The higher the ROI the more people invest in building housing, bringing the price of housing and the ROI down. This is the general rule of supply and demand, to which exceptions are exceptional and rare. It is the single most well accepted principle in economics.
This does not drive down prices. What is different now is that the properties get leveraged for loans to purchase more properties. The loans are secured against future rents and the landlord cannot lower a single rent in response to market demand because it would signal to the lenders that it is an inflated asset, causing a domino effect on all the other loans. The property owner is would rather the property stay empty, take the loss, than lower the rent and risk their loans. This is a huge problem here in Toronto where REITs are doing this and causing rents to continuously ratchet up. Nobody wants to talk about it because everyone's retirement funds are full of REITs.
It will drive the prices down when enough supply hits the market. Current numbers are a joke compared to the demand generated.
Leveraged loans can indeed create higher prices for a percentage of the market, but when supply approaches or exceeds the demand the "investment grade securities" will repeat the 2008 scenario.
Check for example commercial properties in SF before and after COVID. After COVID (and SF city mismanagement) the supply > demand and prices went down a lot and investors lost money. Retail market is different, but the same scenario would work.
This has not happened for 15 years. It's entirely theoretical given current conditions, and we need to ground discussion in the reality where things are now.
I wouldn't call SF office price a "theoretical".
The supply/demand curve is one of the most time tested economic law.
15 years of bad zoning regulation and limiting suply doesn't disprove it.
Is this /s ? I can't tell. This reeks of some trickle down nonsense speak. What these pe firms want is rent, control over a limited market, with inflated prices for a consumer base who's purchasing power has turned to mush. Prices will inflate
because of limited supply and the consumer will the one holding the bag
The problem is the growing demand (mostly through government policy) and limited supply (mostly through government policy). So we should blame PE.
That only work when supply isn't constrained.
Now imagine a spherical cow in a frictionless environment...