On Tuesday, July 31, 2018 at 10:51:21 AM UTC-7, Joerg wrote:

snip

An apartment building is not a commodity item like a house. The sale
price of a building is determined based on its net cash flow which is
related to building quality only to the extent that it increases
rents and decreases expense, e.g. new building doesn't need a new
roof, immediate maintenance, etc.

Whether a building gets built depends on what net cash it will
produce, ...


Bingo! And that depends on the cost of construction. If it goes up for
all developers, and with this mandate it does, then the market move up
in price.

That's where you go wrong. So, lets say construction costs are the same in Tulsa and Folsom. Why would you build a $5M 50 unit low-rise complex in Tulsa when you could build a $5M 50 unit in Folsom and get triple the rent. Even if the complex cost $6M in Folsom because of the solar hit, you're still earning more than you would in Tulsa -- land of cheap construction.

The difference in construction cost is far outweighed by the market rents, potential for appreciation and the natural increase in rates with a rising local economy. Gentrification is a gold mine. Smart money goes to Folsom even though construction costs are higher.

Rental rates are based on supply and demand and not cost of construction -- until those costs get so high that market rental rates don't produce an acceptable ROI. Then you don't get new construction, and there is potentially a supply shortage -- assuming there is a demand. Then rents go up, and then the new developers come.

Hey, speaking of demand, you could buy an apartment building in Jeffrey City, Wyoming, for probably nothing. https://www.atlasobscura.com/places/...ity-ghost-town https://trib.com/news/state-and-regi...bcf887a.html#1 Or you could build! Imagine saving all those construction costs in Jeffrey City -- hell, you could build the place out of uranium and asbestos scraps. Skip the solar. Put in granite counter-tops and rent it for . . . nothing! But at least it was cheap to build because none of those liberal commie pinkos were making you put in solar panels.

BTW, I rode through Jeffrey City on my bike in '81 as it was becoming a ghost town. It's right on the Trans Am trail. The help at the market openly derided all the bicyclists who were presumed liberal environmentalists -- basically the town's only revenue stream after the uranium mines went kaput. It made absolutely no sense to me. They should have been sucking up and selling glowing souvenirs.

-- Jay Beattie.