> A landlord can only get the amount of rent that a tenant is willing to pay.
A place to live is a rather inelastic commodity. If the price goes up across the board, people will pay, until they can't possibly afford the going rent and are driven into homelessness.
> this service is not responsible for higher rents, the market is.
This service has effectively cornered the market, and is manipulating the market through shortages, driving rents higher.
> A place to live is a rather inelastic commodity.
People always say this when prices are going up. Then prices go down, like in 2008.
The thing is, it is elastic. For example, people get roommates to split the rent. They get larger or smaller places based on their willingness to pay. More convenient or less convenient. More or less amenities.
Here’s what that looks like on the history: 2008 caused a brief flattening but it’s clear why people are talking about rent going up because that’s what it has overwhelmingly done.
Yup. Everyone claimed it wasn’t supply and demand, but as soon as Covid and WFH hit (and people could live anywhere), rents dropped fast in SF, probably ~20% in 6 months.
Oh, no argument - but for how long relative to the time they have been going up? I wouldn’t say they never go down but there’s been a pronounced trend for ages. I bought a house relatively early (thanks dotcom bubble!) and was constantly reminded of how much extra income I had relative to my friends who were renting, and that really adds up over the decades where people in decent jobs were struggling to amass down payments.
> Bottom line is that this service is not responsible for higher rents, the market is.
This service is directly and indirectly responsible for landlord's increasing rent for their tenants. Blaming "the market" is a convenient way to cast blame away from people responsible onto a nebulous concept.
Companies like Zillow use software based on "the market" to determine housing prices. But for all intents and purposes they are responsible for driving up housing prices based on actions informed by their software, because their actions directly influence "the market".
This is what so many "free market" hawks tend to misunderstand. The market is not an acyclic network, but is still strongly ordered in its power imbalance.
'The world is in greater peril from those who tolerate or encourage evil than from those who actually commit it.' -Albert Einstein
Most of them understand it just fine. They just don't care as long as it benefits them in the short term. Sure, you could talk about the long term unsustainability, but they quite reasonably figure that they'll be better positioned over the long term by virtue of having a lot more money.
If the "free market" isn't good enough for you here, what are you suggesting is the solution? Banning software that analyzes market data if the output may result in pricing adjustments?
There isn’t a single “free market” and this one isn’t particularly free since there’s hefty information asymmetry and buyers typically have much lower negotiating power (you must have somewhere to live this month; a landlord can often leave a place idle for months holding out for a higher offer, especially if AirBnB is an option).
Mainstream economic consensus for ages has been that markets need some regulation to work most effectively and that’s especially true for a basic human need like housing which controls how healthy the overall community is.
Some obvious things to regulate here could be mandatory disclosure of sources used to justify increases, annual rate caps, requiring amounts over a certain threshold to be itemized and temporary (i.e. if the building includes heat & oil costs spiked require the owner to show that the price they actually paid went up & don’t raise the rent permanently since it’ll come back down).
> a landlord can often leave a place idle for months holding out for a higher offer, especially if AirBnB is an option
I guess they can, but they are running a business and their goal is to make money, so they'll eventually take what they can get.
And remember it works both ways. It doesn't seem like it now, but sometimes, in some markets, it's hard for landlords to attract tenants. I have serious doubts that regulation or any other form of intervention on pricing would have anything but unintended consequences, in some cases leading to the exact problem you're trying to prevent:
> I guess they can, but they are running a business and their goal is to make money, so they'll eventually take what they can get.
Oh, sure but the point is just that the market dynamics favor sellers pretty strongly. For example, how much does the hassle of moving or leaving a neighborhood deter the kind of negotiation which would normally be key to keeping a market stable?
Note also that regulation doesn’t need to directly control pricing to make a difference. Since information asymmetry is a lot of the problem here, increased transparency could help improve the situation and give people better negotiating positions (e.g. if a building owner is profitable at 30% less than asking for all of the current leases, you can probably negotiate better with that information than if you don’t have it)
Yes, informed. The output of this software, and Zillow's algorithms, is only information that still needs to be applied to the real world ("the market"). The algorithms just provide information that wasn't as easy to access before.
It's like saying that Google is responsible for higher rents/prices because it allows landlords/homeowners to easily access and analyze market data. I don't think so.
> Yes, informed. The output of this software, and Zillow's algorithms, is only information that still needs to be applied to the real world ("the market"). The algorithms just provide information that wasn't as easy to access before.
Who verifies that the algorithm is correct? Who is culpable if the algorithm is flawed or applied incorrectly? If GreyStar or Zillow realized their algorithms were significantly inflating values, would there be any incentive to correct it without regulation?
> It's like saying that Google is responsible for higher rents/prices because it allows landlords/homeowners to easily access and analyze market data. I don't think so.
Except that information isn't readily available and easily accessible on Google (in many jurisdictios). It's locked away behind pricey subscriptions to vendor products. In the case of YieldStar it means that tenants cannot fairly negotiate because they don't know what a reasonable price is.
You're not going to like this answer, but...the market does.
The point is that no software has to power to force tenants to pay higher than market rents.
edit to add:
> In the case of YieldStar it means that tenants cannot fairly negotiate because they don't know what a reasonable price is.
If that's the case, then the landlords could save the money they're spending on YieldStar and just set the high prices already. They could use their own proprietary "I want more money" algorithm, and the tenant would have no choice but to pay whatever number the landlord popped out of their head.
> If that's the case, then the landlords could save the money they're spending on YieldStar and just set the high prices already. They could use their own proprietary "I want more money" algorithm, and the tenant would have no choice but to pay whatever number the landlord popped out of their head.
Now you're getting it.
They could do this, but if their number is higher than other owner numbers in their area, they lose.
If it's the same as other numbers in their area, they win.
So they need something to coordinate those numbers. A 3rd party, for example.
And thus we arrive at why people call it collusion via a 3rd party.
> You're not going to like this answer, but...the market does.
In other words, nobody is culpable and the people with money and resources are able to exploit those below them with impunity.
> The point is that no software has to power to force tenants to pay higher than market rents.
Sure it does.
Having a roof over your head is a fundamental need and people are willing to do a lot to avoid homelessness. If your landlord says to you "rent is going up $500 a month" and you're already struggling financially, uprooting your family is a serious personal and financial hardship many people try to avoid, even if that means giving up basic luxuries.
Not to mention that corporate landlords can absolutely abuse their power to drive prices across an area. We aren't just talking about individual landlords — though even individuals can still own dozens of properties.
If I have a friend that owns a rental property, and I tell her: "you're only charging $1k for rent? you could get $2k easily". Am I helping her exploit her tenant? Now what if she owns 10 rentals? 1,000? 10,000?
I think we probably just need to agree to disagree that this is a form of exploitation.
Now if there is actual price fixing or collusion going on, that's another matter.
> If I have a friend that owns a rental property, and I tell her: "you're only charging $1k for rent? you could get $2k easily". Am I helping her exploit her tenant? Now what if she owns 10 rentals? 1,000? 10,000?
> ...
> Now if there is actual price fixing or collusion going on, that's another matter.
If your friend owns 10,000 rentals and sets prices unilaterally, thats blatantly anti-consumer if not monopolistic. Shelter is a basic need and people will pay as much as they can to keep a roof over their heads, until they reach the breaking point.
If you have several friends that control a sizable amount of the housing supply in an area and they agree to charge a certain amount and artificially limit the availabile supply, that seems like price fixing to me. Doesn't matter if you have three friends or three hundred friends.
) When competitors collude, prices are inflated and the customer is cheated.
> If your friend owns 10,000 rentals and sets prices unilaterally, thats blatantly anti-consumer if not monopolistic.
In my example, the friend is only "fixing" the rent in the sense that it was broken (artificially low) before. I didn't say she controlled the entire supply of housing in the area, and I didn't say she was setting rents artificially high. I don't see a crime.
For some reason you're assuming that anytime rent is raised it's a violation of the tenant's rights.
> In my example, the friend is only "fixing" the rent in the sense that it was broken (artificially low) before ... For some reason you're assuming that anytime rent is raised it's a violation of the tenant's rights.
Artificially low according to what metric — that people are only paying 30-50% of their income towards housing? People are willing to pay a lot for housing because they often have to. I consider it highly unethical to frame squeezing as much money out of people for shelter as "[taking] away the tenant's ability to exploit an inefficiency in market pricing." Inequality, reliance on food shelters, and homelessness were already bad enough before 2020 and have only gotten significantly worse.
Not to mention that many people who would have been able to purchase homes are unable to do so because of large capital groups or investors purchasing large swathes of homes, significantly driving up the costs, and then renting out that supply at inflated rates or converting them to short-term rentals. It benefits no one except those who are already wealthy.
> I didn't say she controlled the entire supply of housing in the area, and I didn't say she was setting rents artificially high.
In fairness you provided 1,000 and 10,000 as examples of the number of rentals she might own.
Regardless, 1k to 2k is a significant jump in rent and there's likely important context beyond the numbers. A real world example I'm familiar with is people moving from a big city to a small town. Is it unethical or criminal for the rent to jump from 1k to 2k if people are willing to pay for it? Not necessarily. But doing so tends to price out people who actually grew up in that town, especially people with lower or fixed incomes, leading to a strain on social systems and homelessness.
> I consider it highly unethical to frame squeezing as much money out of people for shelter as "[taking] away the tenant's ability to exploit an inefficiency in market pricing"
Maybe I shouldn't have used the word exploit. I didn't mean that the tenant is cheating the landlord, I just meant that there is an inefficiency in the market and the tenant is able to use it to their advantage.
Rents, like house prices, do have a fair market value. Buyers and sellers are constantly engaging in negotiations every day in order to set prices on the whole. If software helps the buyer or seller negotiate more effectively, that's fine by me.
I don't disagree with you that it's become much more difficult for people to afford housing and other necessities. It's a huge problem. And I think you're on the right track when you mention large investors buying investment property. I wouldn't be opposed to limiting foreign investment. Crossing my fingers that with rates finally rising, housing/rental investment becomes less attractive and the market comes back down to earth and rents come down with it.
> Maybe I shouldn't have used the word exploit. I didn't mean that the tenant is cheating the landlord, I just meant that there is an inefficiency in the market and the tenant is able to use it to their advantage.
And that's a fair point — I just think that "the market" tends to be a harmful concept for basic needs like housing, especially when there are controlling interests whose sole motivation is to maximize profit. I have an inherent distrust of software (https://xkcd.com/2030/), and the fact that programs like YieldStar rely on proprietary formulations and non-public data (or at least data that isn't possible for the average person to reasonably acquire on their own) means you are trusting them to provide a fair valuation when there's a bit of a conflict of interest for them not to. "The market" has been a pretty poor regulatory of corporate malfeasance.
Short-term profit is usually at the cost of longevity. In the case of housing, there is a difficult to quantify 'human cost'. People are generally healthier, more productive, and contribute more to their local economy when they aren't stressed and experiencing financial hardship.
But I digress. I think we both understand each other, agree on a few things, and disagree on others.
> And I think you're on the right track when you mention large investors buying investment property.
Rates rising has definitely cooled the market in my city, albeit prices are still at least 100k over where they were even a year ago. I worry though that the recession we may or may not already be in will simply be an opportunity for big players to swoop in and buy even more supply.
I don't really see things improving without significant changes to things like zoning laws, short-term rentals, and limiting mass-ownership of property (so new supply actually goes to buyers and not speculators).
> I didn't say she controlled the entire supply of housing in the area
Actually, it was you who introduced the idea that she owned 10,000 rentals. Please don't insult people's intelligence by suggesting that 10,000 rental units in a market is too small to affect overall pricing.
> If I have a friend that owns a rental property, and I tell her: "you're only charging $1k for rent? you could get $2k easily". Am I helping her exploit her tenant? Now what if she owns 10 rentals? 1,000? 10,000?
Since you clearly read the article and have shown awareness of the issues in your other comments prior to this one, offering such simplistic arguments smacks of disingenuity. Good discussions happen when you lead with your best arguments, not a string of weak ones designed to exhaust your interlocutor.
> Since the market is inelastic, and landlords can charge whatever they want, make it 10x.
They'll get there, slowly and steadily.
You obviously cannot snap your finger and raise the rent 10x in an instant. You have to boil the frog slowly, by continuously buying up properties and raise rents considerably every year, especially for new tenants. In my city the overwhelming majority of residential apartments are owned by a single private company.
> Is your point that Supply & Demand are actually in play?
I never claimed they weren't. However, there are a significant number of external factors that you refuse to acknowledge, like government regulations specifically enacted to protect tenants from this type of exploitation.
You initially said "why not just raise the price 2x or 3x!", when I pointed out that this was happening you moved the goal posts to "why not raise the price 10x!" I am not interested in engaging with snide 'gotcha!' games.
richbell> Blaming "the market" is a convenient way to cast blame away from people responsible onto a nebulous concept.
That sounds like a rejection of Supply & Demand forces.
> However, there are a significant number of external factors that you refuse to acknowledge, like government regulations specifically enacted to protect tenants from this type of exploitation.
All that does is make for higher rents and lower supply.
I think you’re missing the point. Let me try this: there’s a tipping point where you have 50% occupancy and charge $x0,000 for 500 sq ft and make just as much money as you would at 100% occupancy with a charge of $x000. The difference between these two is in the latter scenario, some people have no place to live because they can’t afford the $x0,000. The owner corporation doesn’t care, they make just as much money either way.
> Airlines discount tickets at the last minute. That's because flying an empty seat around doesn't make any money.
> Magazines sell ad space at a steep discount the day before it goes to press. Same reason.
> Stores have clearance sales. Again, same reason.
You did not acknowledge or address KerrAvon's point at all.
> And so on. No landlord in his right mind would leave half a building vacant if he can get a paying tenant in.
Of course they would, and both KerrAvon and TFA explain why:
) The company had been seeking occupancy levels of 97% or 98% in markets where it was a leader, Winn said. But when it began using YieldStar, managers saw that raising rents and leaving some apartments vacant made more money.
) “Initially, it was very hard for executives to accept that they could operate at 94% or 96% and achieve a higher NOI by increasing rents,” Winn said on the call, referring to net operating income. The company “began utilizing RealPage to operate at 95%, while seeing revenue increases of 3% to 4%.”
Plenty of companies avoid large sales or clearances as a policy because it damages their ability to sell at inflated rates.
It’s true, but it’s not like other markets where someone can choose not to buy and additional sellers can come in, to make sure that prices are in some ways tied to costs. Here, everybody has to live somewhere, so by default you have a “naked short” position on housing. Efficient price discovery here is performing a short squeeze and finding the point of “maximum you can afford to pay without going broke”, which is only possible to reach with price collusion.
True, but that’s the interesting thing about these kinds of algorithms, they align the pricing approaches so the entities act more like one than they did before, effectively decreasing competition.
I would say that pricing approaches are already aligned, and this software is just another approach that may or may not replace existing approaches in some areas. I don't see how this decreases competition, tough. A competitor can still undercut their competition to attract tenants.
So the ever nebulous market is the problem. What regulation do we advocate to stop these bottom feeders from hurting the entire US economy? Rent control doesn't seem adequate and causes other problems. I honestly don't know the answer but people making massive profits on rent seems like a major inefficiency and inequality problem.
Sure thats part of the problem, but its convenient to lay this as generic government interference when we know its usually the real estate owners who collude or make up parts of local government to achieve this interference. Stopping this regulatory capture seems to be a prerequisite for most good social change.
which part of the multi-hundred laws, regulations, taxes and discretionary decision making is "interference" and which part is.. you know, having government with laws? I suggest that the implication here is that a local feudal lord is the correct form of governance.. it was for a thousand years.. that's what you imply, really
Interference is things like preventing new construction. Other things are unreasonable burdens local government tends to put on landlords, which always result in higher rents.
For example, in Seattle, the landlord cannot charge a tenant for damage to the unit if the damage is the result of domestic violence.
