This is why we don’t look to Twitter threads for deep analysis.
There’s an overall effect on the real estate market from a heavily load of investors who will reliably over pay any price for these properties.
It drives prices up for one. But it also drives prices up regardless of value, income potential, or what’s going on in the broader ecconomy. Much faster than it might go up otherwise. Look at New York City during the great recession. Property values and rents were talking nation wide. And it was predicted that this would happen in NYC. Instead rents and property values continued to go up, just slightly slower than they had been.
What this means is that this sort of real estate becomes of very good investment. The returns are much better than most other investments, and it’s shielded against market downturns. That attracts other sorts of wealthy investment.
Cities of this types tend to cap, or loosely control rent increases. In NYC mostly by tying it the expense of improvements to the property. To raise rents more than a capped percentage you need to spend a certain amount of money per unit.
Launderers may not care about purchase price, but higher rent is more money cleaned. But they don’t neccisarily want to spend to continually improve buildings or redevelopment. They’re seating turn key high cost properties. And the other investors do need to recoup their investment via rents. And to raise rents they need to improve the space, and often bump up the income bracket of tennants.
This creates a lot of incentive to convert existing housing stock, and target new construction to the high end, luxary housing market. Your multi million dollar condos and coops. Over middle class rental housing. Part of what defines that luxary housing is size. So units are combined (which also lets you increase rents). Reducing overall housing stock, or slowing increases. But mostly what you see is that ever more units are removed from the affordable, middle class housing pool. And moved into expensive luxary brackets for the wealthy. Housing stock becomes practically reduced for the bulk of the population even as units are added.
So the money laundering, with it’s willingness to always pay more for a building than it’s worth becomes a key peg in converting urban housing markets from traditional housing ecconomies. Into a high value investment market.
Yeah that’s why millennials aren’t owning. It’s a choice. They want to be free and not tied down! Collective living! Social!
Or it’s because millennials can’t afford to own. Between the fact that they have no money, have ruined credit from student loans, and property values are far to high for most to buy in.
Because there are often (especially in the United States especially) tremendous tax credits for losses in real estate. So while vacant properties may not generate income/ROI or clean money on their own. They allow one to keep more clean income from elsewhere (say from selling units).
One great way to generate losses is vacancy, another is improvement. Which drives further conversion to luxary housing.
Since the market in these cities has transitioned from returning the investment (or cleaning money) via rents. To doing so via exponentially growing resale values. It becomes very good business to leave places vacant, writing off losses and keeping them available for sale at any time.
Additionally the rise of short term rentals, like Air B&B, means you can often bring in far more money. Without the strings of long term rentals. You keep the units available for sale at any moment. But still generating rents. Using vacancies and renovation to offset income from short term rentals.
All of which further removes housing from the available, affordable pool.
Restrictions in supply lead to rising rents overall. So where there is available housing it becomes more expensive than most can afford. Which drives further conversion to luxary market to attract people who can afford it. Further reducing the pool of available housing.
It’s basically a feed back loop of your fucked.
This is largely a feature of a handful of very large, ecconomics important cities. New York, San Francisco, and London are the classic examples. But the flight of middle and lower income residents, as well as young people from such cities. Is often a major part of what’s driving redevelopment of smaller cities like the ones you list.
And at a certain poiny they start to tip over into this market. Philly had this rapid turn around from sketchy (if delightful) and collapsing small City through the aughts. Into this rapid turn around and redevelopment with young people and companies relocating for more affordable space. And the last few years Jared Kurshner has been heavily investing in developments in Philly. And this investment unit market is basically the family business for the Kurshner.
So basically what happens is your major cities no longer see practical housing being built. That gets offloaded to nearbye smaller cities. Until those cities tip over into investment territory, and it moved to the next small city out.
