I was recently informed by local economist and manager of IDEAeconomics, a website that promotes post-Keynesian views (and post-Keynesian must not be confused with neo-Keynesians), Alan Harvey that a significant shift has occurred in the market for commercial property in Seattle's downtown area.
In the past, the value of a commercial property was "the capitalized value of the stream of rents from that property." In this order of things, occupancy rates (content) mattered. Now, commercial properties are not selling content and value but merely value. Meaning, they are selling a "projected increase in price." Meaning, downtown Seattle has entered the phase of Ponzi financing.
"My speculation is that this has been caused by people looking to move their money into the US," Harvey explained. Where did he get this information? From a source within the CBRE Group, a "commercial real estate company based in Los Angeles." This source confirmed that global surplus capital is behind this transition. "It's much more lucrative to build or buy with the hope of selling at an inflated value rather than actual revenue."
Again, it's really hard for many Americans to understand that we actually live in a world not with a scarcity of cash (it looks like that from the bottom) but a huge surplus of the stuff—or a "savings glut," to use the words of Martin Wolf, whose most recent book The Shifts and the Shocks: What We've Learned-and Have Still to Learn-from the Financial Crisis explains this situation in very clear, if not repetitive, terms (I also recommend reading Other People's Money: The Real Business of Finance by John Kay. These writers, Wolf and Kay, are not at all radical—for a treatment along those lines, read Costas Lapavitsas' brilliant and meaty Profiting Without Producing: How Finance Exploits Us All).
Nor does any of this have anything to do with the old and much-admired laws of supply and demand, which is why accelerated development will not weaken the force that's pushing property values up. Finance operates outside of those laws. For example, what motivated the European Central Bank's recent decision to expand quantitative easing (buying bonds from investment institutions in the hope that they will then invest in the real economy) from 60 billion euros a month to an astounding 80 billion euros had little to do with events in the real economy but with credit spreads, which when wide, as they have been lately, generate little or no profits for investors.
Now, what does this decision have to do with recent developments in downtown Seattle? Simply this: It's not about economics (supply and demand) but politics. The ECB is helping investors because they are the ones with political power (that's how finance always works). The problem of inflated asset values will not be solved by building more and more but by direct political action and increased construction—in short, by political economy.