In light of opinion pieces by Paul Krugman and others along the lines of Manhattan’s high rents may not save Blackstone from defaulting on certain loans, and comments that the problems in Manhattan are neither much higher taxes nor crime, but unavailable housing, consider the following brief take on real estate in general, on the increasing rents in Manhattan in particular.
First, Washington should have long ago abandoned the utterly misleading term of "real estate." The value of this asset class has often plunged, a reminder that property is often not more 'real" than other investment options.
Perhaps if the French term for “real estate” was used in daily language in the U.S. - "immobilier" - it would have drawn attention to the fact that "immobility" is the unique feature of this asset class, and not it somehow being "real." The word would have instantly brought attention to the fact that “immobile assets” are easier to tax and regulate - precisely because of their immobility - for a while at least. This is important because increases in taxes and regulations on talent and “companies” (which are just complex mazes of contracts) eventually induce eventually pools of talent and companies to move. But as soon as a critical mass of talent flees – “real estate” values and the cities decline.
The 1997 change in capital gains that exempted $500,000 from the sale of a house from taxes over a lifetime, whereas similar gains realized from the sale of other assets like stocks and bonds were not, was one of the grave missteps upon which many others compounded, thus factoring into the 2008 crash. An example of “real” delusion: Words shape thoughts.
Now 15 years later, New York politicians find “real estate” convenient to be taxed and regulated (and avoid dealing with crime, a heavy tax even if not called so) – which may shed light on the high rents: Many are still attached to working in Manhattan’s “mobile” sectors – but with their future up in the air, people rent rather than buy “real estate” - in case the already visible trend of out-migration turns into a stampede.
