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Some of America’s largest cities are at risk of falling into an economic “doom loop.”
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A Columbia economist says the growing demand for office space will make America’s cities worse.
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Mid-sized cities could see higher tax rates and lower property values as office demand declines.
Some of America’s biggest cities may be on the brink of an economic “doom loop,” according to a Columbia economist.
Stijn Van Neuwerburg, a professor of real estate and finance at Columbia Business School, has been sounding the alarm for months in large and mid-sized U.S. cities. That’s thanks to home-to-work trends that have disrupted the commercial real estate market in centers like Atlanta, Chicago and Denver.
Those cities are currently seeing some of the highest office vacancies in the U.S., Newburgh recently reported. ReportAnd Office vacancies across the US are at an all-time high this yearAccording to estimates from the National Association of Realtors.
Because property taxes are a major source of revenue in the U.S., the economic consequences of that development could be severe, Neuerberg said. In some jurisdictions, property taxes amount to as much as 40% of gross taxable income. He estimated that office tax alone could account for 10 percent of total tax revenue.
“If those offices lose half their value, tax revenues will drop, and that will create a big hole in the budget,” Neuerberg warned in an interview. CNBC last week. “The problem with small towns is that they don’t have much else to offer other than a business office district. So when that office district starts to shrink, that generally hurts the whole town,” he added later.
This can lead to higher tax rates and lower property values in affected cities, with The cost of office building can be reduced by 35%, according to some assumptions. Banks with a high exposure to office debt could be in trouble because about $600 billion of office construction debt “could be in trouble,” Neuerberg estimated.
Experts have warned of months of trouble for the entire commercial real estate sector, which is struggling to recover from the pandemic. That is aggravated by Deterioration in credit conditions.It has been reported that banks have already begun to return loans Looking to get rid of their commercial real estate debt.
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