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Sunday, February 14, 2016

Vacant Real Estate And The Value Of Location

The vacancy rate with residential real estate correlates in the inverse with property values, which are largely dependent on three factors: location, location and location.

Some New Jersey data shows that two of the counties with the lowest numbers of vacant residences are two of its most populous: Bergen and Hudson Counties. Those two counties, with direct access to New York City, stay in demand because of the location. Even if the commute is poor. That's because getting out of Manhattan is an ordeal for everyone, no matter which direction you travel.

The lesson? The next time someone proposes a bad policy like the New Jersey Residential Foreclosure Transformation Act -- whose 2012 incarnation (passed by the New Jersey Legislature but vetoed by Governor Chris Christie) would have allowed the state to buy vacant homes and turn them into homeless shelters and so on -- just remind them that there's no cure for a bad location or a property that "just won't sell." 

Bad properties are the result of speculation. An unwanted property is a verdict on the intrinsic value of the property.

In other areas, nothing stays vacant. That is also a verdict on the demand for the location of those properties.

But that's no reason to pass a law that will allow the government to turn your deadbeat neighbor's property into a drug rehab clinic in the name of "the common good."

And it also shows the danger of the uncontrolled use of eminent domain to seize private property (and typically the ones most vulnerable will be the poor owners in low-value areas), sometimes for the benefit of "the common good" but almost always with the incidental benefit of certain neighboring properties.

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