I think this happens more often in places like San Francisco where the gains from investing in property is mostly appreciation and it's hard to get rid of a tenant. In this case it makes little sense to deal with the hassle of having a tenant who might live there for a very long time to potentially increase your returns by 2-3% per year.

If you are big enough theres some weird accounting incentive to keep it vacant. You can keep claiming it as an asset that brings in 10x dollars, even though your cash flow is 0x, so actually renting for 8x really hurts your asset value or some nonsense that im probably getting the details wrong about.

The answer is more boring than financial conspiracy. Rents are sticky and both evictions and finding new tenants are a pain in the ass. Especially for a commercial space, better to wait a while for the 10x tenant than to settle for the 8x one.

It's not a conspiracy, just a murky business.

Real estate is the most "advantaged" businesses out there. They tend to support local political figures heavily and get heard.

Right, which is why commercial lending is a farce in my opinion. It's more or less built on wishful thinking of future gains, leading to a lot of vacancy.

At least in residential lending the problem is that the FHA has specific rules on what it will and will not guarantee, distorting the market in favor of mostly single-use residential.

Really we should pull that and the mortgage deduction, because at this point both distort the market in favor of people who can afford to own property.

I suspect mortgage deduction will be gone in a few years. With Trump's tax reforms very few people take it, and so they won't be for it. If they eliminated it entirely now too many people remember it as good, but give it a few years to sink in that only the rich (or those living in California, which is itself a point against it elsewhere) take it, not you can get rid of it.

Let's hope!

Real estate is its own beast.

https://www.theatlantic.com/magazine/archive/2019/03/how-kle...

tl;dr: post 9/11 criminal money laundering activity switched from banks to real estate

Because the real estate is being used as a value store for people moving money from overseas, engaging in money laundering, or as a hedge against other bets. Once exchange value is given priority over use value in markets for things like housing, you run into all kinds of nonsensical arrangements and deleterious social consequences.

And that is why you need tax penalties such as long term unoccupied property taxes and non-resident investor taxes to counter incentivize such behavior.

I’m skeptical that taxes themselves can resolve the problem. The people who engage in these tactics are already quite good at gaming them. Housing would have to revert to circumstances like Japan, where homes are largely a depreciating asset.

Replace portion of income tax with simple property tax. No complicated stuff like "unoccupied property taxes and non-resident investor taxes".

Even better than property tax, land value tax.

Charging tax on property (building + land) mostly just disincentivizes more intensive buildings.

The land value should be taxed, but it isn't a simple answer. Large buildings imply more people which mean more use of city services. I'm not sure what the right answer is, but I am sure simple answers that would fit into a comment box here are wrong.

If you want to tax things to cover the cost of more people then it makes more sense to tax the people.

You obviously need to tax enough to cover the costs somehow.

Tax is also incentive. You want to tax things you want to discourage more than things that you want to encourage.

They should be, shouldn't they?

They're physical luxury goods that deteriorate as you use them, like cars. They appreciate largely because of nearby corporate and government investment (in office complices, schools, utilities).

That people make money off of them suggests that the government isn't being nearly aggressive enough about capturing the value it's creating here.

It is really weird. My home is a wood-frame house >100 years old. Although some aspects are better than new construction, it seems weird that the underwriting is basically the same as a new property given the term of the loan I just refinanced. Even insurance is almost the same!

I can travel a mile down the road and due to a "bad" neighborhood, many properties are literally negative value. They sit till they burn because demolition is more costly than the value of the land.

Markets don't price risk well. Housing markets definitely don't price capital investments or liabilities more than 5 years out well.

Yes, I agree entirely. Removing socially necessary goods like food, housing, and healthcare from financialized speculation would resolve many that issues countries like the US face.

Well, in NL you were allowed to squat a property if it was vacant for more that a certain amount of time. Then the local Liberals (Mark Rutte) outlawed squatting and it’s basically like the parent comment described.

It’s also related to financing reality. Commercial real estate is refinances every 10 years or so based on the expected rent. The math works out such that it’s far more reasonable to leave a unit empty with a higher rent than occupied with a lower rent, since the refinancing terms dominate the amount of lost rent.