5 ms·

But a six story apartment can now house six families. If a city has 10,000 families and 10,000 single family houses, and just 1,000 of those single family house

But a six story apartment can now house six families. If a city has 10,000 families and 10,000 single family houses, and just 1,000 of those single family houses become 6 story apartments, there are now 15,000 living places people can choose between. That is called "an increase in quantity supplied", and the supply curve slopes downward. You see where I'm going with this.

Spivak 3y ago
It's less rosy than this because those 6 story apartments are built on credit where the valuation of the building is based off the market rents. If rent goes down the bank comes-a-calling telling you that your LTV dropped and you have to put up more collateral. The building owners just straight up can't afford to do this so they're stuck between keeping rents high and accepting vacancies which limits their revenue and foreclosure. The spice must flow, property valuations must go up or the whole thing collapses. It's why non-SF-esque cities only allow expansion in-line with population growth or a little less because they will immediately be tarred and feathered if they make everyone's mortgage underwater. To be clear this isn't a good thing, but no one wants to blink first and start another 2008.
- hiAndrewQuinn 3y ago
  I'm not sure I follow. If the building owner lowered their rent, wouldn't they find it easier to fill that vacancy? Or if you're saying the bank decides to take one of the units as extra collateral, why wouldn't the bank then rent out the unit?
  - rokkitmensch 3y ago
    Owners frequently have loan covenants that mandate bank approval for rents below a threshold. You've securitized the cashflow from the property, so if that cashflow dips, the lender has an assurance they can reprice the security in line with your new cashflow story. Even if you cover the shortfall in cashflow out of pocket, this is better for both you and the bank because you don't have to admit that the market rates at which you got your loan have changed.
    - hiAndrewQuinn 3y ago
      Oh, okay. So you've been offered a loan partly _on the basis_ of that future cashflow, and probably wouldn't have been able to get one on equally good terms if it was "just" to build a building? Yeah. I can see how that would create perverse incentives downstream.
      - rokkitmensch 3y ago
        Same reason no working schmucks go to their mortgage servicer when they lose a job. They don't even want to know!
- NeuNeurosis 3y ago
  Thanks for the extra context from the credit holders. It seems that this is completely overlooked in the solutions proposed to solve the housing crisis. Seems like there is an argument to be made that we need new policies to change this calculation at either the state or federal level. Wouldn't public private partnership funding help with this?

Spivak 3y ago

It's less rosy than this because those 6 story apartments are built on credit where the valuation of the building is based off the market rents. If rent goes down the bank comes-a-calling telling you that your LTV dropped and you have to put up more collateral. The building owners just straight up can't afford to do this so they're stuck between keeping rents high and accepting vacancies which limits their revenue and foreclosure. The spice must flow, property valuations must go up or the whole thing collapses. It's why non-SF-esque cities only allow expansion in-line with population growth or a little less because they will immediately be tarred and feathered if they make everyone's mortgage underwater. To be clear this isn't a good thing, but no one wants to blink first and start another 2008.

hiAndrewQuinn 3y ago
I'm not sure I follow. If the building owner lowered their rent, wouldn't they find it easier to fill that vacancy? Or if you're saying the bank decides to take one of the units as extra collateral, why wouldn't the bank then rent out the unit?
- rokkitmensch 3y ago
  Owners frequently have loan covenants that mandate bank approval for rents below a threshold. You've securitized the cashflow from the property, so if that cashflow dips, the lender has an assurance they can reprice the security in line with your new cashflow story. Even if you cover the shortfall in cashflow out of pocket, this is better for both you and the bank because you don't have to admit that the market rates at which you got your loan have changed.
  - hiAndrewQuinn 3y ago
    Oh, okay. So you've been offered a loan partly _on the basis_ of that future cashflow, and probably wouldn't have been able to get one on equally good terms if it was "just" to build a building? Yeah. I can see how that would create perverse incentives downstream.
    - rokkitmensch 3y ago
      Same reason no working schmucks go to their mortgage servicer when they lose a job. They don't even want to know!
NeuNeurosis 3y ago
Thanks for the extra context from the credit holders. It seems that this is completely overlooked in the solutions proposed to solve the housing crisis. Seems like there is an argument to be made that we need new policies to change this calculation at either the state or federal level. Wouldn't public private partnership funding help with this?