What are Market Failures?

Efficient markets operate based on principles of supply and demand. Market competition will drive down costs to ensure that oversupply of any one thing is eliminated.

If Sacramento’s commercial property market were operating efficiently, commercial rents would continue to decrease until vacancies were eliminated. That’s not what’s happening. We have an oversupply of vacant commercial properties, and rents for these properties are not significantly decreasing.

This is becasue commercial property owners are not incentivized to rent out existing properties at lower rates. Any decrease in asking rent would result in a devaluation of their property, which would show up as a loss for the companies that get rich by hoarding land, while returning nothing to the local community.

Between the broken tax code and increasing land value in California, property owners often find it more compelling to let properties sit vacant than to lower asking prices for rent to make it affordable for a business to move in.

What can be done?

We need to fix the economic conditions that cause commercial properties to remain vacant. Policy should encourage the development, rather than hoarding of vacant lots. Sacramento policies should be adopted to specifically discourage socially detrimental business practices leading to a surplus of unoccupied properties while simultaneously local businesses struggle to pay rent and California’s housing crisis persists.

To resolve this ongoing market failure, Sacramento needs to adopt vacancy fees.

What can I do?