Rent-calculating software biz accused of colluding with 'cartel' of landlords The maker of an algorithm that calculates the optimum rent to charge for homes has been accused of causing an unfair and artificial hike in costs for tenants. Texas-based RealPage and nine real-estate giants have been hit with a lawsuit that claims the software developer formed a "cartel" with the landlords to drive up rent in …
Then it will have unfair inside information on what other property owners are charging even if it isn't explicitly sharing such info. Just knowing which apartments also use the software (or assuming they all do and if that covers most of them that's good enough) means they know exactly what the competition is charging.
I agree...and that's why the term from landlords that they [only] charge "market rate" is BOGUS.
All "market rate" is, is them looking at one another to see how much they can get away with charging. The highest bid, once joined in at that rate by any other landlord in the area...magically becomes the new "market rate".
So all rent inflation needs is two 3 cohorts:
- the original landlord willing to hike his prices and wait for a sucker customer;
- the sucker renter willing to pay the rent, that usually being a new prospect from outside the area who wants in, no matter the cost / does not understand the current value of the actual local market; and
- the 2nd landlord willing to join in on the game, once they see those willing suckers 'investors' in their property shell game.
And, so, rent prices skyrocket.
This is what occurred in my own home town. Short of 2 decades ago, when standard rent for a 1BR apartment was averaging $800-$900, I was meeting new residents, fresh from the city, who were paying $1200+ and thinking they were getting ''such a great deal!". Boom - a few years later, rents were up 20%.
And now?? They are renting newly renovated loft apartments for $2000+ and, in a town where private homes average $250,000 to $500,000, they put up condominium complexes that start at - wait for it - $900,000.
And suckers from the city are coming up in droves to a town that is now considered 'hip' and 'convenient', thanks to a transportation hub that they installed into the small town that backs up traffic for miles.
And so crashes the quality of life for everyone else that called the town "home" before the developers and yahoos arrived.
There was plenty of supply at the start of the demand that I mentioned, why prices for apartments 70+ miles outside the Big City were reasonable.
But the moment the landlords saw demand from out-of- towners...the prices weren't so reasonable any more. 20% or so less than Big City prices, again for living 70+ miles out of town, ain't no bargain. But the city suckers thought so, and paid the padded bills.
I know this because a friend, both a home owner and a landlord here, saw what other landlords were starting to charge. His response?? "Guess I'll do the same!" Bam, increased rent on the next tenant.
Big surprise.
$900,000 for a condo here is CRAZY. Absolutely crazy!! That buys a luxury house with land, not a 2-bedroom condo.
And THAT'S being a sucker.
But the moment the landlords saw demand from out-of- towners...the prices weren't so reasonable any more.
So what you are saying is that landlords found some people prepared to pay more, and so their rents went up. In other words, just what happens in a fair market regardless of whether anyone gets together to try and fudge the market.
the rent charged is public information displayed in the vacancy advert.
This is true only for NEW rentals, but not for existing tenants who get to have their rents jacked up every year for no obvious reason. Since I live in San Diego I have some inside info on this one. Since 2016 my rent has gone up nearly every year, a total of $500 or so,. This is unfortunately due to the lack of available housing since people like living here. BUT if it was artificially driven by everyone using the same algorithm, that might explain why rents here are as high as San Francisco now... (or so that is what I've heard on the radio, etc.)
The algorithm probably knows the amount my rent is right now. That is not advertised anywhere. So if it DOES have what I pay in rent ln the database, that COULD be considered "insider information".
Let's see what the courts decide.
These sorts of programs have access to "insider information" via T&Cs of the software maker. To use the program, the program licensor agrees to allow the program to send individual unit-rent info back to the software company.
If you hadn't read the linked-to rebuttal, it contains some prime rosebed-fertilizer:
"In contrast, RealPage’s revenue management solutions prioritize a property’s own internal supply/demand dynamics over external factors such as competitors’ rents, and therefore help eliminate the risk of collusion that could occur with manual pricing.", and,
"Revenue management software also helps eliminate inconsistent rent negotiations and bidding wars that can occur in manual pricing, thus reducing the possibility of discriminatory pricing in violation of fair housing rules."
As someone in the original article wrote...if you replaced the name RealPage with a person called Bob, would you still consider that price fixing had not occurred? i.e. Before setting the rent for an apartment you contact Bob and let him know of your intentions. In turn everyone else does the same as well as letting Bob know current rates and Bob tells them what the new rent should be. Doesn't sound too good now does it?
The rent currently charged is public information, what they will be raising it to next year never has been.
That's where the inside information comes in, because future planned rent increases are known by everyone using that software since the software is what makes that decision for landlords.
The rent paid is _not_ public information.
Nor is the rent asked. Only in the special case where it is advertised publicly. Asking price for any of my 3 rentals was last publicly advertised about 10 years ago.
Here the govt collects rent bonds, and publishes statistics of rent quartiles by area and type. So aggregate statistics are public - but only for those who comply with the bond laws
For that matter, collusion can take place when determining what price to advertise, before it is published. The fact that price is later published doesn't prove there wasn't a cartel determining it in the first place.
Regulations enforcing more transparency in residential-property rental rates might help. Then renters and regulators could see if similar properties were charging different rates, how much rates increased over time, and so on.
This describes the 'market forces' in the US medical system.
One party in the medical system is always under duress. And from my macroeconomics 101 class, the free market only really works when both parties are not being forced into the transaction. And I don't think there is a reality where even 10% of people would accept their death as the part of the trade-off of not getting medical services.
Having a safe place to sleep is a cornerstone of human needs, this almost meets the same issues that the US medical system suffers.
"but found a way to collude with one another via a third party: RealPage. It is claimed RealPage's software was used by the group to collectively set rent and ensure none of them undercut each other, thus inflating costs for tenants."
Even if they didn't actively collude and agree to do this, the end effect of all of them using RealPage is the same and this needs to be shut down HARD. It's founder/architect has a history of doing this. This Ars Technica/ProPublica article is enlightening: Rent going up? One company’s algorithm could be why. See the bit on "The Origins of Yieldstar". After getting slapped for collusion pulling the same shit for the airlines he spent a few years in eastern Europe and then came back to the US and probably figured he could do the same he did before in a less well regulated and scrutinized market.
"bought a gallon of gas lately?"
There's some truth to the instability claim. When the underlying resource price goes up (crude prices), petrol goes up. When the crude price drops, some outlets try to hang on to the higher price. It doesn't work. The spread between the highest and lowest prices increases. Discount outlets cut their prices, even though the "average" area price stays high*. And our FTC (the consumer watchdog) actually watches this metric for signs of market manipulation (refineries withholding supplies from discounters).
*In our area, the "average" price is advertised by an outfit called Gas Buddy. They take frequent surveys of advertised prices and publish the average. Problem: The high priced stations just sit empty, or selling the odd pack of cigarettes at the cash register. The discounters have lines of people waiting at the pumps. In fact, My favorite station (Costco) occasionally has a line of delivery trucks refilling their tanks. The price spread today is well over $1.00/gallon.
Where I live the watchdog claims to watch prices and threatens action but yet prices seem to move in tandem and to the same levels at the same times. This despite the vendors, linked to the refiners, clearly running through inventory at differing rates and hence prices.
Price of entry is too high. These very large housing companies own tens if not hundreds of thousands of properties. Somebody new to the game has to bring extremely large sums of cash and will have to considerably (and probably extremely) overspend as soon as these big companies sniff what they're doing. They don't have to worry about someone offering 5 or 10 properties in a large area of thousands of homes, because they don't have much effect in a market where between the few of them they hold 90% of the other rental properties. People in the lower rent properties are going to want to stay there and keep the cheaper properties of smaller landlords off the market, so they have no impact. And even for the existing players, none of the large suppliers, whether they're using RealPage or not, has an interest in undercutting the cartel, or breaking the cartel. There's less profit in doing so. Short-term AND long term.
On a related note...
My local city council (USA) recently passed a moratorium on issuing new rental licenses.
As I understand it, this was reaction to companies that were buying a LOT of single family residences and converting them into rentals. This is exacerbating the already, short supply of low and middle income housing.
Home prices and property taxes are rising... starting to pinch many of the local retirees.
Construction companies are building homes for or large apartment blocks.. for upper incomes.
Young adults just sarting out.. good luck.
What the hell's a rental license? You need a quantity-restricted permit to engage in a contract?
Yes, in many jurisdictions, for the obvious reason that renting property has external social costs, so the public and state have an interest in regulating it.
Renters use public services. They may create a public nuisance, which for a remote landlord is an externality. Liability needs to be hedged with insurance. Rental properties need to be maintained to within standards (residential building codes, fire codes, etc.), and again for many landlords these are externalities. All of these things create a public interest.
If you're renting a ranch house out in the middle of nowhere, no one's going to care and no one's going to check (except maybe the IRS). But if you're renting out property in a municipality, damn right they ought to be regulating it.
This is exacerbating the already, short supply of low and middle income housing.
Unfortunately, in places where tourism is high, short-term rentals (mostly via that abomination Airbnb) are displacing long-term rentals, so housing for residents who can't or don't want to buy is similarly short. We see a lot of that here around the Mountain Fastness.
Clamping down on short-term rentals may help. In particular, enforcing lodging regulations increases the cost of running a short-term rental, while providing other social goods – adequate insurance, for example, and code-compliance inspections.
My local city council (USA) recently passed a moratorium on issuing new rental licenses.
If that's a total moratorium then that's going to be counterproductive (or at least, create unintended consequences) in time.
In effect, it fixed the total supply, which means that if demand does not reduce then prices will go up for those already in the market. And it prevents new entrants into the market who could bring prices down.
The "landlords pricing buyers out" argument is a tricky one. Over here in the UK, some people have examined it and come to some interesting conclusions :
1) Many new build developments wouldn't happen at all if it weren't for buy to rent landlords prepared to buy off plan (i.e. pay a fair chunk of the purchase price before the property is even built). So if the development doesn't go ahead, then that's a number of properties not available to buy.
2) Landlords tend to be buying different properties to first time buyers, i.e. there's not the direct competition that some claim.
Both are going to be very variable, but the situation is not as simple an many think.
The other danger with regulation, and something that is happening in the UK, is that tax or regulation changes cause landlords to exit the market and reduce supply. Since demand doesn't reduce in proportion, rents tend to go up and it's those at the bottom of the income scale that suffer most - they can neither afford the rents nor afford to buy. Yet campaign groups claiming to be supporting exactly those people keep clamouring for policies that have been shown time and time again across the world to make the problem worse for the people they claim to be supporting.
In general, the answer is actually quite simple - or at least, it is simple to state. Either reduce demand, or increase supply (of all types of housing), or both. Reducing demand is difficult unless you introduce fascist state controls on who may live where. Increasing supply means making land available and giving developers confidence to build. Over here, we have the Town and Country Planning Act from (IIRC) 1948) which effectively exists to restrict building of new properties - prior to that, if you owned land, you could build on it, and that's the history of so many properties which we now consider part of our heritage but which wouldn't be allowed these days under current planning rules. I think those of you over in teh US have things like zoning regulations and so on which similarly artificially restrict the supply of land to put houses on. Developers having confidence to build means them knowing that they'll be able to sell properties quickly enough to pay the bills from building them. Owner occupiers (other than quite well off ones) generally don't have the available finances to buy a new house off plan and wait a couple of years before they can move in and sell their old home. So having some landlords prepared to provide that investment means that more properties are going to get built.
They have to have more to gain breaking it than staying in, mind! They can be very stable if everyone prefers a comfy life of profit to a gamble on winning a price war and everyone else is making profits too, so... what if they've saved a bigger warchest? It's a massive gamble.
There's a reason it's common to offer amnesty to the first member of a cartel to dob the rest in to the feds. Evey cartel knows that whichever one of them breaks first gets to keep the profits and screw everyone else. _That_ is a recipe for instability.
If the rental market is tight, they have more to gain by remaining. Renting isn't like selling a single good; it's a largely-inflexible market with a relatively long-term income stream. Unless you have a lot of units sitting empty, there's no advantage to lowering the rent.
Algorithms to charge the 'optimum' price for just about anything are widely used these days. RealPage is just one example used for rentals and based on the article I read its advantage is that it gets a total yield of a bit under 20% better than traditional methods. More insidiously it doesn't strive for 100% occupancy. The lawsuit is likely to fail simply because the vendor is only too aware of the potential for monopoly lawsuits, they have their defense already built in.
I don't know what the fuss is about. You've say by while everyday life is turned into a lottery -- you can't buy a ticket for a plane or a train (much less for an event) without being subject to these algorithms. You can't rent a hotel room (they've been using this sort of stuff for decades, long enough for one of my wife's friends to have retired from that job). Its everywhere.Its a bit of a surprise for many because we're schooled from birth to believe the 'free market' is a lot of anxious suppliers working their tails off to bring us the best quality at the lowest price when in fact its been known by economists for 150 years or more that 'the market' is really a stitch up, it loves monopolies and cartels because all it really wants to do is extract rent rather than go through the tedious process of producing things. The fact that its evil is irrelevant -- this is what you've voted for time and again; you ignored the voices that told you that this is wrong because this time around because computers were involved it was somehow new and different. (It is different -- it gives the vendor access to a lot more information; in the old days there would have been cracks to work with.)
On the one hand, I'm not convinced that this company set out to deliberately create a sort of price fixing cartel, though that may be what happened. On the other hand, I generally have a hard time mustering up any empathy for mercenary companies like RealPage that exist pretty much for the sole purpose of screwing over consumers.
The cartel argument comes from this software using rental information from the area to estimate what the rental market is likely to bear. The software vendors are careful to anonymize that data, though, and they're not the only package available to landlords because of the potential for accusations of price fixing. They may have got it wrong. The original article is worth reading:-
https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
(Notice how human misery and need can be cloaked in business language and so abstracted.)
I suggest having a look at the book "Price Wars" by Rupert Russel to see how this all fits together.
A place to live is not something that can be deferred or foregone because the cost is high - unless you absolutely cannot afford it (and the consequences of THAT are enormous), or are buying a home - that's another story.
So if a single entity can arbitrarily up rents across the board by 1%, then renters are not going to have much choice. Then do it again, and again ...
It's all about the leverage of size, and it appears everywhere.
In the UK, for years, the supermarkets have price matched each other: Collusion on a grand scale on everything from food and booze to soap powder via nappies and bread. This is actually advertised as a consumer benefit. The petrol stations in Lutterworth seem to be price matched normally to within less than 1%. And so it goes on. The US is lucky to have the Sherman Act...
The petrol stations in Lutterworth seem to be price matched normally to within less than 1%
That's a surprise ? People will automatically avoid the most expensive unless there is another reason for going there - so that sets an upper bound on prices. Lowest prices are determined by what the retailer has to pay the wholesaler. So you won't see much variation in prices unless there are market forces allowing one to charge more.
These days there is little profit in fuel sales - some days it can be negative for an independent ! That's why you'll see that nearly all petrol stations these days are actually shops - with a fuel forecourt to bring people in.
Endlessly rising rents are one of the main reasons I left the UK, it really looked like some local estate agents were monopolising their local markets, but you also had insane landlords and developers, looking at plans for a one bed flat and thinking, uhm, I could divide the bedroom in 2 and charge double!
I'm in Switzerland now, and the only way the landlords can put up rent is if the interest rates rise or they do major renovations
I'm in Switzerland now, and the only way the landlords can put up rent is if the interest rates rise or they do major renovations
Enjoy it while you can. Every place that has had rent control has eventually found that it doesn't do what people expect in the long term. It tends to work in the short term, but in the long term it disincentivizes investment - reducing both the quantity and quality of the properties available.
Rents can only go up if the market will bear it - so if they are going up strongly then it suggests that there is pent up demand which can only be addressed by increasing supply. Look at it this way, lets say there are ten properties for rent ...
In the first case, there are nine prospective tenants looking to rent. Unless there are significant other factors, then whoever is asking the highest rent will find his property empty and will almost certainly lower the rent until they can coax a tenant in from one of the other properties - rents will reduce (or stay down) until something changes. Rents will generally settle at the point where a landlord decides it's not worth it and sells up.
Now consider a second case where there are eleven prospective tenants. Competition will mean (roughly, and applying large doses of generalisation), the most expensive property will go to the tenant prepared to pay most - at whatever the landlord could get away with. Down to the cheapest property which will go to the secondly bottom tenant at whatever he can afford to pay. The tenant with the least available spending power will lose out.
Without changing the tenants, if you add two properties to the second case, you convert it to the first - that's increasing supply, prices fall. If, as tax and regulatory changes are doing in the UK, landlords start to sell up - losing two properties converts the first case into the second case, that's supply decreasing and prices rise. At the present, I'm one of those with a couple of decent properties which I price at "I'd rather a tenant stay because they consider it a fair rent" (rather than "the most I think I can screw out of anyone") looking forward to a strong demand as others leave the market.
Oh yes, and don't forget that not every renter wants to be an owner. One of my tenants has been in the same property (paying below market rent) for 12 years - and is quite happy (having been an owner occupier in the past) being able to just call me whenever there is a problem with things like the boiler etc. Others want to rent as they move around, and it's very expensive (and time consuming) buying and selling each time - or they are temporarily relocated so only need somewhere for a year or two before they return home.
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