Capitalist Crisis

[pbrower2a]

(07-13-2017, 08:30 PM)Warren Dew Wrote: You haven't been a landlord.

There are many things that I have never been, but that does not mean that I cannot discuss them. Leasing of extant properties is one of the easiest business activities to treat as a model. Most people rent or have rented, and we all know renters. In general, I have never known of many renters to fully trust a landlord to do what is best for any but the landlord. For many people, property rent is the biggest chunk of their post-tax expenditures. I also recognize that given a choice, people would generally rather buy something modest than rent something better. We have often heard the adage that rent is money down the drain, and a mortgage is an investment. To be sure, there are times (like overpriced housing about to collapse in value) in which renting is wiser than buying, as before the real estate crash of 2007-2010 in some cities in southern California.

OK, so rent is a built-in cost of living in places with vibrant economies, like New York, Boston, San Francisco, and Washington DC. But who wants to live in Youngstown, Ohio, where one can have a well-paid job only if one commutes to and from Cleveland or Pittsburgh? Of course, real rent is much higher in an America with 300 million people than in an America with 150 million people.

Quote:My city was mostly built around 1930.  The buildings are all still standing, and still used as residences, either by owners or tenants.

I know of a town nearby that largely named its streets after Presidents of the United States. It is telling that the most recent President for which a street is named is "Roosevelt", as in "Theodore". Most of the building ended when nobody needed a street named after "Taft", "Wilson", "Harding", or "Coolidge". To be sure, houses did fill in until the 1930s, but most houses are turn-of-the-century... that is, when William McKinley was President.

I know of another town of similar size fairly close to me in which practically all houses were built around 1880 at the latest. That's when the town quit growing. It still has cobblestone streets.

OK, so experiences with the real estate stock will differ from region to region, state to state, and (as if this doesn't tell all) economic history to economic history.

Quote:I have a gas light boss in the ceiling of the room I'm in, but somewhere along the line, someone put in electricity - and then, later, replaced the the original electrical system with shielded cable.  The kitchens are 1970s era, and the bathrooms are modern; that wasn't cheap.  I'm sure there was a lot more work I wasn't aware of.

Few would rent a house without electricity, an obsolete kitchen, or obsolete toilets.  I'm guessing that there are lower rents for people willing to make such compromises, but few renters make those. I can also expect fewer landlords having a desire to lease such dubious bargains. But if you want a newer kitchen or better shower in an existing complex you will pay something mroe than what one had been paying.

Quote:Aside from normal maintenance, I've done a lot of things that would qualify as improvements that would have to be depreciated under IRS rules.  I've put on a new, modern, roof; it looks the same but it has water impervious extra layers and a foam based ridge vent that is of recent technology.  I've replaced all the windows with superefficient triple paned argon krypton windows.  I've added fiberglass roof insulation, blown in wall insulation, and then another type of reflective mylar roof insulation.  I've replaced the siding with energy efficient siding, and it wasn't the first time that was done.  I've put in central air conditioning, switched the heating from oil to natural gas, put in high efficiency water heaters and then replaced them with even more efficient versions when they reached end of life.  I've put more money into the house than I paid to buy it.

Necessary for keeping a building from before World War II livable and marketable, let alone to meet building codes that have tended to become more stringent over time. But depending on where and when you bought the property, it is also possible (especially in California) to be collecting more in one year on a property than one paid for it initially. If he fails to invest in the property a landlord becomes a slumlord. Of course economic realities are very different in Boston than in Detroit...

Quote:Landlords in the area put even more money in.  There are a lot of college rentals here; walk into an empty rental place in the middle of the summer and you're likely to find a kitchen or bathroom being entirely replaced, floors being sanded and refinished, walls repainted.  And I'm sure the landlords are making all the energy efficiency improvements too, especially if they pay utilities.

You can argue that some of these things only restore value lost to wear and tear, but a lot - the new kitchens and bathrooms, the energy efficiency improvements - genuinely increase the value of the property.

...etc., etc.  It's just that property leasing looks like one of the most cut-and-dried  of economic activities. It looks far simpler than property development.  Many developers try to cash out because their expertise is more valuable in building an apartment complex than in leasing it. And, yes, apartments are conduits for taxes, utility costs, and insurance -- as if owner-occupied housing isn't much the same. A landlord has bigger numbers to deal with. One pays the debt or balks and never becomes a customer. One defaults on rent and gets evicted.  

Quote:Yes, there are cycles.  But there are cycles in other industries too.  You should be old enough to remember the junky cars Detroit turned out in the 1970s; that was as bad as landlords who let their properties turn into slums.  Landlords are as innovative and productive as other industry owners; they just get a bad rap because tenants like to blame everything on the landlord, and the landlords don't bother to argue.

I am old enough to remember those bad cars -- gas-guzzling 'mid-size' cars that have less usable space for passengers than current sub-compacts. The Japanese introduced front-wheel drive  that ensured that people could sit above what was a drive-train in a rear-wheel-drive car and not get a sore derriere on a long trip... and more efficient engines. American auto companies simply built reduced versions of larger cars and gave people muscle-car comfort and an under-powered engine, the worst of both worlds. But we know how that went. Demand for crappy American-made cars plummeted, and auto-making jobs disappeared in Greater Detroit.

I'm sure that you can understand the consequences for Detroit-area real-estate. Rentals failed to keep up with costs  because people evacuated Greater Detroit  for places where the jobs were. A high-wage area became a low-wage area. Meanwhile, public costs remained as high as in good times, so the relative share of local taxes increased, raising costs for any property owner.

Without the auto industry, Detroit was not an attractive place for much of anything else. Detroit pols under-invested in education which might have prepared the children of semi-skilled factory workers to be something else.  Detroit pols wouldn't bite the bullet and welcome the sweatshops in which people might have jobs that ensure working poverty.

West Virginia is much the same with coal. (I run into the argument many times that it is that blacks mess up a city when they are the last to leave... race is not the problem in West Virginia).  Ger complacent about a declining industry and treat it as a cash cow, and it is only a matter of time before landlords, merchants, lenders, and public employees get hurt. Detroit now arguably has the biggest collection of ruins in the world.