Negative value

Can an asset have negative value?

You bet!

If the cost to maintain it also known as the carrying cost is larger than its current worth, it can.

The obvious example is if you have a excess of food. You can either store it, and take the chance that it goes bad, or you have to pay for people to get rid of it now. Ask the farmers in the Midwest whether this is possible or not!

The same is true of housing.

My friends from Hong Kong, or Singapore, or Bombay, or Shanghai, or even New York and London are shocked when I mention that houses can in fact have negative value.

They are so used to a rapidly rising population, and demand for housing always being high, along with the concommitant high rental prices that they are always shocked that the reality is that in the vast majority of the world, housing prices not only are negative but should be negative.

After all, a house is only as good as the rental income it produces after cost. So if you have a huge supply, not enough tenants, a crap job market, and huge property taxes, insurance, and maintenance you probably have negative rental income (as in you're paying out each month.)

In which case, the logical house price can be negative. (You have to drop the price to where the interest payment equals the outlay which can be negative.)

Of course, my friends follow the rational argument down to the penultimate paragraph after which there are howls of anguish as if I had pulled a fast one on them. Why they cannot follow something to its logical conclusion is something that just mystifies me!

The second thing they don't understand is that when housing prices fall, since the primary form of local funding in the US is property taxes, you can either expect government to shrink (in your fucking dreams!) or property taxes to rise (which makes the negative rental income even more negative.)

So how is this relevant?

Well, you're going to start seeing this is formerly "hot" places. The obvious ones that come to mind are Miami, Las Vegas, Phoenix, Dallas, Seattle, and Boston.