Pretty sure I remember a study that compared places where this was being used with where it wasn't, and while It had a significant impact on rents, they were going up majorly in control and study. It's still supply above most else; definitely bust the cartels but they aren't the secret ingredient to why everything is going up.
To the incompatible points, vacancies are talked up but where I am new buildings are renting up to vast majority full, 90% or so. Do you have actual data on vacancies or just anecdotes? And what rates are they?
We have people during citizen comment who claim to have called around and found high vacancy rates, but I don't consider them entirely trustworthy. It's this Tenants Rights group which was recently founded by these NIMBY adults who've recruited sweet young naive activist college students under false pretenses, basically. The college students spout all these self-contradictory lines. I'm in communication with the college students and trying to gently push back on some of the notions. Their data and claims of vacancies are very murky.
So how does RealPage benefit from high rents and high vacancy rates?
4 do they get a percentage as a commission?
But wouldn't they benefit from optimizing the price-demand curve then?
I haven't read the article yet, but might it be the case that optimizing the price-demand curve for the entire city gives different results than optimizing it for one building?
I suspect they're misunderstanding what "high vacancy" means. 7.3% is the longterm average. To have prices fall it should get up above 10%.
A few years back, the acting chairperson of the Federal Trade Commission said a good rule of thumb was to replace the word "algorithm" with the phrase "a guy named Bob." If it wasn't ok for a guy named Bob to gather price information from almost all participants in a market, and then guide them to set their prices according to that information, then it wasn't ok for an algorithm to do it either.
4: Well, if they are assembling their users into a quasi cartel, keeping prices high when the market would suggest otherwise, theoretically you could get more net revenue with more units vacant, If the rent is enough more than the alternative. But I'm not sure how that counterfactual comparison would satisfy the greedy owners.
Again it doesn't outweigh supply, but on the margins I understand you also get this weird phenomenon where buildings were justified based on a certain rent & are reluctant to drop it, partly because that reduces the potential resale price. The main way that shows itself is in temporary stealth price cuts in the form of "First month free!" or other amenities that don't change the headline rent. (I've even heard of 2 months in my area.) But not everybody finds that type of discount attractive, so the same phenomenon could sometimes lead to slightly lower occupancy than if they were willing to cut the rent.
This piece on Yieldstar from Moe Tkacik has a slightly different focus (the degree to which RealPage/Yieldstar projections have led to shaky commercial real estate loans) was also interesting, I think.
5/6: They're a software-as-a-service provider owned by the big software private equity firm Thomas Bravo; I think the goal is to make themselves indispensable for landlords nationwide and keep toll-taking on the process via annual subscriptions, the same way e.g. Mindbody does for gyms or HubSpot does for your plumber. Then they can just raise the rent on the landlords every year, because what are they gonna do, move?
6: I assumed that higher rent/higher vacancy rate was supposed to be optimizing the profit compared to lower rent/lower vacancy. Traditionally, landlords would prefer lower vacancies with some consumer surplus, like touring musicians would prefer playing to full houses instead of optimizing ticket prices.
10.last is super common. But the other reason is that if you have any kind of rent stabilization, then a fee free months is better long run than cutting the nominal rent.
10: Not attractive if you plan to stay long term. The NY Times had an article about concerns about multi family rental properties in the sunbelt. Basically, there's too much "luxury" supply.in some markets. At the same time, there was a building boom when people thought that more people were going to settle out there. It appears that some of these were financed with adjustable rate mortgages, and some of them are now delinquent.
https://www.nytimes.com/2024/07/04/business/apartment-multifamily-loans-trouble.html
Sounds like rents in those places are starting to decline.
Around here, I just see the rate of increase declining.
11.last made me think of Computer Associates for the first time in a long time.Turns out they were something of a pioneer in extracting rent from locked in computer users. Apparently they were bought by Broadcom for a decent chunk of change. Kind of an odd acquisition but I guess in the spirit of Broadcom's strange walk through the world of computing.
The marginal gain from renting vs not isn't just the rent because there are more expenses when someone is living in an apartment. Landlord is paying taxes and mortgage and some depreciation either way, but things are more likely to break if someone is living there. If utilities are included the margin drops more.
Sometimes it could run in the opposite direction, large tracts of vacant housing are more likely to be vandalized or squatted with no one there, or a repair like a leak is caught sooner if you have an occupant.
16 reminds me that my parents' emails are still @aol.com. Who knows what they're paying for that.
MINE TOO. I like to remind my mom of how she said it was too late to switch to gmail circa 2008.
My parents never had AOL. Juno, to hotmail, to some kind of Christian ISP when they caught my littlest brother looking at porn, to gmail.
My mom still has an AOL email address. I don't think she pays for it though.
My mom's brother has an AOL account and he got hacked and the guy who did it pretended to be my uncle and asked me to buy $300 worth of Amazon gift cards for him to sent to a friend who had all of the cancer.
Which is beside the point. The point is that the years since the 2007 recession are comprehensible only in if you remember that there's an ongoing attempt by the very wealthy to create monopolies so that they can reliably extract rents (in the larger sense) without the risk of another collapse of their credit market. Which, fuck them.
Also, 9 is right.
Basically, there's too much "luxury" supply.in some markets.
Highly incorrect, sorry, and it's a shame anyone adopts that frame. One of the problems is people equate "there are a few cranes downtown at once" with "we are building a tremendous amount of new multifamily housing." Visibility doesn't mean quantity.
I used to frame housing, but only single family.
When you have a tenant, you tend to set the rent based on their current rent. There's a value to having a tenant you know.
When you have an empty unit, you are going to set the rent based on similar units in the market, what the realtors call "comps" or comparables. If you engage a realtor, perhaps named Bob, that's what they are going to do. They're going to look at as many rents for similar units the area that they can find and set the asking rent based on that.
Does this system do anything different from what a realtor would? Zillow uses that same general method to estimate selling prices. The main difference is that they can inhale sales and rental information wholesale, but modern realtors have access to big databases, too. Has anyone taken a good look at this system to see if it systematically overprices?
I should probably point out that one of the big reasons that landlords tend not to lower asking rents even when the market is soft and they are offering concessions like one month free is that their mortgage is based on expected rent. If they offer a lower rent as opposed to a concession, they will be violating the terms of their loan. If the bank calls them on it, they can lose the building.
This is a really weird thing for me to say, but I'm going to say it anyway. Did you read the article?
"HubSpot does for your plumber"
My plumber has been giggified?
The quote from the article doesn't seem to tally with that fact that apartment vacancy rates in Dallas are not abnormally high. They are in fact very average indeed compared to other cities in Texas and nationwide, and average rents are in fact falling slightly. Atlanta is the other example, and Atlanta does indeed have higher vacancy rates, but it also has falling rents (as you'd expect if the market was functioning).
There are two stories here. One is that the software is anti competitive and the company is being investigated for market rigging, and that's true.
The other is that YieldStar is actually powerful enough that it isdriving up both rents and vacancy rates across entire cities. Less sure about that.
26: I think the ratio was off in that the vacancies in those complexes in places like Arizona are higher than the lower-priced stuff. "Luxury" is a pretty low bar. Things like Avalon here with a gym and a common area.
"Luxury" is a pretty low bar. Things like Avalon here with a gym and a common area.
Exactly - "luxury" is a marketing term we should not be taken in by. If there were ten times as many of these buildings they would be associated with the slightly-above-middle-class.
They should have a common area and an uncommon area for people who like a smaller crowd.
My post-school apartment had a gym and a pool and a sign that said "luxury." Would have worked better if the pool was maintained and the buildings were not actively ugly.
Is anyone going to establish at some point either RealPage's incentive for creating a cartel or its mechanism for forcing landlords to stay in line? The Texas Standard interview is incredibly hand-wavy: "they put a lot of pressure on you" - "they try to train leasing agents to stop worrying about occupancy" - "they were starting to make more money... everyone wanted to be a RealPage client" - "that has given the algorithm an incredible amount of power."
On NIMBY/developer claims about vacancies, the short answer is that NIMBYs have no incentive to make honest claims about occupancy rates. The people shut out by low vacancy rates aren't in the community by definition.
The Justice Department is trying. The FBI recently conducted a raid of an Atlanta property management firm in a related investigation. The algorithm is the mechanism being investigated. If all the owners get together and set a price, that's a cartel whether an algorithm or a guy named Dave sets that price.
Like most decent people, I have a reflexive prejudice against the owners of large real estate holdings. If it looks like they are defrauding people, it's because they are defrauding people.
OK thanks for confirming there's no actual enforcement mechanism, just a magical algorithm. Best of luck to the Justice Department.
I mean, I'm not an expert or a lawyer. The FTC and the Justice Department are going after price fixing by algorithm. I don't know what an enforcement mechanism has to do with this. You get together with competitors and say "we're going to charge X for this", it's price fixing even where "X" is a formula.
It's basically a hand-wavy fantasy targeted to people who think big corporations are responsible for all the world's problems. Justice Department hasn't convicted anyone yet. "Just charge more." "Oh I dunno if this unit sits vacant I'll lose money." "It's an ALGORITHM." "OK." $$$$$$$$$.
As I understand it, antitrust enforcement has been deliberately downplayed for decades and Biden's administration has geared up to end that. I think it's overdue.
OK. All the landlords in the country are conspiring to keep rents high using a software with 8% market share. Again, best wishes to the Justice Department, if they succeed maybe we can finally turn these headlines into a reality:
https://www.realtor.com/research/march-2024-rent/
That could also be a sign that it is working. The feds start investigating price fixing and then prices start to fall because stopping price fixing is a good way to defend yourself against a price fixing investigation.
DB, I too think supply is the true way & get annoyed when these kinds of headlines are flogged as the "true" reason rents are increasing, but the charged behavior is not at all outlandish as affecting things on the margin. There doesn't need to be an enforcement mechanism: property owners are using these services to set their rents, and as long as they're paying the service, they can be presumed to have decided for the time being its decisions make sense. The charged behavior is simply cartel-style price setting with algorithm-based deniability. That's an old exploit not in conflict with the fundamental supply bottleneck.
At the moment private equity owns a pretty tiny share of national housing (people make it seem larger by looking at recent turnover), but consider that many metro areas have large shares of their multifamily housing owned by a handful of traditional magnates specific to that area. So the impact of the software may seem small based on overall usage, but in individual metros, a handful of users could own enough of the stock for their decisions to have some real impact on prices.
I get that we all have problems with the Justice Department. I wish they'd leave my small-scale cock fighting program alone and they probably wish I'd stop filing papers that say "the chicken picked up a knife on its own." But rich people have recently been proven to have colluded over egg prices and hiring tech workers. Probably other things that escaped my attention. I certainly trust them much less than I trust the Justice Department.
38: These were not NIMBY claims. These were investors who could not pay their variable rate mortgages on multi families.
45: I'm not sure what market you're referring to here, DB, but it's clearly not the relevant market. Realpage isn't being probed for its behavior in the market it operates in, but rather for its coordination of competitors in various local markets.
I'll be interested in seeing what the DOJ comes up with, but I am glad the feds are looking into this.
49: Reading the article in 15 a little more closely, it's not talking about newer buildings being vacant, the complaining owners are seeing greater vacancies because they're the older buildings that can't command rents quite as towering now that new supply is coming in. The Reserve in Brandon, FL was built in 1990; Oaks of Westchase in Houston, 1983.
Yes, precisely how it's supposed to work!
I remember 2007 and I react with suspicion and distrust at any financial innovation surrounding residential housing. I think I'm completely justified in this.
I don't doubt that there's a supply shortage. I don't think that means there's not price fixing too.
Your question in the U.K. thread was addressed.