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I hope it ends up causing residential real estate prices to fall as a consequence. Maybe then millennials will be able to afford homes. I understand some peopl

I hope it ends up causing residential real estate prices to fall as a consequence. Maybe then millennials will be able to afford homes. I understand some people treat their home as savings but that's bad in every way for society and for the homeowner. I have a home and the only return I expect on it is to be able to continue living there. I'm certainly not going to depend on it for my retirement, as that would be really unwise.

Bombthecat 6y ago
Everyone still wants to live in cities. Firms want to settle in cities. If shops close, it wont change much.
- cobookman 6y ago
  You could see commercial real-estate be converted to residential.
  - Analemma_ 6y ago
    How much does that cost, and is anyone going to pay that cost when residential rents are also falling? Commercial property is so different from living quarters that I wouldn't be surprised if "conversion" isn't actually possible, short of just razing it and building from scratch.
    - pkaye 6y ago
      I've seen that conversion in Silicon Valley. There is the Valco mall in Cupertino being demolished for mixed use residential, retail and office space. That mall was dying for a decade. https://revitalizevallco.com/ https://revitalizevallco.com/ Then there is Santana Row in San Jose. Used to be a strip mall as I recall. Now its high end shopping and residential. https://en.wikipedia.org/wiki/Santana_Row https://en.wikipedia.org/wiki/Santana_Row
  - Nasrudith 6y ago
    In practice unfortunately most attempts seem to get aborted as zoning requirements differ too much to be economical. For one the plumbing tends to come with per resident requirements for the units they wish to sell for health code reasons of wanting a shower, toliet, and bath. Going more "dorm" style could work for low end if there wasn't a pandemic and even then it would carry plenty of risks that would scare people away from such an arrangement let alone the consumer desires.
- AnimalMuppet 6y ago
  If the shops close, do people still want to live in cities? Isn't that part of the point of living in a city - that you have all these businesses easily within reach?
  - SketchySeaBeast 6y ago
    It's the jobs. People didn't migrate from rural to urban in the last several hundred years because they wanted the shops, they went where the highest concentration of jobs were. Moving to a rural area won't help people find jobs.
    - ghaff 6y ago
      You mean the jobs that are likely to be at least somewhat less location-dependent coming out of this? (Not arguing for 100% remote or anything like this but still a fairly major shift. I certainly know plenty of people who have already moved out of cities to quite rural locations.)
      - SketchySeaBeast 6y ago
        I think this is another case of knowledge worker myopia. With the exception of Amazon, you can't really work retail remote. Those workers who can work remotely now can leave at any time, that's right, and there has been a bigger shift for them, but we can't pretend that the majority of workers are remote workers. The people who had to come to the city for work, people who worked in retail or in industry, those types jobs aren't moving back rural. You can't work a factory where one isn't and you can't open up retail locations in the middle of nowhere.
        ghaff 6y ago
        Certainly, I'm specifically talking about the highly-paid knowledge workers in cities. But if they move out to any large degree that cascades. You don't need the higher-end luncheon spots and other amenities those workers use at that point. There aren't generally factories or distribution centers in cities. It may even be a positive for some of those workers to the degree prices go down, albeit with fewer high-end restaurants and so forth and fewer co-workers.
HarryHirsch 6y ago
That's the irresistible force (drop in salaries) meeting the immovable object (bank valuations of real estate). It's impossible to see how this is going to be squared up. On one hand, banks cannot possibly be allowed to re-value what real estate they have on their books, else they'll have to declare bankruptcy, on the other hand, wages have dropped spectacularly, and people need some sort of roof over their heads.
- Buttons840 6y ago
  > banks cannot possibly be allowed to re-value what real estate they have on their books Tell me more about this? Why can't banks re-value things that constantly change in value?
  - dternyak 6y ago
    The next fragment, "else they'll have to declare bankruptcy", is pretty much the answer. And as we learned in 2008, they're also "too big to fail", so that won't be happening.
SketchySeaBeast 6y ago
> I understand some people treat their home as savings but that's bad in every way for society and for the homeowner. I have a home and the only return I expect on it is to be able to continue living there. I'm certainly not going to depend on it for my retirement, as that would be really unwise. How else can we think about an expense of hundreds of thousands of dollars? It's ludicrous to spend that much on something assuming it'll just depreciate and fall apart on you, worthless. I understand that you're not paying rent in a home, so it's serving a purpose, but they aren't exactly equivalent in terms of upkeep and taxes. At this point, given the instability in the market I have no idea what is the wise move to put money into for retirement. Investments have tanked and I don't know at what point they'll recover, interest rates are abysmal, and apparently our homes should be worth nothing. There's really no practical, accessible way to invest.
- gizmo686 6y ago
  From a public policy perspective, encouraging home ownership was arguably a mistake, but that is a seperate issue. Rental properties are normally cash-flow positive, including payments on their mortgage. This means that buying a comparable unit that depriciates to $0 over a period of 30 years is still expected to be a net positive.
- supertrope 6y ago
  >How else can we think about an expense of hundreds of thousands of dollars? Cars depreciate. Rent, medical services, and groceries don't return any money when you're done using them. Houses should be thought of as consumption first and a store of value second. Sure by buying as soon as you can you are betting on appreciation in value. Houses aren't a good investment compared with even a bond mutual fund. There's a 6% transaction cost, closing costs, you have to pay mortgage interest, property tax, maintenance, insurance, utilities, and maybe even PMI. A single event like a hurricane or unfavorable neighborhood evolution can wipe you out (extreme concentration risk); a single bond issuer declaring bankruptcy is a risk that can be diversified away.
- int_19h 6y ago
  If homes were not treated primarily as investments, I don't think you'd be spending that much. And note that this isn't about things depreciating and falling apart. It's more about various policies that affect house prices indirectly. The existing arrangement, when you distill it down, pretty much means that once somebody becomes a homeowner, they have an economic incentive to make home ownership for other people as hard as possible, because it props their investment (and if they own more than one, and rent some out, lets them raise the rent higher).

Bombthecat 6y ago

Everyone still wants to live in cities. Firms want to settle in cities. If shops close, it wont change much.

cobookman 6y ago
You could see commercial real-estate be converted to residential.
- Analemma_ 6y ago
  How much does that cost, and is anyone going to pay that cost when residential rents are also falling? Commercial property is so different from living quarters that I wouldn't be surprised if "conversion" isn't actually possible, short of just razing it and building from scratch.
  - pkaye 6y ago
    I've seen that conversion in Silicon Valley. There is the Valco mall in Cupertino being demolished for mixed use residential, retail and office space. That mall was dying for a decade. https://revitalizevallco.com/ https://revitalizevallco.com/ Then there is Santana Row in San Jose. Used to be a strip mall as I recall. Now its high end shopping and residential. https://en.wikipedia.org/wiki/Santana_Row https://en.wikipedia.org/wiki/Santana_Row
- Nasrudith 6y ago
  In practice unfortunately most attempts seem to get aborted as zoning requirements differ too much to be economical. For one the plumbing tends to come with per resident requirements for the units they wish to sell for health code reasons of wanting a shower, toliet, and bath. Going more "dorm" style could work for low end if there wasn't a pandemic and even then it would carry plenty of risks that would scare people away from such an arrangement let alone the consumer desires.
AnimalMuppet 6y ago
If the shops close, do people still want to live in cities? Isn't that part of the point of living in a city - that you have all these businesses easily within reach?
- SketchySeaBeast 6y ago
  It's the jobs. People didn't migrate from rural to urban in the last several hundred years because they wanted the shops, they went where the highest concentration of jobs were. Moving to a rural area won't help people find jobs.
  - ghaff 6y ago
    You mean the jobs that are likely to be at least somewhat less location-dependent coming out of this? (Not arguing for 100% remote or anything like this but still a fairly major shift. I certainly know plenty of people who have already moved out of cities to quite rural locations.)
    - SketchySeaBeast 6y ago
      I think this is another case of knowledge worker myopia. With the exception of Amazon, you can't really work retail remote. Those workers who can work remotely now can leave at any time, that's right, and there has been a bigger shift for them, but we can't pretend that the majority of workers are remote workers. The people who had to come to the city for work, people who worked in retail or in industry, those types jobs aren't moving back rural. You can't work a factory where one isn't and you can't open up retail locations in the middle of nowhere.
      - ghaff 6y ago
        Certainly, I'm specifically talking about the highly-paid knowledge workers in cities. But if they move out to any large degree that cascades. You don't need the higher-end luncheon spots and other amenities those workers use at that point. There aren't generally factories or distribution centers in cities. It may even be a positive for some of those workers to the degree prices go down, albeit with fewer high-end restaurants and so forth and fewer co-workers.

HarryHirsch 6y ago

That's the irresistible force (drop in salaries) meeting the immovable object (bank valuations of real estate). It's impossible to see how this is going to be squared up. On one hand, banks cannot possibly be allowed to re-value what real estate they have on their books, else they'll have to declare bankruptcy, on the other hand, wages have dropped spectacularly, and people need some sort of roof over their heads.

Buttons840 6y ago
> banks cannot possibly be allowed to re-value what real estate they have on their books Tell me more about this? Why can't banks re-value things that constantly change in value?
- dternyak 6y ago
  The next fragment, "else they'll have to declare bankruptcy", is pretty much the answer. And as we learned in 2008, they're also "too big to fail", so that won't be happening.

SketchySeaBeast 6y ago

> I understand some people treat their home as savings but that's bad in every way for society and for the homeowner. I have a home and the only return I expect on it is to be able to continue living there. I'm certainly not going to depend on it for my retirement, as that would be really unwise. How else can we think about an expense of hundreds of thousands of dollars? It's ludicrous to spend that much on something assuming it'll just depreciate and fall apart on you, worthless. I understand that you're not paying rent in a home, so it's serving a purpose, but they aren't exactly equivalent in terms of upkeep and taxes. At this point, given the instability in the market I have no idea what is the wise move to put money into for retirement. Investments have tanked and I don't know at what point they'll recover, interest rates are abysmal, and apparently our homes should be worth nothing. There's really no practical, accessible way to invest.

gizmo686 6y ago
From a public policy perspective, encouraging home ownership was arguably a mistake, but that is a seperate issue. Rental properties are normally cash-flow positive, including payments on their mortgage. This means that buying a comparable unit that depriciates to $0 over a period of 30 years is still expected to be a net positive.
supertrope 6y ago
>How else can we think about an expense of hundreds of thousands of dollars? Cars depreciate. Rent, medical services, and groceries don't return any money when you're done using them. Houses should be thought of as consumption first and a store of value second. Sure by buying as soon as you can you are betting on appreciation in value. Houses aren't a good investment compared with even a bond mutual fund. There's a 6% transaction cost, closing costs, you have to pay mortgage interest, property tax, maintenance, insurance, utilities, and maybe even PMI. A single event like a hurricane or unfavorable neighborhood evolution can wipe you out (extreme concentration risk); a single bond issuer declaring bankruptcy is a risk that can be diversified away.
int_19h 6y ago
If homes were not treated primarily as investments, I don't think you'd be spending that much. And note that this isn't about things depreciating and falling apart. It's more about various policies that affect house prices indirectly. The existing arrangement, when you distill it down, pretty much means that once somebody becomes a homeowner, they have an economic incentive to make home ownership for other people as hard as possible, because it props their investment (and if they own more than one, and rent some out, lets them raise the rent higher).