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"A falling knife has no handle" As much as I like the idea of cheaper urban real estate, I think people are forgetting a few things: * This could likely preci

"A falling knife has no handle" As much as I like the idea of cheaper urban real estate, I think people are forgetting a few things: * This could likely precipitate a huge mortgage crisis if valuations across the board get cut without some sort of soft landing * Revenues for city governments are in the dumps already because of office vacancy. Most of this cannot be rezoned to lower cost residential without city councils admitting huge permanent revenue cuts. And there are plenty of examples of cities governments killing themselves rather than accept devaluation * Declining city revenues also mean less budget for cities to provide services that keep themselves desirable. So you are moving more people downtown and have less money to provide them with police, busses, sewer, homelessness, etc. * The only reason expensive urban housing is desirable is because of the presence of economic activity in town! So if you downsize the commercial zones the city will also be hurting demand for their housing stock! So keep in mind that this is mostly a crisis for city governments. And right now they are looking at a potential death spiral situation with no clear bottom. Put another way, cities don't really have a model for how to maintain themselves in a declining real estate market. All they see is Detroit.

VirusNewbie 3y ago
This doesn't make sense to me. Land values have skyrocketed in the last two years. If prices fall, I don't know, thirty percent, what percentage of owners would be underwater? 10%? 20? That doesn't seem like any sort of feedback loop, it seems like a correction.
- helf 3y ago
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- legitster 3y ago
  To put things in perspective, the 2007 economic crash was triggered by only a 6% dip in housing value! But that 6% dip was enough to snowball into a 34% crash. I don't think we are looking at nearly the same situation here, but so much of the value of real estate is tied into the future value of all neighboring real estate that it can be much more intertwined than people realize. Like, if the city announced that it was going to have 30% less jobs in downtown SF, you would better believe that you have just not turned a commercial real estate crisis into a residential real estate crisis in SF as every home loan now takes a huge hit on it's future value. But again, most of the crisis is on the city planning level. It's one thing for the real estate market to correct, but SF would only get to enjoy a fraction of the savings from real estate but still expect huge outlays per resident.
nradov 3y ago
What are some examples of city governments killing themselves rather than accepting devaluation? Most bankruptcies of declining cities have been driven primarily by union contracts plus pension and benefits obligations to retirees. It doesn't help for politicians to accept the situation when they're locked into contracts with no room to maneuver. Then Chapter 9 bankruptcy becomes the only solution to force the workers and retirees to take a cram down while preserving essential services.
- legitster 3y ago
  I can try to find a few examples, but there are plenty of cities who steadfastly refuse to give up concessions to businesses or open up land for development on the grounds that it is being undervalued in the market. Even in my parent's small town there is a string of derelict businesses on the main street. But the city council has way too high expectation on what value they can get for it. So rather than rezone or redevelop the property, they have let it sit vacant for 20 years and shake their fist at the skies that no one wants to scoop it up at the "market value".
  - nradov 3y ago
    I don't understand your point. What is the zoning on those vacant properties today? What zoning change would increase their market value without seriously hurting quality of life for residents? Have any developers applied for zoning variances and been denied? Are the properties owned by the city itself, or by private entities? If the latter, eventually they will be sold at the market price and the city government will have no say in that.
    - legitster 3y ago
      I think you have it backwards. The zoning change would be to dump "expensive" commercial real estate into cheap residential or mixed. In this case they are privately owned but basically under the receivership of the city council. This is a small town in the boonies, so there isn't anybody with the time or the capital to force through zoning variances. There being a "market price" kind of assumes that real estate is a simple commodity, but cities themselves usually excerpt some control of their own destiny. Once you move out of a desirable coastal location you generally won't take for granted the amount of effort cities take to attract jobs. So some of it is zoning, some of it is infrastructure, and some of it is raw concessions that a city demands or gives its businesses.

VirusNewbie 3y ago

This doesn't make sense to me. Land values have skyrocketed in the last two years. If prices fall, I don't know, thirty percent, what percentage of owners would be underwater? 10%? 20? That doesn't seem like any sort of feedback loop, it seems like a correction.

helf 3y ago
[dead]
legitster 3y ago
To put things in perspective, the 2007 economic crash was triggered by only a 6% dip in housing value! But that 6% dip was enough to snowball into a 34% crash. I don't think we are looking at nearly the same situation here, but so much of the value of real estate is tied into the future value of all neighboring real estate that it can be much more intertwined than people realize. Like, if the city announced that it was going to have 30% less jobs in downtown SF, you would better believe that you have just not turned a commercial real estate crisis into a residential real estate crisis in SF as every home loan now takes a huge hit on it's future value. But again, most of the crisis is on the city planning level. It's one thing for the real estate market to correct, but SF would only get to enjoy a fraction of the savings from real estate but still expect huge outlays per resident.

nradov 3y ago

What are some examples of city governments killing themselves rather than accepting devaluation? Most bankruptcies of declining cities have been driven primarily by union contracts plus pension and benefits obligations to retirees. It doesn't help for politicians to accept the situation when they're locked into contracts with no room to maneuver. Then Chapter 9 bankruptcy becomes the only solution to force the workers and retirees to take a cram down while preserving essential services.

legitster 3y ago
I can try to find a few examples, but there are plenty of cities who steadfastly refuse to give up concessions to businesses or open up land for development on the grounds that it is being undervalued in the market. Even in my parent's small town there is a string of derelict businesses on the main street. But the city council has way too high expectation on what value they can get for it. So rather than rezone or redevelop the property, they have let it sit vacant for 20 years and shake their fist at the skies that no one wants to scoop it up at the "market value".
- nradov 3y ago
  I don't understand your point. What is the zoning on those vacant properties today? What zoning change would increase their market value without seriously hurting quality of life for residents? Have any developers applied for zoning variances and been denied? Are the properties owned by the city itself, or by private entities? If the latter, eventually they will be sold at the market price and the city government will have no say in that.
  - legitster 3y ago
    I think you have it backwards. The zoning change would be to dump "expensive" commercial real estate into cheap residential or mixed. In this case they are privately owned but basically under the receivership of the city council. This is a small town in the boonies, so there isn't anybody with the time or the capital to force through zoning variances. There being a "market price" kind of assumes that real estate is a simple commodity, but cities themselves usually excerpt some control of their own destiny. Once you move out of a desirable coastal location you generally won't take for granted the amount of effort cities take to attract jobs. So some of it is zoning, some of it is infrastructure, and some of it is raw concessions that a city demands or gives its businesses.