(07-12-2017, 09:25 PM)Warren Dew Wrote: That's not the part of pbrower2a's post that is erroneous. Rather, it's this paragraph that is mistaken:
Quote:Landlords ... aren't innovators; they sell the same thing over and over. Media bigwigs must create new intellectual property. Car companies must upgrade car models. Energy companies must explore for new resources of fuel. They simply take a bite out of earnings of people who may be a captive clientele.
In fact, landlords have to do just as much upgrading of properties as car companies have to do of car models, and they have to manage repairs in a constantly changing service and regulatory landscape as well.
I recognize a tendency toward oversimplification to discuss an economic or business model.
The general pattern of real estate in some places has gone like this:
In Chicago, some rail tycoon builds a mansion just outside of the city's populated fringe around 1880, its grounds being transformed into a park-like environment. Around 1910 the area around the mansion starts losing its rural character. Some time in the early twentieth century the tycoon for whom it is built dies, and the family of the tycoon sells it to get proceeds for... whatever. Real-estate developers buy the whole property, cut down the trees and start building cheap apartments on the grounds and start subdividing the mansion into smaller pieces for renters. What was once a beautiful mansion becomes a slum. But more money changes hands with more residents; the deal turning a mansion into slum apartments is profitable, so it is done. Historical preservation? That's too modern for 1915 or so.
...Architectural upgrades of rental properties are rare except in 'rescues', also known as gentrification these days. A landlord has every cause to charge as high a rent as possible and keep maintenance to a minimum -- doing so only to keep an apartment habitable as defined by the standards of the time. More likely, any building that isn't expensively maintained (let us say a state's legislative house or a first-rate museum) has an obvious limit to its lifespan, one in which
rent receipts = costs (insurance, property taxes, maintenance costs, business costs)
defines the end of profitability. As a general rule, costs of maintenance rise and revenue from leasing falls, and when they meet... an apartment owner wants to sell out. Ignore depreciation, more a convention of accounting as a recovery of investment cost than an assessment of deterioration.
Single-family, owner-held houses can last seemingly indefinitely (which explains why one finds such houses from the eighteenth century in New England and some original houses in the rural Great Lakes region), but apartment houses don't have such a long life. Owner-occupants have an obvious reason to do maintenance on their own. Tenants call the landlord when the plumbing springs a leak. The IRS classifies some residential rental properties with lifespans for depreciation of up to 30 years. To be sure, some investor might buy a property with a scheduled depreciation of 30 years in the 25th or so year of its existence, but by then the building might not be worth much not only on the books but also in reality.
But here is what the IRS has as depreciation schedules for residential rental properties:
https://www.irs.gov/publications/p946/ar02.html
Figure that high-end rental properties, such as those that Donald Trump has for high-rent customers have the longer terms of depreciation; Section-8 housing that builders practically concede as slums so that the landlords can get big shares of their rentals as federal or state subsidies get very short terms for depreciation. Obviously were I a landlord I would prefer high-end renters because the revenue streams would be higher, and the tenants of such places generally don't do as much damage as low-end tenants more likely to damage the appliances through misuse. But if I have thrown together a bland box of apartments, I am likely to have trouble in a few years with losing high-end tenants and ending up with low-rent tenants.
Of course if the developer guts and refurbishes a property he may have a new basis for depreciation
It's telling that shopping malls (which Donald Trump avoided, for which I will have to give him some credit as an investor in real estate) that someone in his early 60s remembers being built as marvels of commercial success are dying after about 40 years of existence. These places have high costs of maintenance, and the rental revenue from stores as tenants either is shrinking or is failing to keep up with maintenance costs. (But a discussion of moribund shopping malls would be a good topic for creation or revival. Consumer spending is a relevant part of economic life to the Turning Theory. Shopping habits are not what they were in the 1980s, and will probably not even be parallel to those until the 2060s).
As developers, real estate people may indeed be innovators. They may also be that if they refurbish old buildings that have architectural merit. But in general, few people want upgrades in the apartments in which they live because that raises the rent.
The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated Communist but instead the people for whom the distinction between fact and fiction, true and false, no longer exists -- Hannah Arendt.