Just read a bunch of YIMBY who are completely confused: "Why would a developer leave lots of units empty rather than lower the price?" I've seen a local *real estate broker* ask the same question. These "experts" don't understand finance at all. 1/2 >

Lower rents to finish lease-up or to recover from a sudden attrition of tenants, lowers the asset value.
a) That triggers margin calls on securitized loans (demands to immediately return a bunch of the principle debt).
b) That lowers the value of equity shares. 2/3

Both of those outcomes also reduce the main title holder's access to capital at exactly the time they are seeing less revenue. Worse, it can spiral when incumbent tenants see comparable units slashed in price - and demand reductions. 3/4

In short, if the developer can keep covering debt service and dividends, they are better off lot lowering rents.

How can these YIMBY boys prattle on for half a decade, portraying themselves as experts, and not know even these basic facts about real estate financing? 4/5

Another fun fact: those loan / investment terms are generally stress-tested before the money is handed over. In other words, these "worst case scenarios" were contemplated in the first place. They planned for this possibility. 5/6

As long as all those financial players believe things will eventually rebound, they won't want to touch those valuations and contracts. The economic collapse triggered by the pandemic, however, raises new and interesting problems for them. 6/7

If, indeed, many debt-loaded apartments / mortgage portfolios become unable to service their debt, the Fed or Treasury has to cough up another X trillion to take on those bad assets or there is another 2008-style finance domino show. 7/8

This impending fiscal domino crash is not limited to housing, either. Most sectors are effected by sharp contractions in demand. As small and medium size businesses fold, and big ones contract, lots of debt is being wiped out. 8/9

The best part is that all the king's horses, and all the king's men -- all the top ranking capitalists -- seem to have no idea how to put things back together. The tide of jobless claims is still rolling in. Discouraged workers count growing. etc. 9/10

"This is being compared to the great depression" is an understatement. It's already bigger and doesn't look like it is read to shrink. The real wildcard question is any of them can think of a way to use fiat money to fix it. 10/11

Can Keynesianism still work in 2020? This is around the time in history when Keynes himself predicted that, no, it couldn't work, at least without huge reduction in labor hours. Of course, such a reduction also all but eliminates capital entirely. 11/12

So the whole system teeters on the brink. One structurally important pillar -- real property valuations -- relies on not lowering rents. Property owners who lower rents or sales prices get financially punished first. And that's why units are left vacant. 12/13

It's also why fantasies that a few zoning tweeks will cause production to explode upwards are bullsh*t. Production is not throttled by zoning. It is throttled by the demand curve you stupid, stupid, YIMBY. 13/13