uses of land are typically far more valuable than apartment buildings. If a redevelopment doesn't pay landowners a significant multiple of their current (commercial) revenue, they're not going to do it. Most apartment projects can't come close.

ex3ndr 8y ago
> this is the actual reason that your hypothetical auto-repair shops aren't all apartment complexes. Sorry, i am not native speaker, but isn't it the same as "economically suboptional"? > There's a simpler explanation This neighbourhoods are mostly commercial districts that requires the first story to be commercial and other stories to be residential. Building up doesn't change commercial use of this buildings but just add more housing. > No, you believe they're economically suboptimal, and you're making up excuses why reality disagrees with your theory. I am not "believing", this is just a one hypothesis. I could be wrong, of course.
- timr 8y ago
  "Sorry, i am not native speaker, but isn't it the same as 'economically suboptional'?" I'm saying that on average, whatever you observe in the world is already "economically optimal". You may believe that there's a better way to use land, but if reality doesn't agree with your beliefs, there's usually a good reason. "This neighbourhoods are mostly commercial districts that requires the first story to be commercial and other stories to be residential. Building up doesn't change commercial use of this buildings but just add more housing." It doesn't matter. If the trade doesn't benefit the current owner, it won't happen. Someone has to pay for the redevelopment, and I'd wager that in most cases, owners have to take on debt in order to finance redevelopment. So they go from having an annuity (fixed cash flow), to payments on debt, for a (possible) future gain. Maybe this is attractive for some owners. For many others, probably not. So what about selling? Couldn't an enterprising developer buy the land and re-develop it for them? Sure! Except: the current owner is making significant income from the business right now. That will go away, and they're going to want to be compensated for the loss. They're also not stupid, and know that the buyer is going to redevelop the land and charge more for it. Thus, they will (logically) ask for the buyer to pay them now for many years of future cashflow under the new use of the land. In other words: owners know what the land is worth, and they're going to ask for it. The buyer is going to be paying not just for years of lost business income, but also, a significant percentage of her future revenue. And she's going to pay for redevelopment. And maybe that pays off, but it certainly doesn't pay off quickly -- and it isn't necessarily obvious that an apartment building is worth more than an auto repair shop. It depends on the health of the business! This is why you can't just look at an auto-repair shop and say that it "should be" an apartment complex. It has nothing to do with regulation.
  - ex3ndr 8y ago
    > I'm saying that on average, whatever you observe in the world is already "economically optimal". You may believe that there's a better way to use land, but if reality doesn't agree with your beliefs, there's usually a good reason. I got it, this is just misunderstanding. I meant that upbuilding is "econimically suboptimal", but current situation is optimal. > In other words: owners know what the land is worth Actually, no. Some of developers told us that the problem with market is that most of the land is not for sale because owners just don't know that they can sell on a good price, they are not thinking about this at all. Developers are willing to buy land up to x10 more that they are currently buying. > It has nothing to do with regulation. In regions where there are a huge crisis in housing local government can introduce a new type of a Tax - Underdevelopment Tax. This will reduce margins of the owners that hold their land for "investing" opportunity and force them to sell their land to developers. Even if this tax will be low, they will start to think about selling their land right now and this help to the market a lot.