Brickbat: Up for Rent

The British government is set to unveil a law that would force landlords to rent out empty retail spaces. The law would let local councils mandate that owners place shops that have been empty a year or more into a "rental auction," with the high bidder getting the lease. Prime Minister Boris Johnson has called boarded up shops a "blight" that harms local economies.

Comments

[t0qdm9v]

If they don't remove zoning regulations it won't help. People need/want to live near the shops. With online retailers we need fewer shops than we used to. Open it up to housing or we are just going to have to take what should already be ours.

[ElvisIsReal]

During my small biz days I wished I could live above the store like the old times.

[Fist of Etiquette]

Sorry, landlords. Your property will always eventually be seized.

[Longtobefree]

First they came for the landlords - - - - - - - -

[Earth-based Human Skeptic]

Well, landlords are proven evil-doers, with their fancy top hats and monocles, and always twirling their mustaches.

[Its_Not_Inevitable]

Don't forget how they're always lighting their cigars with burning $100 bills!

[Roberta]

More importantly, I'd want to know the cause of excessive vacancies. It seems odd: landlords idling stores, being forced to participate in a rent auction. Usually vacancy is a matter of speculation: the owner's hope to find a [better] tenant in short enough order to justify the complete loss of rent for a period. But that's for a particular location, not a city or country full of tnem for a year. Even in the pandemic, you wouldn't expect people to hold out strategically, when it's a pandemic for everybody at the same time. So what gives? And why are landlords objecting to being forced to make money?

[Erezeneb]

How many would determine the actual current fair value of their building is much lower than claimed on paper, and immediately be forced back underwater on their loans?

[Earth-based Human Skeptic]

Uh, ever drive through a town in an economically depressed region? Vacancies there have little to do with speculation. If nobody wants to rent a storefront, there is no price to negotiate.

[Roberta]

That's why I differentiated this situation from the usual sporadic vacancy due to speculation.

[Social Justice is neither]

You do realize the situation for any particular building owner is the same, pandemic or not and so they're holding out for a price that is attractive regardless. That and in a pandemic everyone was forced closed so why pay rent for a space you cannot use and now there aren't supplies to provide so why open a storefront.

If they were serious about solving the problem they'd look at what they have implemented that is throttling business creation and roll that back, but they aren't so they won't and we get this instead.

[Roberta]

How could the building owner be so myopic as not to notice how bad conditions are, and to continue holding out for a price they're obviously not going to get?

[ElvisIsReal]

I don't know about across the pond, but here in the US it's actually better for the space to remain empty than to rent it out at below-market rates. Probably has something to do with taxes and property values.

[ElvisIsReal]

Trust me, I was as baffled as it by you when I went looking for new places to open up a second location. In a sane world, commercial rents would be falling to levels where people would actually move in.

[Roberta]

Is that what Erezeneb meant by hir cryptic comment upthread? That tax valuation is pegged to market? So you could have a tenant for a short while, and if the assessment comes in that period, your tax for some much longer period goes up because of the income you got in that short period? Then the demonstrated behavior would make sense. If Boris Johnson thru his party had the power to mitigate the tax hit in such circumstances, that'd be the public policy to pursue.

[Ben of Houston]

From what I've heard, the biggest issue is actually building purchase loans. The loan is based off the valuation of the building, which is based off the rent you can get for it.

If you buy a building with a $10M loan, and then rents get cut in half, then your building is now worth only $5M. However, if you still owe $8M, your loan is now underwater. At least some business loans have conditions that mean you immediately owe the difference to reverse the negative equity.

Therefore landowners hold out for the same rent because the speculatively invested in property and if they lower the rent, they can be on the hook for massive payments that they cannot afford.

[markm23]

If the market depression is temporary and you lease at a much lower rent, it will be difficult (or even illegal) to raise the rent to the original level once the market improves.

Also, an occupied building is likely to require much more maintenance than a vacant one. Drop the rent too far and you're losing money even without any loan payments.

[Brandybuck]

Jeepers, my home town would be devasted by such a law. Nine out of ten store fronts are empty. Who's going to rent them if no one is renting them now? Someone wins a $10 bid, has their garage sale in it, then abandons it the next day? We're supposed to do this for the whole town?

Why aren't they renting? Because no one is offering! I mean, duh! The cause is not the landlords, the cause is the shit ass economy that Trump and Biden have given us. Started under Bush and Obama, just to blame both sides.

Hell, right now in the middle of the tech center of the Golden State, with new gleaming glass and metal buildings going up to house all the elite workers, a quarter to half the store fronts within a quarter mile are empty.

And I hear we're doing a lot better than Boris' England.

[Roberta]

Well, that's $10 the landlord didn't have. So what are they afraid of, and what would be so devastating? Vacant for 364 days of the year instead of 365 would hurt...how?

[ElvisIsReal]

What if it costs $50 to get the space back into rentable condition?

[Roberta]

That's what bonding, deposits, etc. are for.

[Jack Nunn]

You're assuming when the goverment forces you to rent it will allow you to have reasonable bonding, deposits, etc. If they can force you to rent for $10 they can force you to do so with no deposit/etc.

[Roberta]

Sometimes a tenant like that would leave it in improved condition. It all depends on what you think the next tenant would want. But a deposit should take care of the down side.

[Sevo]

"And why are landlords objecting to being forced to make money?"

Even if your assumption is correct, it is none of your nor the government's business.

[Roberta]

If it were none of our business, we wouldn't be discussing it here.

[Earth-based Human Skeptic]

More genius economics from local governments. The reason a town has low economic activity is that the owners of all the empty storefronts, factories, and warehouses choose not to rent them--really? Maybe the town council should force owners to pay people to occupy their buildings.

[Rich]

Maybe the town council should force owners to pay people to occupy their buildings.

"Excellent! The wealth tax in action!"

[ducksalad]

Hell, why stop there.

Force people who aren't working to rent a storefront and open a business. If they don't have enough money, make them accept a mandatory loan. From the landlord. The interest on the loan is the net profit from the business. The debt is inheritable.

England actually had such a system for hundreds of years, except it was for farmland instead of storefronts. Worked pretty well...

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

No need -- make it simpler. The true counterpart is to force home businesses to rent an empty shop. Find everyone baking cakes for neighbors, or working remotely from home, and require them to accept the highest bid from landlords with empty buildings.

Then extend this to general employment. Laid off, out of work? Take the highest bid from employers looking to hire, regardless of qualifications. Business looking to hire? Take the highest bid from everyone on the dole, regardless of qualifications.

[Its_Not_Inevitable]

Now you're getting it.

[Don't look at me!]

Will tattoo shops, marijuana dispensaries, massage parlors, strip joints be eligible to bid on the building?

[ElvisIsReal]

Now, now, now, let's not get crazy!

[Sevo]

BTW, quite a few vacancies in CA were caused when Newsom took it upon himself to determine which businesses were "essential" and allowed to continue in business and which were forced into bankruptcy.