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It doesn't end at all. Governments won't be able to raise interest rates without putting a significant portion of their populations under water, or flooding the

It doesn't end at all. Governments won't be able to raise interest rates without putting a significant portion of their populations under water, or flooding the market with people who can suddenly no longer afford their homes. Banks don't _actually_ want a big pile of real estate laying around. In my city I'm more interested in the effects of the cheap capital + the building boom. There are close to 80 brand new buildings with 100,000's of floorspace across multiple floor plates ALL of it is zoned for offices and ALL of it is totally empty. You'd think normally market dynamics would make some of them affordable, but nope; they'll just sit empty instead.

creaghpatr 6y ago
Happens in China too.
- stubish 6y ago
  The profit is in building the building, funneling money from investors to contractors. Once the building is up, walk away with your bags of cash leaving the investors with the building and their dreams.
david927 6y ago
Even 0% interest rate loans need to be paid back at some point. With real estate being over-built, it's going to sit empty. Eventually the payments can't be made. Then you get credit defaults. Then people need cash and you get a liquidity crisis. And then it all falls down.
- thinkingkong 6y ago
  The loans are being repaid but they're being repaid tax-free from other sources. If you own multiple properties and one of them sits vacant, you can count the 'missed out on income' as a loss against your company. The amount of income you write off as losses is based on the rent you were _previously charging_. IOW I have no incentive to rent my unit at a lower cost if it's basically acting as a tax shelter for my other properties. If the combination of those two things goes negative then yeah, the world gets interesting.
  - jay_kyburz 6y ago
    Woah, is that the US? I'm not an accountant, but I'm pretty sure that's not how it works here is Australia.
    - PragmaticPulp 6y ago
      Writing off tax losses isn't equivalent to income. The losses just reduce your taxable income. There isn't actually much upside to having a property sit vacant just to take losses on it, unless you're in some extremely weird tax scenario. If someone was renting a property at $1000/month, it's still better to re-rent it at $800/month than to reduce your tax bill by something like $400/month (or whatever the taxes would be on the $1000 rent offset).
      - jay_kyburz 6y ago
        Sure, I understand that you can reduce you taxable income by actually spending money maintaining the property or paying down the loan, but I was responding to the parent suggesting you could label "money you didn't earn" an expense.
      - kasey_junk 6y ago
        But! It might not be better if you are leveraged based on last known rental rate. Something is broken in the real estate lending market because landlords do prefer lack of occupancy to lowered rents. I don’t know the industry well enough to know why but it’s definitely a pattern.
        anadem 6y ago
        Surely it's because when you've borrowed a lot against a highly-valued property you don't want its perceived value to be reduced (by having low rents) in case that triggers the lender to recall the loans. But I too don't know enough about the commercial real estate "industry".
        qqqwerty 6y ago
        One explanation that I have heard that sort of makes sense is that by refusing to lower asking rents they prevent existing tenets from seeking rent reductions. So the calculation is probably some combination of projected increase in occupancy, projected rent reductions of existing tenants, tax implications, and potential loan recalls. My guess is most landlords are just trying to hold on till the end of the pandemic and hope that rents and valuations snap back quickly.
PragmaticPulp 6y ago
> or flooding the market with people who can suddenly no longer afford their homes. Most mortgages don't have an adjustable rate. They're fixed for the duration. Regardless, small interest rate increases wouldn't suddenly make variable rate mortgage owners homeless. Gradual rate increases would provide more pressure for overextended individuals to move to housing they can actually afford, though.
deleted 6y ago
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creaghpatr 6y ago

Happens in China too.

stubish 6y ago
The profit is in building the building, funneling money from investors to contractors. Once the building is up, walk away with your bags of cash leaving the investors with the building and their dreams.

david927 6y ago

Even 0% interest rate loans need to be paid back at some point. With real estate being over-built, it's going to sit empty. Eventually the payments can't be made. Then you get credit defaults. Then people need cash and you get a liquidity crisis. And then it all falls down.

thinkingkong 6y ago
The loans are being repaid but they're being repaid tax-free from other sources. If you own multiple properties and one of them sits vacant, you can count the 'missed out on income' as a loss against your company. The amount of income you write off as losses is based on the rent you were _previously charging_. IOW I have no incentive to rent my unit at a lower cost if it's basically acting as a tax shelter for my other properties. If the combination of those two things goes negative then yeah, the world gets interesting.
- jay_kyburz 6y ago
  Woah, is that the US? I'm not an accountant, but I'm pretty sure that's not how it works here is Australia.
  - PragmaticPulp 6y ago
    Writing off tax losses isn't equivalent to income. The losses just reduce your taxable income. There isn't actually much upside to having a property sit vacant just to take losses on it, unless you're in some extremely weird tax scenario. If someone was renting a property at $1000/month, it's still better to re-rent it at $800/month than to reduce your tax bill by something like $400/month (or whatever the taxes would be on the $1000 rent offset).
    - jay_kyburz 6y ago
      Sure, I understand that you can reduce you taxable income by actually spending money maintaining the property or paying down the loan, but I was responding to the parent suggesting you could label "money you didn't earn" an expense.
    - kasey_junk 6y ago
      But! It might not be better if you are leveraged based on last known rental rate. Something is broken in the real estate lending market because landlords do prefer lack of occupancy to lowered rents. I don’t know the industry well enough to know why but it’s definitely a pattern.
      - anadem 6y ago
        Surely it's because when you've borrowed a lot against a highly-valued property you don't want its perceived value to be reduced (by having low rents) in case that triggers the lender to recall the loans. But I too don't know enough about the commercial real estate "industry".
      - qqqwerty 6y ago
        One explanation that I have heard that sort of makes sense is that by refusing to lower asking rents they prevent existing tenets from seeking rent reductions. So the calculation is probably some combination of projected increase in occupancy, projected rent reductions of existing tenants, tax implications, and potential loan recalls. My guess is most landlords are just trying to hold on till the end of the pandemic and hope that rents and valuations snap back quickly.

PragmaticPulp 6y ago

> or flooding the market with people who can suddenly no longer afford their homes. Most mortgages don't have an adjustable rate. They're fixed for the duration. Regardless, small interest rate increases wouldn't suddenly make variable rate mortgage owners homeless. Gradual rate increases would provide more pressure for overextended individuals to move to housing they can actually afford, though.

deleted 6y ago

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