Pricing software adds billions to rental costs, White House says(axios.com)
axios.com
Pricing software adds billions to rental costs, White House says
https://www.axios.com/2024/12/17/realpage-rent-landlords-white-house
8 comments
> Anything that provides information makes a market run smoother
This is not necessarily true. Market failure can occur due to information which is provided asymmetrically or which facilitates collusion.
This is not necessarily true. Market failure can occur due to information which is provided asymmetrically or which facilitates collusion.
Yeah, but it's significantly harder to pull off collusion when there's competition.
This software is very clearly price-fixing, but in a world with more housing it should be next to impossible to do that effectively.
This software is very clearly price-fixing, but in a world with more housing it should be next to impossible to do that effectively.
If rents go down, as they should, you won't have people flooding into new construction unless it's cheap.
You're not wrong about it being a housing supply issue, but it's not because we don't have enough - it's because this software-facilitated rental price fixing and collusion scheme allowed a few individual property management companies to take over 80% of a market, raising prices so far above valuation that they could warehouse more than 20% of those rentals while still meeting their repayment obligations, artificially pushing people into houses, which private equity had also been investing into. It was the biggest scam of the century.
Supply doesn't imply mere existence, otherwise someone could just claim all the gold in the sun was theirs. In this case, the demand was for "affordable housing", and the supply was artificially constrained so that mortgages became more affordable than rent.
And who are the customers of mortgages? Largely wealthy pensioners. Blame them, not the feds (for housing, at least... it's not a federal power). Hell, blame the local homeowners that voted to zone out new construction, MFDs, manufactured housing, or anything that might allow any transient or poverty associated person into their schools and communities.
You're not wrong about it being a housing supply issue, but it's not because we don't have enough - it's because this software-facilitated rental price fixing and collusion scheme allowed a few individual property management companies to take over 80% of a market, raising prices so far above valuation that they could warehouse more than 20% of those rentals while still meeting their repayment obligations, artificially pushing people into houses, which private equity had also been investing into. It was the biggest scam of the century.
Supply doesn't imply mere existence, otherwise someone could just claim all the gold in the sun was theirs. In this case, the demand was for "affordable housing", and the supply was artificially constrained so that mortgages became more affordable than rent.
And who are the customers of mortgages? Largely wealthy pensioners. Blame them, not the feds (for housing, at least... it's not a federal power). Hell, blame the local homeowners that voted to zone out new construction, MFDs, manufactured housing, or anything that might allow any transient or poverty associated person into their schools and communities.
Do you think that describing price fixing as merely parties "providing information" to each other makes it not a crime?
Your honor, I merely transported funds from the bank vault.
Except that it's not just "providing information" as it does not supply information to both the buyer and the seller. In a stock market, both the buyer and seller see the range between bid and ask, and historic prices are readily accessible. That is very much not what RealPage was doing, as it exclusively focused on providing pricing information for landlords from other landlords, enabling them to collectively increase prices without informing renters.
The Behind the Bastards podcast on this topic is quite informative; see: https://www.iheart.com/podcast/105-behind-the-bastards-29236... .
The Behind the Bastards podcast on this topic is quite informative; see: https://www.iheart.com/podcast/105-behind-the-bastards-29236... .
"Anything that provides information makes a market run smoother."
Depends. If the information provider is also a middle man that profits from manipulating the information, then that can unbalance the market.
E.g: if renters pay through realpage, then the incentive for realpage is to increase the prices to collect more fees.
Depends. If the information provider is also a middle man that profits from manipulating the information, then that can unbalance the market.
E.g: if renters pay through realpage, then the incentive for realpage is to increase the prices to collect more fees.
I don't have issue if the parameters the pricing operates is transparent and reviewed by government. e.g. What what you pay as tax depends on 100s of different factors.
If the market was free I’d agree but that invisible hand likes to smack folks like you and me pretty hard…
Related U.S. case discussion from 3 months ago:
DOJ sues realpage for algorithmic pricing scheme that harms renters
https://news.ycombinator.com/item?id=41330007
DOJ sues realpage for algorithmic pricing scheme that harms renters
https://news.ycombinator.com/item?id=41330007
On one hand this is a 'duh' thing...
At the same time, It's worth digging deeper and asking questions as to why/how we are repeating mistakes.
By that, I mean, We have seen historically, 'oopsies' and/or 'problematic patterns' around 'automated trading' and feedback loops that can result.
TBH we are likely seeing similar impact in used car market.
Possibly all done by people who couldn't hack it in algorithimic automated trading...
At the same time, It's worth digging deeper and asking questions as to why/how we are repeating mistakes.
By that, I mean, We have seen historically, 'oopsies' and/or 'problematic patterns' around 'automated trading' and feedback loops that can result.
TBH we are likely seeing similar impact in used car market.
Possibly all done by people who couldn't hack it in algorithimic automated trading...
To the users of this software, it isn't an oops at all, it's absolutely _desired behavior_.
To hapless tenants, it is a negative. They're the _victims_ of the algorithm, not the users.
To hapless tenants, it is a negative. They're the _victims_ of the algorithm, not the users.
I think the incentives are completely clear, it’s about maximising $$$, profit, returns.
People are not making mistakes, it’s a conscious effort to increase profit as much as possible. The only mistakes is allowing this to exist and not regulating it out of existence.
People are not making mistakes, it’s a conscious effort to increase profit as much as possible. The only mistakes is allowing this to exist and not regulating it out of existence.
What’s wrong with the used car market? Prices are basically a commodity. https://www.cargurus.com/ aggregates national prices and makes price discovery a breeze.
Related:
Landlords Are Using AI to Raise Rents
https://news.ycombinator.com/item?id=42353948
Landlords Are Using AI to Raise Rents
https://news.ycombinator.com/item?id=42353948
Um, yes?
If they'd noticed (& done something about it) a few years ago, then Joe might not be facing eviction now.
If they'd noticed (& done something about it) a few years ago, then Joe might not be facing eviction now.
“The big picture: The U.S. is in the grips of a housing affordability crisis — creating huge financial headaches for many Americans”
This is just not true. Talking point being pushed by some group, I’m guessing those lobbying for subsidized housing programs.
There’s an “affordability crisis” for ultra desirable locations, but across most of America, there’s plenty of underwhelming but functional housing to be had.
This is just not true. Talking point being pushed by some group, I’m guessing those lobbying for subsidized housing programs.
There’s an “affordability crisis” for ultra desirable locations, but across most of America, there’s plenty of underwhelming but functional housing to be had.
Typically these desirable places have optional amenities that people want, like jobs.
Not many tech positions available in Huntington, WV.
Not many tech positions available in Huntington, WV.
Pretty much every major US city besides NYC, LA, and SF is dealing with a massive over supply of multifamily housing
Seattle needs way more housing. Every Major metro that’s growing needs more. Only oversupply is in dead zones
Looks like Puget Sound market is running 93% occupancy, with 392,000 total apartment units in the market, thats 27,000 vacant units today. Very healthy market but not a crisis.
https://simonandersonteam.com/wp-content/uploads/2024/11/202...
https://simonandersonteam.com/wp-content/uploads/2024/11/202...
There is a finite limit to occupancy because turn around between tenants has to happen. 93% is probably the equivalent of completely full.
It’s not, 93% indicates a healthy market that is priced right between renters and landlords. My core objection is to the article stating “everyone knows there’s an affordability crisis” and I am saying there is not a crisis, its a manufactured talking point.
For larger professionally (~50+ unit) managed facilities, which is what those reports track and is also what i do for a living, we can turn over very quickly and push much tighter, 98% when possible. 93% occupancy on a typical 200 unit property is 14 units vacant for an entire month, which is unacceptable if there is pent up demand.
For larger professionally (~50+ unit) managed facilities, which is what those reports track and is also what i do for a living, we can turn over very quickly and push much tighter, 98% when possible. 93% occupancy on a typical 200 unit property is 14 units vacant for an entire month, which is unacceptable if there is pent up demand.
What’s the optimal point for pricing? Is it better to fill to 98 and charge less or fill to 93 and charge more?
We had some finds that lived in some odd the downtown units and their occupancy rate was quite low 70-80% because they were charging way above what people were willing to pay but they never adjusted. There are other factors at play that might be affecting average fill rate. Different plays seem to optimize for different rates.
We had some finds that lived in some odd the downtown units and their occupancy rate was quite low 70-80% because they were charging way above what people were willing to pay but they never adjusted. There are other factors at play that might be affecting average fill rate. Different plays seem to optimize for different rates.
Endless factors come together with different strategies down to each ownership, management, manager, weaknesses in the property like insufficient parking or a compromised floor plan that won’t lease at mkt rate, or broader market issues like weak/strong school districts or job growth, or seasonal factors like university schedule. Societal preference like roommates/no roommates (either marriage or simply splitting the rent bill) can heavily impact demand.
For overall market, i.e. happy compromise between landlord and renter, 93 is close to optimal. Landlords really don’t want to go below 90 and typically will start to drop rents to maintain occupancy. If the market pushes past 96, developers can deliver new units pretty quickly. Forecasting- no one can predict the future but everyone thinks they can, so lots of crazy ideas there. There’s also a function of what are people willing/expecting to pay. So if people generally are unwilling to pay above $1700/mo, maybe Landlord just stuffs the property to 99% at the local maximum rent. We have found that to be a working strategy, rather than squeezing every last nickel out of renters, just find the comfortable breakpoint and fill up the building.
There’s all these technical details, but then behind each signed lease is a person making a complex personal and emotional decision that changes their lives for the next 12 months minimum.
Fun!
For overall market, i.e. happy compromise between landlord and renter, 93 is close to optimal. Landlords really don’t want to go below 90 and typically will start to drop rents to maintain occupancy. If the market pushes past 96, developers can deliver new units pretty quickly. Forecasting- no one can predict the future but everyone thinks they can, so lots of crazy ideas there. There’s also a function of what are people willing/expecting to pay. So if people generally are unwilling to pay above $1700/mo, maybe Landlord just stuffs the property to 99% at the local maximum rent. We have found that to be a working strategy, rather than squeezing every last nickel out of renters, just find the comfortable breakpoint and fill up the building.
There’s all these technical details, but then behind each signed lease is a person making a complex personal and emotional decision that changes their lives for the next 12 months minimum.
Fun!
New Orleans would like a word.
New Orleans is hovering around 92% occupancy across the market at $1,273/mo average rent. Plenty of room for both to compress. Very healthy.
https://mmgrea.com/new-orleans-2q-2024-report/
https://mmgrea.com/new-orleans-2q-2024-report/
Have you looked up the average wage in Orleans Parish lately? Before the pandemic and Hurricane Ida, $1100/month was about the breakeven cost basis for one side of a shotgun. But I will read this report. Thank you for the reference.
e: from your link - “Conversely, demand for workforce housing assets—which constitute about 37% of New Orleans’ apartment inventory—remains weak, indicating financial strain among lower-income households in the area.
Construction Trends
Construction has slowed significantly in the New Orleans multifamily market in recent quarters. The current pipeline of 752 units under construction represents just 1.1% of the existing rental housing stock, starkly contrasting with the national average of 4.0%. This limited construction is evident in the trailing 12-month total of new deliveries, which amounted to a modest 82 units”
e: from your link - “Conversely, demand for workforce housing assets—which constitute about 37% of New Orleans’ apartment inventory—remains weak, indicating financial strain among lower-income households in the area.
Construction Trends
Construction has slowed significantly in the New Orleans multifamily market in recent quarters. The current pipeline of 752 units under construction represents just 1.1% of the existing rental housing stock, starkly contrasting with the national average of 4.0%. This limited construction is evident in the trailing 12-month total of new deliveries, which amounted to a modest 82 units”
NOLA is a unique market for sure but I’m told it’s had a difficult run. Weak demand across the middle market could mean a lot of things. I am not sure on the proposed correlation between lower income strain, my better guess is that it comes down to desirability of school district(s). Low “workforce” demand indicating bad public school options, only the rich sending to private schools and the poor taking what they can get.
Objectively untrue.
You want to provide citation or just say you are objective? Look at any major nation-wide multifamily housing market report. Not a crisis. It's just expensive in the most desirable locations.
CBRE's headline: Slight Apartment Oversupply Expected in 2024 (oversupply means vacancy drops below the industry target of ~93%)
>>The biggest wave of new apartment supply in decades will temper rent growth and improve affordability for renters in 2024. With delivery of 440,000 new units expected in 2024 and more than 900,000 currently under construction, the overall vacancy rate is expected to rise and rent growth to decelerate.
https://www.cbre.com/insights/books/us-real-estate-market-ou...
CBRE's headline: Slight Apartment Oversupply Expected in 2024 (oversupply means vacancy drops below the industry target of ~93%)
>>The biggest wave of new apartment supply in decades will temper rent growth and improve affordability for renters in 2024. With delivery of 440,000 new units expected in 2024 and more than 900,000 currently under construction, the overall vacancy rate is expected to rise and rent growth to decelerate.
https://www.cbre.com/insights/books/us-real-estate-market-ou...
Why is the parent downvoted?
It's the truth. The US is near the all-time high record high number of housing units per capita. We'll likely exceed it some time within the next 2 years.
There is absolutely no housing crisis of any kind. There is a _density_ crisis, that is forcing people into unaffordable locations.
It's the truth. The US is near the all-time high record high number of housing units per capita. We'll likely exceed it some time within the next 2 years.
There is absolutely no housing crisis of any kind. There is a _density_ crisis, that is forcing people into unaffordable locations.
> The US is near the all-time high record high number of housing units per capita.
And that would be a reasonable thing to say if housing was a national issue, but it's not. It's always been a local and regional issue.
The United States does not benefit by moving people into decrepit houses in the Midwest. People should live where there are jobs and opportunities - they should CHOOSE where they live.
The individual regions of the United States with extreme housing prices are NOT near record housing per capita levels. They've dramatically underbuilt compared to how they've grown.
> There is absolutely no housing crisis of any kind. There is a _density_ crisis, that is forcing people into unaffordable locations.
Any kind of regional issue is a "density crisis" by this logic. Shortage of plumbers? "Density crisis." Hurricane hit the town and now a lot of people need to be rescued? "Density crisis." Sewer line burst and now it smells? "Density crisis."
This is a shortage of housing where people need it. If your entire point rests on you pretending "housing shortage" means something else, well... that's not very convincing.
And that would be a reasonable thing to say if housing was a national issue, but it's not. It's always been a local and regional issue.
The United States does not benefit by moving people into decrepit houses in the Midwest. People should live where there are jobs and opportunities - they should CHOOSE where they live.
The individual regions of the United States with extreme housing prices are NOT near record housing per capita levels. They've dramatically underbuilt compared to how they've grown.
> There is absolutely no housing crisis of any kind. There is a _density_ crisis, that is forcing people into unaffordable locations.
Any kind of regional issue is a "density crisis" by this logic. Shortage of plumbers? "Density crisis." Hurricane hit the town and now a lot of people need to be rescued? "Density crisis." Sewer line burst and now it smells? "Density crisis."
This is a shortage of housing where people need it. If your entire point rests on you pretending "housing shortage" means something else, well... that's not very convincing.
> The United States does not benefit by moving people into decrepit houses in the Midwest. People should live where there are jobs and opportunities - they should CHOOSE where they live.
So you want Midwest to be a toxic dumping ground? Why do you hate America?
> Any kind of regional issue is a "density crisis" by this logic.
No. The density crisis happens when cities _increase_ the density. And it can NOT be solved.
No way, no how. There is not a SINGLE city in Europe, Japan, or the US that managed to lower the housing sale prices by increasing density. Not one.
> This is a shortage of housing where people need it.
No. There's a crisis of density that forces people to move where they might not want to go. Most people do not _want_ to live in dense slums, but they can't afford _not_ to.
So you want Midwest to be a toxic dumping ground? Why do you hate America?
> Any kind of regional issue is a "density crisis" by this logic.
No. The density crisis happens when cities _increase_ the density. And it can NOT be solved.
No way, no how. There is not a SINGLE city in Europe, Japan, or the US that managed to lower the housing sale prices by increasing density. Not one.
> This is a shortage of housing where people need it.
No. There's a crisis of density that forces people to move where they might not want to go. Most people do not _want_ to live in dense slums, but they can't afford _not_ to.
> No way, no how. There is not a SINGLE city in Europe, Japan, or the US that managed to lower the housing sale prices by increasing density. Not one.
Kindly take a look at the city of Berkeley. This statement is just wrong.
Kindly take a look at the city of Berkeley. This statement is just wrong.
The “dense slums” happen to be the most desirable areas of the country. People live in dense areas because they want access to their amenities.
People per dwelling has gone down quite a lot over the years so even with more houses per capita housing still a pretty constrained resource.
I mean... If housing is available, why would you want to live in crowded conditions?
Housing per family (household) is also near the all-time high: https://fred.stlouisfed.org/graph/?g=15tRv
Housing per family (household) is also near the all-time high: https://fred.stlouisfed.org/graph/?g=15tRv
In a nutshell, people paying super high rents in elite locations believe there’s a housing shortage and believe they should get assistance for living in super desirable locations.
Calling it a crisis is disingenuous at best. Specifically calling a “affordability crisis” instead of “availability crisis” is telling. People being unwilling to live with a roommate(s) is the biggest driver here. Rent controls are also a significant factor driving market imbalances. Yes of course growing areas need more housing, but it’s not a crisis.
Calling it a crisis is disingenuous at best. Specifically calling a “affordability crisis” instead of “availability crisis” is telling. People being unwilling to live with a roommate(s) is the biggest driver here. Rent controls are also a significant factor driving market imbalances. Yes of course growing areas need more housing, but it’s not a crisis.
Disagree with algos being problematic. The crux of the issue is that vacancy needs to be taxed on rental units in high demand areas when its above a certain threshold.
The problem is not simply the use of algorithms. The problem is that the algorithm is coordinating prices for a large percentage of rented properties. It's effectively a cartel.
That's fine, if apartments are too expensive for people and landlords are penalized heavily, then the rent will come down otherwise landlords will be underwater. If tenants are still moving inspite of the high prices, then the price is probably right.
> If tenants are still moving inspite of the high prices, then the price is probably right.
Housing is a necessity. Demand for which is inelastic. The price will be paid regardless, via rent or purchase. And purchase is out of reach or unmanageable for many. Leaving rent as their only option.
Also, in no particular order and not limited to:
- Single or multi-year contracts.
- Minimum space requirements for family size
- Local social ties, extended family and friends
- Dependency or ties to local services, groups, business
- “Keeping up with Joneses”
- Moving is a PITA
- Comfort, familiarity, nostalgia
- Work requirements and industry connections
https://en.wikipedia.org/wiki/Price_elasticity_of_demand
Housing is a necessity. Demand for which is inelastic. The price will be paid regardless, via rent or purchase. And purchase is out of reach or unmanageable for many. Leaving rent as their only option.
Also, in no particular order and not limited to:
- Single or multi-year contracts.
- Minimum space requirements for family size
- Local social ties, extended family and friends
- Dependency or ties to local services, groups, business
- “Keeping up with Joneses”
- Moving is a PITA
- Comfort, familiarity, nostalgia
- Work requirements and industry connections
https://en.wikipedia.org/wiki/Price_elasticity_of_demand
That's just not true, people leave shitty landlords, buildings, and cities all the time. People also confuse housing as a necessity versus good housing in a good location as a necessity. It's normal for desirable cities to be expensive, if algorithms are truly scalping people on rent, then those cities would be less desirable and the rent would reach equilibrium.
Elasticity is a spectrum. The relative elasticity of housing demand might be best illustrated by comparing to a similarly priced good: personal vehicles. Which is more elastic and why?
If you have another appropriate or even better comparison to offer, please do.
If you have another appropriate or even better comparison to offer, please do.
Demand for housing is not entirely inelastic. People downsize, move cities, move in with roommates/family, etc.
It’s not rapidly responsive like subscribers of netflix, but it’s fairly elastic over the long term.
It’s not rapidly responsive like subscribers of netflix, but it’s fairly elastic over the long term.
I agree. It is definitely not perfectly inelastic. But for the sake of pushing back against this claim by gp:
>> If tenants are still moving inspite of the high prices, then the price is probably right.
it’d probably be best to focus on housing’s relative inelasticity as compared to other goods where such a claim might actually be quite true.
>> If tenants are still moving inspite of the high prices, then the price is probably right.
it’d probably be best to focus on housing’s relative inelasticity as compared to other goods where such a claim might actually be quite true.
Isn't the measure of an economic system the efficiency with which it converts resources into social welfare? In this case, renters are paying above what they would pay in a competitive market. That gap in prices is a deadweight loss to society. It's money out of consumers' pockets for zero added value.
You can see the same thing starting to happen in the domain industry. Registries are buying pricing data rather than setting their own prices, so high-value keywords end up having the same price across TLDs that should be competing with each other.
Isn’t the real problem not enough units?
If there are enough units, there’s no need for extra taxation on vacant units as it becomes a self-correcting problem (or someone pays a whack of property tax while consuming less than the proportional services, meaning they’re subsidizing others).
If there are enough units, there’s no need for extra taxation on vacant units as it becomes a self-correcting problem (or someone pays a whack of property tax while consuming less than the proportional services, meaning they’re subsidizing others).
The algorithm would create scarcity by having some sit empty.
That only works when a single owner controls a massive % of them. In a healthy market with lots of smaller landlords, one individual owner won’t let their 1-2 apartments sit empty so that some other landlord can rent theirs for more.
What if an app allows landlords to easily coordinate on prices?
The moment one of them had their apartment left empty they would fold and drop their price rather than leave it vacant and take a loss.
That isn't what's happened with the RealPage case. Landlords are keeping properties vacant for months at a time under the promise that it will boost their long term profits.
The higher the margins, the more wealthy people will want to build houses to rent them out.
At some number of vacant houses the algorithm changes
At some number of vacant houses the algorithm changes
There is a strong negative correlation between vacancy rates and rent, that would immediately deincentivise the new housing construction that actually leads to lower rental costs.
Except that new construction does NOT lead to lower rental costs.
Yes, yes, supply-and-demand, market, blah blah blah.
It's the simple reality: new construction that increases housing density in cities does NOT lead to lower rental costs. The best results are one-time single-digit percentage decreases in rents immediately near the new construction.
Yes, yes, supply-and-demand, market, blah blah blah.
It's the simple reality: new construction that increases housing density in cities does NOT lead to lower rental costs. The best results are one-time single-digit percentage decreases in rents immediately near the new construction.
In a healthy market, where supply can increase to meet demand, better information decreases prices. As it stands, with most states having regulations that severely limit housing supply, prices will keep increasing until birthrates drop or the rate of people moving out increases.
The politicians that pass those policies are to blame, and any pricing information is just the messenger.