This is mostly a distraction from the underlying issue. The algorithm helps sellers to maximize prices given the supply & demand so, yes, this probably is responsible for a few percentage points of increase in price, in the same way that price comparison websites are responsible for a small decrease in the price of car rentals.
But the underlying problem here is the supply & demand! Rentals are competitive, an algorithm can't force people to pay more than an comparable rental property is charging.
It's the lack of housing supply in areas like SF is responsible for rents being a multiple of what they could be.
Developers want to build apartments, but are prevented from doing so by local regulations. So we need to change those regulations or, as is increasingly happening in the last couple of California's legislative sessions, take control away from local authorities (e.g. SF Board of Supervisors).
The supply&demand issue does not turn what this company is doing into a "distraction", quite the opposite. Their "algorithm" has an outsize influence on the prices precisely because of the underlying housing crisis.
I put algorithm in quotes, because it's clearly just a facade in front of good ol' fashioned price collusion.
As the example in the article points out, replace the word "algorithm" with "a guy named Bob" and suddenly it doesn't sound so innocent to say: The companies controlling 90% of apartments in a neighborhood give all their data to Bob, and then Bob tells each one what to price their apartments. It's price collusion by proxy, pure and simple.
We shouldn't just ignore it because it's not the biggest cause of the price increases.
Yes, we absolutely need to tackle the housing supply problem, but at the same time we need to stop companies like this from exploiting the crisis and driving prices up even further.
> As the example in the article points out, replace the word "algorithm" with "a guy named Bob" and suddenly it doesn't sound so innocent....
And there's your gig-workforce and companies like Uber that figured out that replacing blatantly illegal stuff with "AlgOriThMS" somehow takes governments long times to untwine and figure out that they're illegal shills.
But the in-person businesses can't do such tactics. But some venture capital financed outlet can dump hundreds of scooters on public areas, and socialize their costs and privatize their gains.
And yes, the article shows that this is collusion through a third party. I don't give a shit if it's an 'algorithm', Bob, or a tarot reading. It's collusion, and anyone involved needs to suffer.. up to and including being awarded the apartment/house.
But, we know the worst that'll happen is some lawyers will get millions, and the plebes will get a check for $100 off their rent at participating renters.
The article notes that the software encourages landlords to maximize profitability by raising rents and reducing supply.
> RealPage claims its software will increase revenue and decrease vacancies. But at times the company has appeared to urge apartment owners and managers to reduce supply while increasing price.
Not if the RICO act was used against them, and all rental properties are transferred to the renter in payment for fraud, conspiracy, interstate fraud, etc
Do you honestly think any other property owner would touch companies like this if this one popped like that?
Oh look, the DOJ Antitrust Division uses fraud/false statements laws "to fight illegal activities that arise from conduct accompanying antitrust violations..."[1]. To me this company looks like a $10.2B bet on prosecutorial discretion. Remarkable.
> Ending the crisis by creating housing supply is the way to stop exploiting the crisis.
> If you stop "this one company" you'll just have someone else making profits and still have people homeless.
And this new homes will be bought by ordinary people who for years paid inflated rents and have no real liquidity or corporations/landlords who have profited by renting and have more than enough cash to absorb any new properties that would become available on the market? Because grabbing them allows for a virtual monopoly on home ownership so people are forced to rent. And we have another cycle of capitalism.
> But the underlying problem here is the supply & demand!
This is the answer to most pop-Econ articles. It’s amazing how hard people want to believe that something else is to blame or that traditional economics doesn’t apply for some reason. Algorithms are a popular outrage-bait right now, so I’m not too surprised to see “the algorithm” blamed for high rents now, too.
Because supply and demand itself is ridiculously broad. I don't even see people claim it isn't S&D given so many say anything from "build more housing" to "slackers go earn more money / save more", but saying supply & demand is the underlying problem is about as useful as saying the needle is in the haystack.
The problem isn't "the algorithm," the article is exceedingly clear that the problem is "the company" and "the captured market" but mostly collusion by proxy.
But in this case, it's also the algorithm -- the article has multiple quotes where "empathy" is seen as a problem and that getting humans out of the loop is a boon to profit. The algorithm itself isn't the problem, it's the bloody-minded profit-seeking where capitalists leverage trust in the algorithm to extract maximum rents by leaving properties vacant in the midst of a housing crunch.
Leaving properties vacant is an absolute killer to revenue. I’m reading a lot of people in this discussion cite that property managers are comfortable with vacant units because of all the extra money they’re making off of raising the rents, but you’d need to raise them an incredible amount to justify even a single month of vacancy. Normally 5% is reasonable, but if that number slides it really kills profits.
I guess what I’m saying is that the incentives are aligned here: property managers want to see units occupied, and so does everyone else.
Will they lower prices until 100% occupancy? No, there needs to be some unoccupied units or there would be no liquidity in the market (if there are no houses to rent and you want to move to a city, how could you move?).
> I guess what I’m saying is that the incentives are aligned here: property managers want to see units occupied, and so does everyone else.
It sounds like you're using the intuition of a person who hasn't captured a major portion of the rental market. You're going so far as telling me that property managers wouldn't do what the people involved with the company say they're doing. Needless to say, I'm not convinced.
Oh yes. Media often lament people radicalizing online supposedly because of them. But nobody is forced to follow recommendations, which are moreover labelled as such. People stay logged-in and indulge on them, and that's it.
And likewise, it seems silly to blame heroin for people being driven to use it. Heroin ain't exactly a recreational drug; people turn to it because they're in extreme suffering, be it physical (due to health issues) or mental/emotional (due to socioeconomic hardship), and need an escape. Addressing those concerns would address heroin use (and swaths of other issues, like violent crime).
The “it’s all just supply and demand” argument is overly simplistic and strikes me as coming from people who have taken first-year Econ, if that, and literally nothing else.
Does supply and demand affect housing prices? Yes, and the fact that supply has been constrained is affecting prices.
Is it the only factor? Probably not.
Even basic economics classes will teach that there are several ways that supply and demand breaks down.
For one, if there are imbalanced implications for both the supply and demand parties. For a landlord, rent is a purely economic transaction. Not taking a tenant means losing money. For a renter, not having a place to live is far more damaging. You lose shelter, safety, social standing, etc. The article touches on leaving an apartment empty for a couple months to find a tenant that will pay what you’re asking. But would anyone really go homeless for a couple months to save on rent? Not only that, but peoples lives revolves around where they live, and it’s not easy for a lot of people just to pick up and move to a different market.
Another way supply and demand might break down is if there is price collusion between parties on the supply side. This is relevant especially in this case because if there is a single party setting prices (eg the algorithm) and there is a constrained enough market, then you can in fact force people more than what typical supply and demand would imply.
Have you ever looked at how long it takes to get a building permit in one of those high-rent areas? Years, if you get it. And millions of dollars in plans, approvals and preparations. God forbid if you must involve some union people.
We’ve outlawed construction. Any other factor besides this is far far behind.
> Any other factor besides this is far far behind.
Ok based on what? Like I think there are supply problems, but there are plenty of examples where the demand isn’t increasing much or is even decreasing but housing is still getting more expensive.
2011-2015 SF jobs increased 23% and housing increased 3% [0]. During this time, my own rent increased about 10% per year.
California legislature is passing some housing good laws, but the state's attorney is not enforcing them. The non-profit CaRLA is doing the enforcement and having success [1]. Their wins in court have set precedent and unblocked a lot of building permits.
I very much agree with you that the lack of supply is a major problem, but the article is making a case here that what the algorithm is doing is tantamount to price-fixing / collusion. Even in markets where supply is much easier to come by than housing and does not have the entrenched political dysfunction restricting supply - such as RAM chips and canned tuna - price-fixing is a problem.
There's an analogy in the article to airplane seat pricing. The solution there was to tell the airlines they couldn't collude with each other, not to say "The real problem is the lack of flight supply."
But I don't see any actual evidence that collusion is happening. Collusion is difficult to pull off! It requires each owner to restrict their supply so that all owners benefit through higher prices. The incentive for an individual owner is to "defect" by renting out their whole supply. Collusion generally requires participants to be able to monitor and enforce each other's behavior.
To the extent that owners are increasing prices slightly to benefit themselves, that's not collusion, that's just the market clearing.
I mostly agree, but they're actively pushing rental property owners to let units sit empty for extended periods of time while they wait for higher prices. There are a shocking number of high end apartments in cities like SF and NYC that are sitting empty while everyone else is struggling to find an affordable place to live.
They sit empty because an empty apartment is still going up in value.
If you rent it out, there will be wear and tear (ie. after 5 years it'll need a full refurb), and you run the risk of having tenants stuck in your property if laws change and suddenly you aren't allowed to evict them.
Often the capital appreciation is so much greater in value than the rental income (after management, maintenance, etc) that it isn't worth risking the capital income for a tiny bit of rental income.
The supply is being restricted, even among existing buildings. It's trivially true that more buildings will reduce the price, but you'd need to build many more than would be otherwise necessary to bring a significant price decrease because they will continue to restrict the supply by letting existing units sit vacant.
In other words, building more properties isn't the main problem here.
More supply is the answer, though. Possibly along with land value tax or vacancy rules. Eg, in Germany if an apartment is owned by a company as opposed to a private person, it is not allowed to stay vacant for no good reason.
Cashflow is the lifeblood of a business. The era of cheap money is over. If a company wants to sit on their real estate while other companies are building and filling up their units, they can do so at their own peril. If you haven't noticed with the markets' movements, unrealized gains aren't worth anything.
This is where I think inflation and higher rates will be good for the US.
The ridiculously low cost of holding assets are making it too cheap to hold and do nothing. Tax policy is a big part of this, but won’t change for many years.
Being shocked by empty apartments on the rental market is like being shocked by stocked shelves in a grocery store in my view. Do you think a market without inventory is better somehow?
It's not "empty inventory" it's just inventory. Rental market deals in empty apartments, nobody rents apartments with tenants inside. If there had not been empty apartments nobody would be able to move and any freed apartment would be snatched at much higher price than you observe now. Even when the inventory simply drops (the number of empty rentals decreases but still above zero) you see things like dozens of people on the same showing, forced to apply immediately.
Most cities don't count apartments that are vacant less than x months as a vacancy, specifically because of what you're describing. Yes, apartments need to be empty, and folks move out and new folks move in, that usually happens within a couple months of the units being vacant. Some percentage of vacancy is also a healthy stat for a city, because it shows they're keeping up with growth.
The issue here is that there are units being held as vacant for long periods of time, in a saturated market, to drive prices up, and a central algorithm is being used by a large percentage of the market, that allows them to do this in a coordinated manner.
This is effectively textbook collusion, obfuscated by technology. People should be losing their real estate licenses over this, and honestly, folks should be reporting any company using this service to the real estate commission in their state for collusion, because this is normally something real estate commissions take seriously.
>The issue here is that there are units being held as vacant for long periods of time
Can you define the "long period" or point somewhere in the article or other source where this is described?
>This is effectively textbook collusion, obfuscated by technology.
I probably did not read the same text books you read. Do the house sellers who hire the same appraiser also collude in your text book? What about people who use Zillow's or Redfin estimates?
To give some context, I was a real estate agent in Louisiana, working as a property manager, for some time.
> Can you define the "long period" or point somewhere in the article or other source where this is described?
The article mentions that landlords are using the software to run at lower occupancy rates to increase revenue. One specific landlord was mentioning an occupancy rate as low as 95% on 50,000 units (which is quite low). Landlords don't base occupancy rates on short-term vacancies.
> I probably did not read the same text books you read.
The article describes a service that takes private pricing data from numerous competitors, then gives all the competitors pricing and occupancy recommendations as a means of maximizing revenue. There's a good quote in the article about replacing the word algorithm, with a "guy named Bob". If a person was doing this, it would obviously be collusion, because it's a practice that is already illegal, essentially everywhere.
In real estate school, they were pretty explicit about not even walking the edges of collusion; for instance, simply saying "we only price our commissions at 3%" in a room with other brokers could be considered collusion.
> Do the house sellers who hire the same appraiser also collude in your text book? What about people who use Zillow's or Redfin estimates?
An appraiser sets prices based on factors like recent sales in the neighborhood of similar properties and property sizes, age/condition of the house, etc. Everyone can use the same appraiser because that appraiser isn't doing any coordination across the sellers. Two different appraisers, for the most point, should be setting very similar prices.
It could very well be collusion is every broker was using Zillow or Redfins estimate's, especially if they were giving recommendations on holding properties off the market in a coordinated way to maximize profits.
According to this https://fred.stlouisfed.org/series/RRVRUSQ156N the rental occupancy rate has never been over 95% since 1960, which makes me doubt everything you say afterwards. At best you believe your local market is representative of the whole country. Also "collusion" as you were taught is wrong, there is literally no collusion here. Collusion requires agreement, only agreement here is between a market research firm and a landlord.
You're comparing the rental occupancy rate for the entire country to a specific market? That doesn't make any sense. SF (and another of other cities) is in a housing market crisis, whereas detroit (and another of other cities) has extremely high amounts of vacancy. Obviously you have to consider this market by market.
This product is being used to maximize revenue in specific markets, by telling landlords to hold apartments vacant by listing them at higher than market prices. By doing that across the market, they artificially increase scarcity, which forces people to rent those apartments at inflated prices. That's collusion by proxy, because you have a single actor that's coordinating actions.
It's collusion because all of these companies are sharing their private pricing data with a central entity, who's using that private data to provide coordinated actions.
Seeing how the market is not specified in the article it's rational to compare to the the national average. But if you have the data for the market where the unnamed company from the article operates I am all ears. Your claim was that 95% "is quite low" even though it's higher than the national average.
> By doing that across the market, they artificially increase scarcity, which forces people to rent those apartments at inflated prices.
Yes, this is how the product works, it tells the price that will maximize the revenue.
>That's collusion by proxy
There is no such thing. If the agreement on prices exists then it's just collusion, if it does not - there is no collusion. Price fixing, which I suppose you mean by collusion is outlawed. Following market trends is not. The agreement on prices is the key element, without it there is no collusion. Nobody is coordinating anything, there is no agreement to set prices according to the marketing data. This is why stock advisors, appraisers, reports and any other pricing sources are not "collusion by proxy" since they are missing the collusion per se.
> Seeing how the market is not specified in the article it's rational to compare to the the national average. But if you have the data for the market where the unnamed company from the article operates I am all ears. Your claim was that 95% "is quite low" even though it's higher than the national average.
The national average is going to be lower than cities with housing crisis, because the country is large, and it's skewed by areas that are effectively ghost towns. My friends in New Orleans have had a 100% occupancy rate since the last major hurricane.
> There is no such thing. If the agreement on prices exists then it's just collusion, if it does not - there is no collusion. Price fixing, which I suppose you mean by collusion is outlawed. Following market trends is not. The agreement on prices is the key element, without it there is no collusion. Nobody is coordinating anything, there is no agreement to set prices according to the marketing data. This is why stock advisors, appraisers, reports and any other pricing sources are not "collusion by proxy" since they are missing the collusion per se.
I'm assuming you don't have a real estate license, because there are specific national laws (and often stricter state-level laws) related to collusion, and they differ and are considerably stricter than price fixing laws.
>The national average is going to be lower than cities with housing crisis,
How do you know the unnamed company in the article is in a city witch such a crisis? To me it appears there was not enough demand so it had to discount its rents by a lot to get to the target 97%-98% occupancy and thus lost revenue.
And yes, I don't have a real estate license in Louisiana, so can you please name the specific laws you had in mind?
> To me it appears there was not enough demand so it had to discount its rents by a lot to get to the target 97%-98% occupancy and thus lost revenue.
This quote is specifically from a company that had 50k units, normally ran with 100% occupancy, did some trials with the pricing company, which showed they could increase revenue by running at an occupancy of 98%, and has now pushed that lower to 95%. By lowering their occupancy rate, they're increasing housing pressure, which forces renters to accept their higher rates.
> And yes, I don't have a real estate license in Louisiana, so can you please name the specific laws you had in mind?
You don't have one at all, or you'd know the laws. Based on your responses I can tell you didn't read the article, and aren't debating in good faith, so I don't plan on continuing this.
I see. You won't tell the laws that define "collusion by proxy", somehow I expected this. I'd imagine a real lawyer (or a hundred of them) and not a real estate agent from Louisiana and other redditros would be all over these deep-pocketed companies if they had been in such a text book violation.
Density is better for the environment as others mentioned. It is the opposite of enforced, currently mostly prevented.
Answering your question with another question. Why stop there? What you are ultimately arguing for is population-growth control. Turns out very few people are interested in the government deciding how many children they can have.
Population growth control is also utterly pointless, it turns out that having babies is a lot of work and if given the opportunity most people don't have 6 of them. Rich countries that don't have a shrinking population do only so because of immigration.
The US population that has lived here 3 generations or more is shrinking, and thus trend also applies to Europe and Japan. Even China is looking at a future population decrease. Turns out these forced population decreases are not necessary.
This is something I do not get. In my opinion renting a flat should be a more efficient form of living than owning a house and yet economically(&long-term) renting is often the worse option.
If you fully account for everything, renting doesn’t always lose - it’s just we’ve had absurd appreciation for so long.
Once you account for maintenance items owning becomes decently more expensive than a simple “mortgage + utilities + insurance + taxes” calculation shows. A $10k furnace every 25 years adds something like $40 a month and that’s only one of the many wear items there are.
There are other non-tangible benefits to ownership, of course.
There's (mostly) a distinction between single family homes and condos (though high-end condos can have significant costs even if shared as well in addition to condo fees). But, yes, something on the order of hundreds of dollars per month should probably be budgeted to keep a single family house in steady state over a significant period of time.
> A $10k furnace every 25 years adds something like $40 a month and that’s only one of the many wear items there are.
Right, but remember that if you are a renter, the landlord is passing those $40 to you bundled in the rent (along with all other future maintenance projections). There's no free ride, the renter is paying for all of it plus profit margin to the landlord.
You can sometimes get lucky as a renter by finding a small-time incompetent landlord who doesn't price these future maintanence costs into the rent, but that's not the norm.
The reality is in many cases the 'profit' margin is negative! There's many many stories of owners that quit the situation in disgust and fear of how bad it is financially, due to running costs. A bad year of maintenance, a bad tenant, can cause big losses in a business where margins are usually slim for the first decade of ownership.
If an investment house was a business, it often takes a decade to see substantial returns, sometimes after many years of hard slog and even losses. Would you accept that from the businesses that hacker news dreams of?
Yeah, it's fun to hate on landlords but often they're not making much outside of appreciation - or they're basing their profit on renting a house today purchased ten or twenty years ago (which would be better to sell and do something else with the money, often).
I think the fundamental issue is that the whole renting market is buying long and selling short (buy a dwelling for a long period, rent it for short periods) and that causes issues on one or another direction (either you rent for what appears "too much" because you need to build reserves, or you rent for what appears "fair" and the first major expense kills the landlord).
I don't really understand how renting could ever be more efficient. Landlords wouldn't rent out houses as a profession if they couldn't make money doing it. That money comes from renters paying more than the cost of home ownership by definition.
There's plenty of supply - I don't doubt even the state of CA has more actual housing available than strictly necessary for all those currently living there, but it's natural for people to want to live in areas that are a) close to family and friends b) provide access to employment and c) have necessary infrastructure/ services/retail options readily available. All those factors contribute to making densely populated areas desirable - unless you can provide transportation infrastructure that enables millions of people to efficiently transit long distances - and just about the only countries that have achieved that are those with very high population densities anyway!
But there are definitely other factors that exacerbate cost-of-housing issues - income disparities that are further magnified by the degree to which banks are prepared to lend money being one that's rarely discussed. If someone earning $200k a year is able to afford to spend up to 5 times more on a house - and by extension the land it's on - than someone earning half that (and quite possibly 10 times more than someone earning 50k), then how can that not have a serious impact on housing affordability, which trickles down to rental affordability, as enough rent needs to be charged to help offset mortgage costs for landlords.
I believe SF would need way more central planning and not less if we want more housing supply. The transportation issue in SF is crazy at the moment and parking is expensive in both time and money.
A city needs to upgrade multiple infrastructural elements simultaneously if it wants to make a successful leap into higher densities. In a democratic culture this means getting enough parties on board to accept a big jump in taxes for huge civic works projects like subways. To make all of this coherent this will take a massive and sustained political momentum which can exercise eminent domain in a very big way.
We don’t need more parking. It’s a waste of space and very expensive compared to more public transportation.
By all means allow people to build parking if they want to, but there’s no need for parking minimums.
I don’t see how more central planning could help. Our central planners love to block housing unless it meets 100 different conflicting requirements they make up on the spot. Just let people build!
Umm the algorithm allows you to bypass collusion laws by having everyone run the same algorithm. It’s the newest in legal innovation using algorithms to do illegal shit then blame it on the algorithm
Ah. I see How much housing should be built before you decide to go homeless instead of paying what colluding landlords decide they can extract from you?
The issue here is the collusion in place of competition.
I largely agree with the many angles here but I don't see it as a single "build it and they will come" issue.
I don't think it is there yet but are their rules about how much of the market can be owned by a single entity?
I know of a farmer who sold his farm and invested into housing. He had a big party when he got to 100. That was 20 years ago. Are there more of these "super investors" in the market?
After all, money is infinite, but land in the world is limited.
And yet people love it and want to call it home, and are willing to make sacrifices to do so. I know I have here in the Seattle area. Mind ya own business!
I think what they’re really saying is that maybe not every person who wants to live in SF, for example, can. There’s some upper limit on how many people can live there and if more people want to live there than can prices will go up.
So maybe not everyone who wants to live there gets to.
In the past this would cause other places to become “more San Francisco-like” (arguably Seattle itself has changed since the 80s and perhaps in this direction). Why that doesn’t occur could be interesting for discussion.
I’m not very familiar with SF and the Bay Area, but from what I have read about it my impression is that real estate in communities surrounding San Francisco and the Bay Area in general have absolutely been affected by the real estate situation in SF and become more San Francisco-like in terms of housing prices.
Again, not from out that familiar with the area so maybe I’m off the mark here.
They have - what I'm referring to is the older "city migrations" where if Chicago was "too big/expensive" then Detroit would come into its own.
So instead of SF continuing to expand to engulf all of California, other cities in other areas would begin to grow. Somewhat this has happened - Redmond near Seattle, etc, but we haven't really had any "ground up" new cities that I can recall, they're all offshoots/suburbs of existing ones.
I think this is a limited view. OPEC/OPEC+ controls about half of worldwide oil production and yet we can see how big of an impact production cuts that they make have on the price of oil. What we're seeing here is the same thing -- the ability for landlords to artificially reduce supply and force prices up. Just because there's software in the middle doesn't mean it's not a cartel.
Not if the company keeps apartments empty as mentioned in the article. With such an arrangement between landlords you can increase rent not matter the supply&demand.
There are high costs to an empty apartment. The bank doesn't stop demanding payment if the apartment is empty. Same with property taxes, heating, insurance, groundskeeping, etc. You can even find that the maintenance costs increase as problems that would have been seen and fixed (particularly leaks) are missed.
There could be an Elysium scenario where the super-rich will pay anything to live in a high-demand area, so the prices go so high almost all properties end up empty. That doesn’t seem beneficial to society, the environment or anyone.
If there were strong vacancy taxes the situation would change. Vancouver has a 3% empty homes tax. Let’s keep raising a tax like that until managing empty properties becomes untenable. If we want people to have more affordable homes to buy we should incentivize people living in them over managing them for optimal profit.
But the underlying problem here is the supply & demand! Rentals are competitive, an algorithm can't force people to pay more than an comparable rental property is charging.
It's the lack of housing supply in areas like SF is responsible for rents being a multiple of what they could be.
Developers want to build apartments, but are prevented from doing so by local regulations. So we need to change those regulations or, as is increasingly happening in the last couple of California's legislative sessions, take control away from local authorities (e.g. SF Board of Supervisors).