Algorithmic price-fixing of rents is here

[Gabriel54]

It is completely anecdotal but in my local experience I've seen the following pattern happen: rent is increased substantially, present tenants move out, no one new applies, unit becomes empty, rent is decreased until someone new finally moves in. I'm not a landlord but I don't think there is a rational basis for kicking all of your rent paying tenants out and then having half a dozen units go empty in the hope that you can squeeze an extra 100 every month out of someone, maybe, in the future.

[washadjeffmad]

And you'd have been right a decade ago.

Until then, sub-95% occupancy was a sign of property failure. Now, rents and rental properties have been so thoroughly captured and coordinated that large property management companies are able to profit at occupancy rates below even 80%. It was organized, aggressive, large-scale exploitation of historical "rules of thumb" of property pricing (not just rentals), laundered through software.

The problem is circular. Artificially high rental prices drove many to buy houses, and median home price and availability in a given area generally determine rental prices. By using profits to capture multifamily dwellings and raising their prices to control their occupancy, valuations on surrounding residential properties (many owned by the same large, PE-backed commercial hard asset investors) could be raised beyond the traditional limits that a local market would bear. Like Broadcom, they raised rates to "fire" their least profitable customers.

Property management companies that used rental price-fixing software flourished, and both existing home owners [1], and cities were loathe to complain. For home owners, this has been the closest they've ever gotten to a bailout in their lifetimes. For cities, tax revenues are higher than ever.

Who amongst them would dare call it all a sham?

[1] I originally wrote "who at worst were unaffected", but that's demonstrably untrue. We normally criticize it as "gentrification", but at least as far back as 2012, I noted investors in my area were buying up minority communities, flipping the houses into rentals to raise property values, buying the properties people could no longer afford the taxes on, and then renting them back to them at more than the cost of their original mortgages.

[pnw]

My understanding was that debt servicing drives some of the rental price, which is why they can seem irrational in the short term and are not discounted in order to protect the debt coverage ratio of the building. A low ratio can trigger a technical default on the loan by the bank.

[programjames]

This is only irrational for the landlords, not the software suggesting prices to them. If you churn 10% of your units, but prices go up by 20%, then you're making more money as a rental management company.

[stranded22]

My experience is that the estate agents in the UK (south east) put the rent up ridiculously compared to previous then slowly knock off money the closer it gets to the previous tenants moving out and it is empty.

Then, other properties also go on the market much higher as they see this is now 'the market rate'.

The higher quality properties go early. The poor quality ones stay - with the higher pricing.

In the UK, it is an absolute racket without any protection for the tenant. Including ANY annual increase in rent - and people can be kicked out with just 2 months notice (including where I rent, as a family of 3).

[emseetech]

Markets are rational eventually but the keyword is eventually. No timeline is provided.

[gruez]

>rent is increased substantially

>[...] in the hope that you can squeeze an extra 100 every month [...]

Which one is it? Was the increase "substantial" or was it only 100 bucks?

> I'm not a landlord but I don't think there is a rational basis for kicking all of your rent paying tenants out and then having half a dozen units go empty in the hope that you can squeeze an extra 100 every month out of someone, maybe, in the future.

Hindsight is 20/20. My guess is that the landlord thought the market was going to bear the price increase, and went all-in on it rather than only doing it on a portion of his tenants.

[Affric]

Here it’s the same except for the rent going down. They just wait until the place is filled. It’s grim if you don’t own a home.

[bko]

Yeah, that's weirdly inefficient and annoying for everyone. What would be great would be if there was some algorithmic way to determine the market value for an apartment to minimize vacancy and be fair to both the current tenants and those that want to move in

[Animats]

We need a massive effort to enforce the Sherman Act against landlords. Both breakups and criminal penalties need to be applied. Send some big landlords to prison for 10 years and this problem will stop.[1]

[1] https://www.nytimes.com/2024/07/19/business/economy/rent-pri...

[chairmansteve]

Exactly. They are operating a cartel.

[d_sem]

What is happening in the Bay Area is large corporations are using 3rd party exchanges that make following the price guidelines a requirement to participate. The 3rd party is paid to set the regional prices. And they all win through fee's and higher rent prices.

Its old fashion collusion. Using the word algorithm obfuscates the simplicity in the criminal activity.

[gnabgib]

Related FBI raids Atlanta corporate landlord in probe of rental market price fixing (252 points, 2 months ago, 266 comments) https://news.ycombinator.com/item?id=40580874

[jtotheh]

https://web.archive.org/web/20240810153028/https://www.theat... Algorithms may be allowed to facilitate price-fixing among landlords in ways that would not be allowed if done by humans.

[programjames]

I think the problem is worse than just algorithms. If something is around long enough, it'll naturally evolve an implicit coordination, as those who don't coordinate die out.

[zjp]

We're really gonna exhaust every option we have before we build new housing.

[doytch]

In the article, one of the lawyers quoted states that "enforced compliance is the hallmark feature of any cartel."

Is that part of the legal requirements for a guilty judgement or breaking up a cartel? In the US at least? Would RealPage be fine if they treat their recommended prices as mere suggestions?

[jimbob45]

eBay does the same thing but only as suggestions. I feel like it would be very different if they weren’t just suggestions.

[emseetech]

These algorithms have an economic incentive to suggest higher rents, because that's what the customer (landlords) want to hear. If the algorithm calculates a rent 30% lower than the previous tenant was paying, landlords will either ignore the recommendation or shop around for another startup with an algorithm that tells them what they want to hear.

[doctorpangloss]

Another POV is that if people want rent control, go for it. Repeal Costa Hawkins. Take leadership.

[pipes]

I own a rental property. This is how it works for me: Tenants move out. I look at how much similar property is renting for in the area. I advertise at about that rent. Usually a bit lower. Prospective tenants agree to to rent at that price.

I don't control prices. That is supply and demand.

Software that looks at rents in area and suggests a price just sounds like automation of what I do manually.

[mint2]

But what real page is doing is not what you described.

If you looked at the rents, put yours at slightly higher than average and then strong armed the owners of the majority of similar units to do the same even if your vacancy rate goes up so that now yours is right at the new average, then it would be similar to real page.

[brian-bk]

Same thing happens in reverse with salaries. Glassdoor isn't your friend, it just helps companies regress to the 50th-percentile.

[AbstractH24]

Haven’t we been this for a few years now. Is it news anymore?

[globalnode]

there needs to be adequate public housing for people that can't afford this bs. then landlords can do what they want, let the market decide, but basic housing for people should be a priority.