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There are many landlords leaving units empty precisely because they’re sane and rational. In some cases becauee of a lack of regulation whereas in others becaus

There are many landlords leaving units empty precisely because they’re sane and rational. In some cases becauee of a lack of regulation whereas in others because of over regulation. I personally know a landlord who will almost never rent out the commercial space in their property. Right now not renting it out saves then tax due to the “loss” they declare. But the price at which they’d have to rent the commercial unit to exceed that tax benefit would be high enough to cause a reappraisal of the entire building which would increase the property tax for all the residential units they pay as well, which would mean they’re losing money, or at least making less money, on each unit until they can increase the rent to level which may not be sustained by the market. Another well known non government reason to leave units vacant is if the market value has dropped, leading it out at the lower market value can trigger all sorts of problems for the property owner with the banks who have lent money to them for the property, including the ability for them to recall the money early, change rates, etc since it may trigger clauses regd the appraised value dropping below a certain threshold. These are purely private contracts that provide a very strong incentive for landlords to keep spaces empty rather than lease them out at market value. This tends to be the most common reason for us city storefronts being empty.

anotherhue 3y ago
A million times this. A sensible regulation in this field might involve mandatory re-assessments of the property values, so that these games are meaningless to play.
arcticbull 3y ago
> There are many landlords leaving units empty precisely because they’re sane and rational. In some cases becauee of a lack of regulation whereas in others because of over regulation. They're just not. It's silly to not offer your vacant unit for lease at record-high rents 'hoping' that one day rents may be even higher. Every month you're vacant you're losing on $3000+. You really think rent growth can outrun missing out on $3000/month, every month? Every month you wait relies on a rent growth rate of ~9% per month just to break even on a 1-year lease if you have no ability to raise rents. I don't know where this theory comes from, but I can't find any data to support it. When the Berkeley city council passed their tax on vacant units their own analysis indicated that about 1128 units in Berkeley were potentially vacant. Of them only 40% are actually vacant, so about 451 units. Of them, a number are actually being renovated, a number are being rented out without informing the city and about 100 of them are in totally derelict buildings that aren't fit for living in. It's all in the council's assessment on page 2. [1] Berkeley has 46,875 units. So that's a worst case of 2.4% vacancy rate - but more realistically we're talking <1%. The only thing to be done is build more homes. [1] https://berkeleyca.gov/sites/default/files/documents/2022-07-26%20Special%20Item%2006%20Placing%20a%20General%20Tax%20Measure.pdf https://berkeleyca.gov/sites/default/files/documents/2022-07...
- ajmurmann 3y ago
  Thank you for adding some concrete numbers! Even with the 2.4%, that means an apartment is empty less than a month every three years. It seems like you'd there just with tenant churn.
davely 3y ago
Oh, man. I lived across the street from an apartment complex in Oakland for about 5 years that had a beautiful ground floor corner commercial real estate unit that was empty the entire time. Sure, Oakland and all that. But other spots in the neighborhood would see commercial places show up, last months (or years!) and then leave. This place was perpetually empty. Talking to some shop owners in the area, they would say, “Oh yeah, that location is way too expensive”. The ultimate reason was this. It was more beneficial for the landlord to have this vacant spot for 5 years than to, god forbid, lower the rent to something the market felt was reasonable. Weirdly, in the last few months we lived in that area, the unit was converted to residential (?!). A contractor came in for a few weeks to build a better bathroom and kitchen. It still had the huge glass picture windows and glass door you see in traditional storefronts but someone put up curtains and one of those cheesy “welcome!” mats out front. I just can’t believe it was more financially advantageous to have 0 rent for 5 years and then renovate vs just having any tenant.
- deleted 3y ago
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- direwolf20 3y ago
  It could make sense if you can inflate its tax value. If you can say you're losing $5000 a month (not that crazy for commercial) by renting it, and your tax rate is 30%, and the actual rent you could get is $1500, you break even.
ryanwaggoner 3y ago
There is no tax benefit to leaving a unit vacant, despite people who don’t understand real estate constantly making this claim. You do not get to deduct the rents you failed to collect, and there is no tax benefit that is lost when you rent the property. It never makes sense to refuse a dollar because you’ll have to pay 30% tax on it, or whatever. There may be other factors leading your friend to keep his property vacant, but this isn’t one of them. The last paragraph sounds like nonsense too, though I’m less sure about that. What mechanism do you think there is for the mortgage holder to see your leases? And how stupid do you think banks are, that they’d rather your property bring in zero than less than they were expecting?

anotherhue 3y ago

A million times this. A sensible regulation in this field might involve mandatory re-assessments of the property values, so that these games are meaningless to play.

arcticbull 3y ago

> There are many landlords leaving units empty precisely because they’re sane and rational. In some cases becauee of a lack of regulation whereas in others because of over regulation. They're just not. It's silly to not offer your vacant unit for lease at record-high rents 'hoping' that one day rents may be even higher. Every month you're vacant you're losing on $3000+. You really think rent growth can outrun missing out on $3000/month, every month? Every month you wait relies on a rent growth rate of ~9% per month just to break even on a 1-year lease if you have no ability to raise rents. I don't know where this theory comes from, but I can't find any data to support it. When the Berkeley city council passed their tax on vacant units their own analysis indicated that about 1128 units in Berkeley were potentially vacant. Of them only 40% are actually vacant, so about 451 units. Of them, a number are actually being renovated, a number are being rented out without informing the city and about 100 of them are in totally derelict buildings that aren't fit for living in. It's all in the council's assessment on page 2. [1] Berkeley has 46,875 units. So that's a worst case of 2.4% vacancy rate - but more realistically we're talking <1%. The only thing to be done is build more homes. [1] https://berkeleyca.gov/sites/default/files/documents/2022-07-26%20Special%20Item%2006%20Placing%20a%20General%20Tax%20Measure.pdf https://berkeleyca.gov/sites/default/files/documents/2022-07...

ajmurmann 3y ago
Thank you for adding some concrete numbers! Even with the 2.4%, that means an apartment is empty less than a month every three years. It seems like you'd there just with tenant churn.

davely 3y ago

Oh, man. I lived across the street from an apartment complex in Oakland for about 5 years that had a beautiful ground floor corner commercial real estate unit that was empty the entire time. Sure, Oakland and all that. But other spots in the neighborhood would see commercial places show up, last months (or years!) and then leave. This place was perpetually empty. Talking to some shop owners in the area, they would say, “Oh yeah, that location is way too expensive”. The ultimate reason was this. It was more beneficial for the landlord to have this vacant spot for 5 years than to, god forbid, lower the rent to something the market felt was reasonable. Weirdly, in the last few months we lived in that area, the unit was converted to residential (?!). A contractor came in for a few weeks to build a better bathroom and kitchen. It still had the huge glass picture windows and glass door you see in traditional storefronts but someone put up curtains and one of those cheesy “welcome!” mats out front. I just can’t believe it was more financially advantageous to have 0 rent for 5 years and then renovate vs just having any tenant.

deleted 3y ago
[deleted]
direwolf20 3y ago
It could make sense if you can inflate its tax value. If you can say you're losing $5000 a month (not that crazy for commercial) by renting it, and your tax rate is 30%, and the actual rent you could get is $1500, you break even.

ryanwaggoner 3y ago

There is no tax benefit to leaving a unit vacant, despite people who don’t understand real estate constantly making this claim. You do not get to deduct the rents you failed to collect, and there is no tax benefit that is lost when you rent the property. It never makes sense to refuse a dollar because you’ll have to pay 30% tax on it, or whatever. There may be other factors leading your friend to keep his property vacant, but this isn’t one of them. The last paragraph sounds like nonsense too, though I’m less sure about that. What mechanism do you think there is for the mortgage holder to see your leases? And how stupid do you think banks are, that they’d rather your property bring in zero than less than they were expecting?