"To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.
For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing."
RealPage considers (their own words) landlords to be "cheating" when they deviate from the recommended rates.
Landlords are contractually obligated to follow RP recommendations 95%+ of the time:
> Consistent with their agreement to impose rents generated by RealPage RM Software nearly all the time, Defendants agreed to limit overrides. For example, a RealPage LRO training document states: “Overrides should be few and far between.” Similarly, internal RealPage LRO training documents teach cartel members’ regional managers to beware of “Override Overload” or “rogue” leasing agents who too frequently override the LRO-generated pricing.
> An internal presentation created by Defendant Greystar explicitly
acknowledges that RealPage RM Software users should each seek to accept at
least 95% of the RealPage-generated prices, emphasizing that “Discipline [o]f
using revenue management increases more consistent outcomes.”
> Former Greystar employees have similarly confirmed that negotiating rents other than those set by the RealPage RM Software was unacceptable.
> Even where Participating Landlords do not enable auto-accept, most landlords cannot, on their own, charge rents other than those generated by RealPage’s RM Software— landlords can only “propose an override.” The landlord must then provide a written business justification for why they wish to depart from the RealPage-generated rent.
Say I own a house, and want to rent it out. I'm naturally going to go onto rental search sites and look at what similar houses in the area are renting for, and probably ask something pretty close to that.
I would assume this is not illegal because it's using public information and not colluding with any competitors on price.
But subscribing to a service that uses an algorithm that does basically the same thing is (might be) illegal? Does it cross the line when I explicitly agree with competitors that we'll all use the same algorithm? Or if we're all just independently using the popular pricing service could that become illegal? Or if the service agreement requires me to not rent for less than their algorithm calculates?
The algorithm is not operating on public info, it is soliciting proprietary pricing and vacancy data that is not available to renters or regulators. That secretive information sharing is the basis of the whole scheme.
And the collusion doesn't stop with this information hoarding; the pricing recommendations are as profitable as they are precisely because many property owners in a market are enacting them with the knowledge that a known quantity of their peers have no intent to undercut. Sure, someone can renege on that, but collusion doesn't require that you have an airtight legal contract to bind all parties; after all, such contracts are inherently illegal!
> Sure, someone can renege on that, but collusion doesn't require that you have an airtight legal contract to bind all parties; after all, such contracts are inherently illegal!
Small nitpick, collusion in a general sense is not illegal, but a price-fixing contract/conspiracy would be a crime under the Sherman Antitrust Act.
> One advantage RealPage’s data warehouse had was its access to actual lease transactions — giving it the true rents paid, instead of simply those a landlord advertised, RealPage said.
The above quote is the most substantive description of info sharing I could find in the section "Who Uses the Software and How It Work" in the article you linked. Is the claim that the secretive info being shared is the actual rents tenants are paying? Are companies and people not normally allowed to share that?
Yes, actual rents of all units under management, specifics about what properties are vacant, when properties are available to go up for lease renewal or open market, and I imagine also detail on deferred maintenance, to aid in deciding when to renovate which units. Would not be surprised if they take demographic data too. The more you share with RealPage, the better the recommendations you receive, and the higher your unearned income.
And no, these are not routinely shared publicly. Landlords are allowed to open their books, but for-profit businesses generally do not do so without specific incentive, because it is more profitable to keep trade secrets. Even if they wanted to, how would they do so? I'm not aware of a nonprofit data hub for them to dump all of this for public consumption (and if I don't know, I'm confident random slumlords in Cincinnati also don't). Maybe RealPage can make a free and open one if they are so committed to just making good honest tools for well-informed market participants.
The publicly scrapable data is: advertisements to prospective new tenants for the buildings who have tenants that recently announced their intent to move (or were evicted). They frequently won't even have specific unit numbers attached to them. They only have to be accurate enough to solicit inquiries and not get the landlord sued, an extremely low bar, especially in a hot market (where RealPage reaps its profits). The data availability is night and day.
>Is the claim that the secretive info being shared is the actual rents tenants are paying? Are companies and people not normally allowed to share that?
Companies and people generally do not share this information publicly and most companies consider it extremely proprietary.
So yes, that what's these lawsuits are about. All these companies share this extremely sensitive data (Vacancy data, actual rent and length of rental contract) with RealPage, Realpage algorithms use it to price rent.
Another thing the could do with this information is, if one of their customers has to take a bunch of units off the market to refurbish/abate them, it can instantly increase all of the prices for their other customers because it knows the supply just changed.
I mean, tenants share this info all the time. I'm not aware of them doing it really systematically anywhere, but I doubt there would be objections if they did. Likewise, no one objects when employees share salary info, anonymously or otherwise, even though employees usually treat this as confidential info.
The point is that we should be clear about what exactly the issue is. "The sellers are telling each other the prices they accepted" is not the issue, because this is allowed and generally considered conducive to efficient markets (even if pricing info in that market has traditionally been treated as proprietary). There's at least three distinct additional features one could point to, and I'm not sure which (or the conjunction?) is supposed to be crucial:
(1) That sellers are exchanging pricing information among each other without also revealing that info to buyers.
(2) That the shared pricing information is unusually comprehensive.
(3) That sellers are tacitly coordinating through the algorithmically suggested prices.
As far as I can tell, the legal issue is #3, you are (I think) suggesting the important feature is #2, and my tentative opinion is that #1 is probably the most influential in distorting the market to shift surplus from buyers to sellers.
Number 3 is fueled by 2 and assisted by 1. However, forcing 1/2 to be public wouldn't fix the problem here as housing unlike other goods is not 100% competitive market since supply is generally well constrained.
Forcing prices to be public would of course not keep cartels from being effective. But I claim the most efficient market is where all prices are public and coordination is prohibited, per standard theory (which applies find when supply is fixed).
All I see is this: "A company representative said in an email that RealPage “uses aggregated market data from a variety of sources in a legally compliant manner.”"
The only non-public data are it's own customers. But if I'm a massive landlord with multiple units, I have the same advantage?
The whole idea of anti-monopoly laws is to prevent price fixing by market, and there are numerous (illegal) ways to do that: being a monopoly and using that position to set prices that are not representative of market value (both buying and selling. Iirc antitrust in the us started as a result of standard oil setting the price oil would be bought from suppliers).
Another illegal option is collusion. That is a group of competitors get together and set a price that they will all use, again independent of actual
Market value, just because the colluders have sufficient control of a market that when they set a price people have no choice but to pay it. This is super effective when the market it not fundamentally “free” like housing, gas, power, healthcare, etc.
What these companies are doing is providing a tool to launder the collusion between competitors in a market, by having every “competitor” in the market get an “algorithmic” price that is fundamentally tied to the “algorithmic” price they provide every other “competitor”.
If these landlords got together in a room and decided the prices as is happening here, it would be more or less immediately subjected to scrutiny. By doing the same thing via a third party and calling it an “algorithm” it is somehow not subject to the same restrictions.
By the time the lawsuit against standard oil had concluded, they had lost market share, because price fixing doesnt work in real life, as more than a few industrialists have had to learn the hard way. Rents and mortgages are too high, but you are looking in the wrong place thinking housing costs are high due to price fixing.
Yeah you're gonna need some pretty strong support to make a claim like that - and not just an anecdote from the internet. Do you have any new proof upending long solidified economics?
I would recommend going beyond Econ 101, as well as observing the real world and reams of empirical evidence. Housing is not a perfectly competitive market for widgets with an abundance of sellers where everyone has perfect information and there are no transaction costs. "(illegal behavior X) could never happen because markets" is freshman dorm at UChicago thinking
I submit that the long term issues we are having in the united states, are in fact the result of short term solutions. Also, standard oil controlled more like 90% of the market, so in that context they had lost more like 25% by the time the trial concluded.
I'm pretty pro-market, but Standard Oil used a lot of techniques to fix prices. Having a lot of refinery control and the ability to undercut anyone who didn't play ball with them (and thus kill the small independent) did happen. They didn't need a true monopoly, just enough power to tank any smaller company that tried to undercut them.
If you're interested in the subject, The Prize: The Epic Quest for Oil, Money, and Power by Daniel Yergin is a fascinating read.
Its a book on basic economic reasoning, price signals, competition, those things are covered from a principled basis, sorry if it doesnt ctrl+f to tell you how irrational the idea of price fixing is.
You make an interesting point. While the concept is never introduced in the book, the sum total of the information of the book is that price fixing doesn’t work.
How do I square that with the lesson that I learned from the Bible? While price fixing is not mentioned in it it is pretty clear that it says that price fixing works
Well, I wouldnt belittle you for getting your economic education, the bible, Qur'an and others have discussed some economic matters; though, it may be advisable to consult one of the best economic textbooks regarding economic matters.
You know, maybe some people arent cut out for economics, but, the spirit of rothbard compels me, economic education is for the masses so I will provide a quote from chapter 2, prices and cost subsection.
"While you may put whatever prices you wish on the goods and services you provide, those prices will become economic realities only if others are willing to pay them, and that depends not on whatever prices you have chosen, but on how much consumers want what you offer, and on what other producers charge for the same goods and services."
So, maybe the 6th edition could be better equipped for ctrl+f economists, with all the communist propaganda words indexed to subsections.
We both agree that price fixing does not need to be mentioned in a book for that book to be clearly obvious in its position on it, and also that any book that mentions anything tangential to price fixing can contain an immutable and unarguable truth about it that becomes apparent only to those with the intellectual capacity to glean its hidden meanings.
I’m not really sure why you would impugn my mind for economics but perhaps since “read a book” qualifies as an argument, I might recommend that you try out The Living Bible? It is written in a plain English for those that may struggle with the vocabulary of the King James Version. There is no shame in not being able to get the clear and obvious message here, but thankfully the Good Book has versions for every level of reader :)
Oh, my bad, I assumed you were trying to be belligerent on basic economics not containing this information. Id actually be happy to adopt just about any world religions economic regulation, as opposed to what we have today.
We’re not discussing religious economics writ large. We’re discussing your book’s position on price fixing and my much more popular book’s position on price fixing.
I look forward to hearing your thoughts after reading it!
From looking at these, one part that was not immediately clear, is that they are not specifically just RealPage or Yardi, and rather a long list of property defendants on each case who used the software.
Kramer v RealPage (DC) actually has: REALPAGE, INC.; ALLIED ORION GROUP, LLC; AVALONBAY COMMUNITIES, INC.; AVENUE5 RESIDENTIAL, LLC; BELL PARTNERS, INC.; BOZZUTO MANAGEMENT COMPANY; CAMDEN PROPERTY TRUST; CUSHMAN & WAKEFIELD, INC.; EQUITY RESIDENTIAL; GREYSTAR REAL ESTATE PARTNERS, LLC; HIGHMARK RESIDENTIAL, LLC; and UDR, INC.
Thank you for the links though, they're very informative of what's actually moving through the court system.
"Can you decribe what secret info is being shared in those cases? Is it just the rents people are paying?"
According to the complaints, it is more than only the rents paid.
Note that "secret" is not the adjective used to describe the data/info being exchanged bwteeen the defendants. The term used is "non-public".
To bring suit against RealPage, precise descriptions of the non-public data/info are not necessary. Examples of this data/info may be found later, during discovery. As such, the initial complaints do not contain specific examples of data/info, only general desciptions. Below are some excerpts showing how the data/info is described generally.
Cherry v RealPage (WD Washington)
4. ... rents charged for each unit and each floor plan, lease terms, amenities, move-in and move-out dates.
4. ... the rents recorded in signed new leases ...
Lai-Cheong v RealPage (ED Virginia)
3. ... real time lease transaction data, including prospect, renter, and property data ...
3. ... non-public information about pricing (including unpublished starting rents and renewal rent increases), inventory, occupancy rates, length of leases, units and unit types that are or will be coming available to rent, and other confidential information about each of the apartments they manage.
45. ... real time lease transaction data, including prospect, renter, and property data ...
46. ... non-public competitively sensitive information ... including about pricing (featuring unpublished starting rents and renewal rent increases), inventory, occupancy rates, length of lease, units and unit types that are or will be coming available to rent, and other confidential information about each of the apartments they manage.
Sillverman v RealPage (SD New York)
65. ... specific, non-public pricing information on important factors such as concessions that are given at the time of lease that are individually negotiated and not otherwise publicly available.
Schmidig v RealPage (ED California)
46. ... detailed real-time non-public information on a daily basis about pricing (including unpublished starting rents and renewal rent increases), inventory, occupancy rates, length of lease, units and unit types that are or will be coming available to rent, and other confidential information about each of the apartments they manage.
Duffy v Yardi Systems (WD Washgington)
123. ... detailed, competitively sensitive, and non-public information about current supply, production, and pricing plans regarding leasing.
Haynes v RealPage (ND Georgia)
5. ... nonpublic proprietary data, including their lease transactions, rent prices, and occupancy and inventory levels.
94. ... detailed, real-time, and non-public information concerning pricing, inventory, occupancy rates, as well as their units and unit types available, or that will soon be available for rent.
White v RealPage (Massachusetts)
3. ... non-public data from its client property managers regarding lease transactions, rent prices, occupancy levels, and virtually every other possible data point that drives rent.
47. ... nonpublic lease transaction data ...
Boelens v RealPage (WD Washington)
3. ... non-public data from its client property managers regarding lease transactions, rent prices, occupancy levels, and virtually every other possible data point that drives rent.
47. Figure 1, below, is a diagram from an eBook published by Defendant RealPage on its website.32 It demonstrates how RealPage aggregates the data (including nonpublic lease transaction data) which enables RealPage to coordinate pricing among its clients.
Armas v RealPage (ND California)
2. ... non-public data from its client property managers regarding lease transactions, rent prices, occupancy levels, and virtually every other possible data point relevant to rent prices.
55. ... nonpublic lease transaction data ...
Marchetti v RealPage (SD Florida)
45. ... detailed real-time non-public information on a daily basis about pricing (including unpublished starting rents and renewal rent increases), inventory, occupancy rates, length of lease, units and unit types that are or will be coming available to rent, and other confidential information about each of the apartments they manage.
Corradino v RealPage (SD Florida)
3. ... non-public data from its client property managers regarding lease transactions, rent prices, occupancy levels, and virtually every other possible data point that drives rent.
53. ... nonpublic lease transaction data ...
Parker v RealPage (SD Florida)
3. ... non-public data from its client property managers regarding lease transactions, rent prices, occupancy levels, and virtually every other possible data point that drives rent.
54. ... nonpublic lease transaction data ...
Kramer v RealPage (District of Columbia)
3. ... non-public data from its client property managers regarding lease transactions, rent prices, occupancy levels, and virtually every other possible data point that drives rent.
Using data feed to guide pricing and set initial figures: legal.
Agreeing, either implicitly or explicitly, to let the pricing data feed set the price floor: collusion.
Leaving units unsold and refusing to lower the price despite insufficient demand: usually a bad business decision, possibly indicator of a market failure.
Leaving units unsold to maintain agreed-upon price floor despite insufficient demand: collusion, market manipulation. Congratulations, you are a cartel.
What makes it collusion is the fact that others are using it as well, so the answer to your questions is yes. My understanding is that there's nothing wrong with building your own software that crawls public information and computes a price for you - the key thing is that it has to be your own, you can't distribute that software to others.
My understanding is that further than just using software, the software is optimizing to increase maximum profits for the industry by causing a cartel block of people who won't lower prices.
Any individual can go out there and build a model for the rent price, the issue comes in when that model is able to coordinate everyone to keep the prices high and discourage competition/undercutting.
You seem to hit the crux. There is a blurry line here and I had a hard time seeing where it really divides legal and illegal until your comment.
Showing that the average rent is this, the min and max are that, and the percentiles look like this is probably legal. Showing historical trends is also legal. Recommending a certain rent based on a single shared algorithm used by all the players begins to cross that line.
Yes exactly. I think it's an interesting case. Where/how do you legislate this?
Is it based on intent (you literally are training your model to be cooperative), or is it based on effect (your company is having this effect regardless of their intent -- e.g. Zillow might also be offending). Both of these will be hard to show in practice.
Except, setting higher prices doesnt discouage competition, it encourages it. It makes it far more profitable to undercut anyone foolish enough to buy into this strategy.
"just" is doing a lot of work there. If the cartel model is profitable, then those taking part have the incentive and resources to buy up property in the areas that they operate in themselves.
At least where I live, there are landlords who operate reasonably (reasonable rents, with safe and maintained properties, that respond quickly to issues), but there's so much demand relative to supply that it doesn't really affect the ones who are just trying to extract maximum profit.
And yet, property is for sale everywhere, go check zillow. You might not like the price, I imagine anybody looking to buy property to rent out probably has similar feelings; ultimately though, if they are using this "price fixing" algorithm, then it should be easy enough to out compete them by just lowering prices.
That doesn't make any sense. There is a dramatic under-supply of housing, there will be no "out-competing". They're going to rent all of their apartments, the price-fixers and the non-price-fixers. They'd just be leaving money on the table, not "out-competing". They're not going to magically acquire a bunch of new non-existent housing to grow their market share. I implore you to move beyond econ 101 thinking.
Please ignore this fool, they are clearly a dogmatic libertarian type, not someone who thinks in complexity. He even cited Econ 101 as a source lol.
As long as there are financial speculators, price bubbles will happen. A massive recession can clear out speculators and burst price bubbles, whom will have in the meantime, fleeced the public for billions, as will as made many be homeless.
In commodities markets, the CFTC has different rules about what speculators can do vs real market participants (real producers and consumers). There are very few rules/laws that disincentivize real estate speculation and many forces that incentivize it. These algorithms are additional tools that help speculators maximize profit.
Housing has very limited supply and very inelastic demand. Prices will not come down unless there is another 2008 style recession. Speculators will continue to pile in and fleece renters maximally.
You might say well that’s just business, but the algorithmic price collusion is really not my biggest issue. I think there’s a different moral question we should ask. What is the number of single family properties a single company should own in a given market. Should they be allowed to own 100%? My silly libertarian friend would say why not? The market will correct. A stronger thinker would probably see that a legal limit probably makes sense.
Start with an insult, that will signal to others that you are intellectually superior without having to ever demonstrate an iota of actual economic reasoning.
If you want to know where bubbles came from, you should have just asked, its called monetary policy and is set by the federal reserve; sure, there was the great tulip mania of - no one gives a fuck it was a short lived commodity bubble that would look miniscule accounting for any amount of inflation you are willing to admit; today, the "bubble" is called debt, the purchasing power of your dollar must decrease, because the very existence of dollars necessarily implies there is a corresponding debt with interest, it turns out to that a pretty significant amount of the money being printed is being injected intravenously into the housing sector unlike the median wage, and you guys are always mystified that housing costs so much money, incentives matter.
If you want to regard this in a moral context, name your world religion and I will agree this second to obey their economic practices. There are many immoral philosphical ideas regarding economics that many regard as moral; religion is no exception, but I find that conceptually grounded in principles that have worked for thousands of years to keep people ethically bound despite ethnic differences and geographical seperation. There is far less to fear from islamic lending practices than whatever people "feel is right" in the heat of the moment.
Which is why I would guess the intermediary controls the letting prices, if the data were available to the landlord they would be able to undercut and thus push the market down, this is the problem, abstracting the pricing to a third party that has complete information makes a cartel by default.
Which makes this a great example of the shittiest side of "AI": not as software techniques to detect patterns and relationships, but as a method for obfuscating your sources. This software really is just saying "don't price fix by talking to eachother, price fix by having it done on our platform for you."
ate you sure it is that? after all, we all independently use the Kelley Blue book value of a car before we sell.
I think there has to be some intentional and provable link that you and I agreed (colluded) to use a particular value and set a floor below which we wouldn't sell.
What’s missing here is that landlords agree to use the algorithm or leave the unit empty. It’s part of the TOS. So when many marker participants do this, it’s colluding.
Wow, that's brazen if true. I don't know why anybody is even talking about algorithms. That's a contract to fix prices.
It also implies that all of the landlords using it are idiots. Not only is price fixing illegal, joining the cartel is optional and costs you money for no personal advantage because you'd have to leave your units vacant instead of immediately renting them out at the higher price induced by the "selfless" idiots in the cartel.
If holding back 20% of the units in every building drives up prices by 30% - this is completely possible in something like real estate where supply is so inflexible - then each individual landlord might have a motivation to defect, but the group as a whole has a reason to cooperate. The purpose of the software is to give the coordinators visibility into who's cooperating. Note that the TOS requires a landlord to always use the algorithm's pricing decision, including leaving units empty, and requires reporting back on every lease transaction so the company can measure compliance.
I agree, but one missing component is how many housing units are represented by this software in a given market.
If everything here is true [price fixing] but the number of units is small 20%, it still won't work. Consumers will go to the 80% where the actual market lives.
Now maybe someone better at economics can tell me how many units does it take to shift the market? 50%?
The key distinction lies in how YieldStar approaches setting rental prices compared to other systems. YieldStar not only recommends rental prices by analyzing the entire inventory it oversees but also incorporates a strategy that effectively eliminates the possibility of rent negotiation with potential tenants. This approach mirrors the dynamics of the prisoner’s dilemma, a situation in game theory where individuals may not cooperate, even if it’s in their best interest to do so. However, YieldStar transcends the Nash equilibrium—the point at which no participant can benefit by changing strategies if the others remain unchanged—by stripping tenants of any bargaining power. This ensures that the rent pricing strategy is firmly controlled, without the usual back-and-forth negotiation process.
This is a strange claim. How is it that software can eliminate the possibility of rent negotiation? A tenant can negotiate, or try to. How does software eliminate the possibility that this will succeed?
It's the scope and breadth of deployment and the algorithm/business pressures.
> RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
This is the key to why it's price fixing. Everyone playing ball and means that the raising rent rates increases everyone's take home even if a few operate with lower occupancy.
The software calculates rent rates that make sure occupancy isn't too low to keep everyone in line. It removes bargaining with the promise that "if you play ball, you'll be rich".
Tenants can negotiate prices just like you can theoretically haggle with amazon.
The haggling part is not that relevant to whether this is price fixing or not.
If RealPage had the effect that all advertised rents in some area were 1000$ but 90% of renters actually negotiated that down to 800$, it would still be price fixing.
Conversely, if landlords in some area all independently decide not to budge from advertised prices and as a result occupancy rates are 10%, that would not be illegal price fixing. Most markets for consumers don't allow any kind of price negotiation, and yet they are not guilty of price fixing.
The key problem is that RealPage facilitates and even encourages explicit collusion between competitors, by showing the same non-public price recommendations to competing lamdlords. Whether that's successful or not and whether they try to make it contractually binding or not is ultimately irrelevant. As the FTC says, unsuccessfully trying to do price fixing is still illegal price fixing.
> RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
Of course they would discourage them from deviating from Realpage's recommendation. Why are you paying for a software that recommends the most profitable rent if you aren't going to follow it? Realpage doesn't want property managers to complain that the software isn't working when they're ignoring the software's recommendations.
I have yet to see any evidence that there are any actual consequences of ignoring the recommendations. I'm assuming that Realpage will always accept payment for their services. This suggests that price fixing is unlikely. In the case of a cartel, members are incentivized to sell more than their quota allows, and you need active enforcement to maintain compliance. See the history of OPEC.
It doesn't matter if there are consequences for not following the illegal price fixing scheme (the recommendation algorithm). The fact that they are creating a price fixing scheme in the first place is illegal.
It's the same thing as if I were to call for a meeting of all landlords in my area to discuss rents. Anyone who owns property in the area is invited. At the meeting, I would propose that we all keep rents above 1000$ per room. People would argue and finally there'd be some broad agreement that 900-1100$ dollars per room is a better idea. We don't sign anything and don't imply any repercussions for those who ignore it. Then, 90% of those present would undercut the agreed numbers and offer their rooms for 800$. The end result is that rooms in the area go for 750-900$, so we utterly failed.
What everyone present at that meeting did, even those who undercut the agreed prices, is illegal price fixing. Competitors are simply not allowed to discuss and agree on prices in any way.
If we replace the meeting with a third party offering a recommendation algorithm that everyone independently follows, knowing that others do the same, nothing materially changes. The algorithm need not be binding, and need not be adopted fully, for this to be illegal to do.
I find the pernicious belief that prices could be fixed in the market itself more dangerous than the dumbest price fixing scheme of all time. Let it play out, so we can all remember that price fixing doesnt work, and we might actually see some good come from this story.
Price fixing absolutely works for the parties fixing the price, assuming they have a dominant enough position, at least for some significant time. Look at OPEC - do you seriously believe they would be richer if they competed instead of agreeing on prices/supply?
Monopolies can extract massive wealth from a market, they perfectly optimize profit as long as they are not exceedingly incompetent. Price fixing is just a less organized monopoly.
The problem is that they do this at the cost of all other market participants. But markets can't correct for powerful enough monopolies or cartels. Only outside intervention (riots, government intervention, disruption of the whole sector) can dissolve a monopoly. There is no example in history of a monopoly losing its position in a market without this, since they can always just buy out incumbent competitors.
Why would you compare landlords to OPEC? One organization has the backing of several militaries, including ours, defending their market position by threat of war. If you try to sidestep them you could end up like iraq.
Price fixing in the market doesnt work, because rival landlords cant call the government to airstrike their competitors when they get undercut.
As long as demand exists for the product, cartel members make more money than regular market actors. Defectors can make even more money, but that behavior is going to either be irrelevant (if the defector is too small to Mather), or it will be punished - not by armies, but by other coercive measures. Bribing to return, denying access to other services, bad mouthing, even vandalism or illegal violence. The advantage of the cartel is too large to be allowed to dissolve.
And again, we don't have to guess. Cartels need to be broken up from the outside, they just don't dissolve naturally. This is basic economics, and a well understood weakness of markets. The idea that monopolies and cartels are too weak to resist in a market is not born out by either economic theory nor history.
> As long as demand exists for the product, cartel members make more money than regular market actors. Defectors can make even more money
These two are completely contradictory statements. "Regular market actors" are the same as "defectors." Fracking companies, for example would not be able to exist without OPEC driving up the price of oil because it would be too expensive.
Buyers are also market actors. Also, suppliers who haven't been part of the cartel don't have access to their pricing strategy, and so can't profit as much. Defectors know exactly for some time, and can use that information to beat the market and the cartel in the short term.
Where does it say that? If it's something on the contract, you'd think that the FTC would open with that rather than vaguely imply this this happening.
to me, it's not enough to show that the same algorithm or software is deciding the price.
It has to be that there's some threat of punishment from the cartel against those who would lower their price from the agreed one. For example, the explicit agreement by the landlord to keep the price at the algorithmicaly calculated one, even so far as to leave vacancy (where as there wouldn't have been a vacancy if the price was lowered).
There is. I forget the number, but the landlords are only allowed to disagree with the software (and give lower rent) only ~10% or so of the time. Otherwise they will be kicked off of the price fixing platform.
Why isn't that clearly stated in the FTC brief? That's a hell of an absence of evidence, under the circumstances. If there's a smoking gun, why leave it out?
This sounds like denying the existence of price fixing altogether. Sure, buyers can try to negotiate against a price fixing scheme but it won't work. The price is fixed.
The software isn't really doing anything. It's simply the means of communication by which the prices are fixed amongst the suppliers.
> The software isn't really doing anything. It's simply the means of communication by which the prices are fixed amongst the suppliers.
The software literally includes the algorithm that says "this week, you will set the rate for this apartment at $X" based on its data. And if you want to deviate from that, without being kicked off, and losing your substantial fee payment, you will do that rate (and they will check), or you can "request an override" from RealPage, that they may allow or deny at their discretion (and RP agents are formally trained that override approvals may not exceed 5% of requests).
Even if they didn't kick you off, they would still be engaging in price fixing. They would be worse at actually changing prices with their scheme, but badly executed, ineffective price fixing is still illegal.
The only way you can productively refuse negotiation is by knowing the price is fixed (or you have the only supply), otherwise others will take your business.
I see how this is illegal when it's using a single centralized platform that everyone implicitly agrees on. However, I have a hypothetical that I'm curious about:
Individually, without speaking, every landlord decides that it's in their best interest to charge the highest (per square foot) price that a nearby property is charging. They also all individually understand that if they leave units vacant instead of undercutting eachother, the market impact in favor of their interests will be sufficiently positive to justify the lost immediate revenue, and they trust (blindly) that no landlords will defect from this prisoner's dilemma. There's no communication at all; they all just understand game theory and have blind trust in their fellow landlords.
This would have the exact same material impact on renters. The only difference is that it's slightly harder to pull off. Is it illegal, and should it be illegal?
These examples are covered in high school level economics classes.
All it takes is one landlord to have a slightly different concern to change their strategy. They need money fast, so they drop the price to get a tenant, boom competition.
It's an interesting area because the line might be fuzzy. It's not reasonable to expect every landlord to become a data analyst or statistician!
So naturally there's a market for a product that helps landlords make data-driven pricing decisions. I'm sure the big landlords know exactly what they're doing, but I suspect that the smaller landlords don't even realize they are participating in a price-fixing cartel.
As an interesting point of comparison, consider that the Zillow "zestimate" is also an algorithmic price recommendation, shared by all market participants. What's the difference there? Is it that buyers and sellers can both use the same algorithm freely?
I want to make very clear that I think price-fixing is bad and that I believe extremely high real estate prices are at the root of a large and growing amount of misery in Western economies and societies. But I'm also cautious of pursuing thoughtless regulation that hurts small businesses, to the advantage of the big businesses that are causing all the problems in the first place.
> It's not reasonable to expect every landlord to become a data analyst or statistician!
And it’s not reasonable for every business to succeed. Good businesses get good at being a business and learn skills necessary to succeed. I had a corporate landlord where the leasing agents would go on tours of neighboring buildings in their spare time to build comps. You don’t need a price fixing algorithm or a pay-rolled data analyst.
I think Americans have a soft spot for landlords because it’s a common business for the middle class to use to move up in the world. Which is nice, but most Americans also have stories of parasitic landlords that left them in terribly unmaintained homes with big rent increases. Regulation will absolutely hurt middle-class landlords but will increase the average sophistication of the industry.
Would it be illegal to hire a human "price consultant" who was very popular among your landlord friends? Does it matter if the price consultant only serves 5% of the landlords in an area? What if they serve 20%? 50%? Where does the line get drawn between "seeking advice from an expert" and "engaging in price-fixing"?
I wouldn't be surprised if that was tried at some point in the past, so there might already be legal precedent for the non-algorithmic variant of this.
> Regulation will absolutely hurt middle-class landlords but will increase the average sophistication of the industry.
Sophistication is a tool used deliberately and maliciously by large incumbents to suppress competition and to crush smaller firms. And I'm not convinced that middle-class landlords who own a handful of units are the big bad guy we should be going after here. I can only hope that the FTC agrees and is willing to focus their attention to where it will actually help people.
> Would it be illegal to hire a human "price consultant" who was very popular among your landlord friends? Does it matter if the price consultant only serves 5% of the landlords in an area? What if they serve 20%? 50%? Where does the line get drawn between "seeking advice from an expert" and "engaging in price-fixing"?
The answer is most likely that it would be illegal, yes, at least if your friends are offering properties in the same area. Even discussing pricing decisions with your friends is likely illegal.
Imagine it like this: Coca Cola and Pepsi executives are not going to meet for brunch and casually start discussing what margins they think are reasonable and how they set pricing in different markets and how low they are willing to go with their price. These are some of the most closely guarded secrets of a company. Decision makers who are aware of these aren't even easily allowed to leave one company and join the other, because of the risks of leaking this information. And if they do discuss this things, they would easily be seen as guilty of collusion to fix prices.
The fact that two landlords who happen to be friends are not the CEOs of multi-billion dollar companies doesn't fundamentally change the law. You are not allowed to discuss pricing decisions with your competitors. If you want to collobrate, you need to incorporate and pool your resources into a common enterprise.
And you can hire a price consultant, but that price consultant can't be working for other landlords in the same area. You could hire different consultants from the same firm, but the firm would have to be very careful to ensure that the consultants don't discuss their clients with each other in any way.
> These are some of the most closely guarded secrets of a company.
This seems like a weird argument.
For some companies their pricing is super secret because it's often negotiated and they don't want Customer A to know that Customer B is getting a bigger discount, and if a competitor knew Customer A was overpaying they'd send them an offer.
But for others the price is just the price. Nobody is going to Walmart to haggle. All of Walmart's competitors know exactly what Walmart's customers are paying because it's written right there on the sign. So how could it be illegal to tell them?
That's not what I mean by pricing decisions. You of course know how much Walmart asks for tomatoes. What you don't know, and is a closely guarded secret, is how Walmart arrived at that price. Is the current price close to their minimum possible, and would they remove tomatoes from the shelves rather than drop this price if the demand wasn't high enough? Are they expecting to increase it or decrease it in the next six months?
And this information is important, because if Whole Foods knew it, they could either (a) try to undercut Walmart to steal their customers, but also could (b) safely increase their price knowing that Walmart plans to do the same, and so
not fear losing tomato customers to Walmart.
In contrast, landlords working with RealPage know that at least a large percentage of other landlords follow the exact same pricing strategy, and thus be secure that, if they also refuse to lower prices as the algorithm is recommending, they won't lose tenants to other landlords. Of course, some of them might chose option (a), undercutting all the others, but that's not a real problem in a cartel with so many small members (one cheating member won't significantly affect prices).
So, it's not illegal to say "you know, Walmart charges 2$ for a tomato". But it is illegal to say "you know, I'm in talks with Walmart to convince them to charge 2.5$ per tomato starting tomorrow".
> What you don't know, and is a closely guarded secret, is how Walmart arrived at that price.
This is often not that much of a secret either. In many cases it's as simple as: Look at what competitors are charging, set your price the same or slightly lower, and if that price isn't profitable then don't carry it.
Which is why concentrated markets are basically as bad as a monopoly. If all you have is Walmart and Whole Foods then Walmart can raise prices, Whole Foods sees this and raises theirs too, and then they both leave it there because that's better for both of them than the lower price. Doubling their margins is more profitable than increasing their market share from 50% to 75%. Tripling their sales isn't on the table because they each started with 50% and you can't have 150% of the market.
Whereas if there are a hundred stores, even if 80 of them try to match Walmart's price increase, 20 of them notice that they now can triple their sales or more by keeping the lower price, and that's more profitable than doubling their margins. At which point others get tired of losing most of their sales and lower their prices again.
And the latter is the kind of market Walmart actually operates in, which is why their marketing slogan is "low prices" and not "it's for your own good".
> Of course, some of them might chose option (a), undercutting all the others, but that's not a real problem in a cartel with so many small members (one cheating member won't significantly affect prices).
That's exactly when it's a problem, because they all have the same incentive: Let the members of the cartel increase the market price by withholding their units, while renting out all of yours. And then it's not just one landlord doing it because the only ones not doing it are "selfless" idiots who could be making more money by defecting against the cartel.
> It's not reasonable to expect every landlord to become a data analyst or statistician!
Why not? It's what they did just fine for thousands of years. What fundamentally changed in the last 20 years that makes it impossible for landlords to determine their own price?
Specialization, how much time out of my day do I have to worry about the price, if I am dealing with the city trying to get the water fixed, or repaving the driveway, or handling customer complaints? It can be more efficient to pay a modest sum to arrive at the right result, or, more profitable to actively watch the market and adjust pricing, but that costs time/money, so itd better be worth it.
It’s not fuzzy. When a group of people get together to determine a common price for goods, that’s collusion… price fixing. They are literally selling price fixing as a service openly in public.
Yes indeed setting prices is difficult. If you use a service to do it for you, it should be quite illegal, and arguably already is.
Also the “big” businesses clearly outsource this too, having lived in many large apartment complexes where it was obvious a third party algorithm was doing it.
I don't think it's legal at all. If you're making official pricing recommendations, you're essentially trying to convince competing businesses to agree on price fixing, by definition. It doesn't really matter how you arrive at that recommended price.
The only way this could work is if you give individualized pricing recommendations based solely on public information + the information of the specific landlord, and if your marketing and contractual agreements and so on make it very clear that different landlords will see completely unrelated prices.
Otherwise, even agreeing on the same pricing formula is an illegal form of price fixing (say, if everyone agrees to sell at public average price + 10%, dropping down to public average price + 5% if unoccupied for one month), per the FTC briefs.
Exactly. If it were just a model, you wouldn't need to ask the cartel to authorize a different price. A model supplier doesn't really care if you use it or not, just that you buy it. But landlords (generally larger owners or operators of large multi-family projects) are paying high fees to the software provider previously because they think it gives them plausible deniability about the cartel behavior.
Analyst or not, the issue is knowing who is willing to underprice you. You can't know that unless you have insider information, in this case provided by a shared database. Scraping public listings doesn't give you that.
You're over-emphasizing the methods by which these people are price-fixing, rather than the result. The result is a price higher than the market-clearing price that is low enough to find tenancy for all housing. Any scheme to generate excess profit by raising rent above this price is (or ought to be) illegal, whether it's colluding to do price fixing, using some algorithm to price-fix, or monopolizing the market.
The FTC is claiming the exact opposite, basically.
Colluding to fix prices, by any means, is illegal. It is still illegal even if the scheme is only followed by a handful of those who "agreed" to it. It is still illegal if it utterly fails to control the price and thus has no material impact.
It's like trying to scam people. You're not allowed to try to defraud people. It doesn't matter if your scam is so bad that it would cost you more money to execute than you would get out of it, and it doesn't matter if no one engages with your scam at all: what you were doing is still illegal.
FTC would not be interested if the scheme hypothetically somehow had no effect. They said that it is still be illegal even if it is imperfect. Empirical reality still gets a vote, for pragmatic reasons.
Yeah, there's two separate ways of thinking about law in general - mechanically about what the rules say, and politically about how the system ought to be influencing behavior. When the FTC or other prosecutorial/regulatory talks about charging people and alleging wrongdoing, they're making mechanical statements about how what they did violates the law. When they make decisions about who to investigate, charge, and/or fine, they're making political decisions about what constitutes wrongdoing.
> The result is a price higher than the market-clearing price that is low enough to find tenancy for all housing
This is impossible. If all the units are rented then by definition the market clearing price is being charged. The collusion comes when landlords start leaving units vacant.
All store owners should be jailed, then, since the presence of inventory on their shelves is proof of a scheme to generate excess profit by charging higher than market-clearing prices - or it would have sold already.
We only know current inventory. As I write this in early March stores are starting to order their halloween candy (the orders need to be in by somethime in april). You do not know what candy your competitor will order, but this is relavant to sales since you will price match their ads and in turn lower priced candy will sell in greater quantities.
you should always have a unit not leased so that you can lease it to someone who needs it now and is willing to pay. If you only have a few units though you will never hit that point where the theory is worth the risk the desperite person comes along.
Why would that desperate person be willing to pay the xN premium needed to cover the idle time?
Why would there be exactly one desperate person in the market? You need a curve, charging more as the space fills up. Desperate renters don't have infinite money. People with money are the people who are not desperate, because they have flexible options.
This is why nuance and details are key in legal matters and where the sum is greater than the parts. Where the line gets drawn is often unclear and is often a matter of “I know it when I see it”.
Just individually comparing prices isn’t an issue.
What does become an issue is if (at least) all of the following are met.
- You use an algorithm service does automates all of this
- This algorithm uses both public and private data
- The algorithm is ubiquitous and widely used by almost every relevant market player
- The algorithm tells all users to not negotiate and the users abide by this recommendation
- All of the above has a noticeable effect on the market to the detriment of a big demographic of market participants
Per the FTC filing, many of these are not relevant for deciding if illegal price fixing has occurred.
It doesn't matter how the algorithm operates. If all landlords in an area publically agree that they will set rent prices at 400xx the price of a coke can, they are only using public information, but still engaged in price fixing.
It doesn't matter how many people actually use the algorithm. If you try to start a cartel to do price fixing and only succeed in convincing two of your 50 competitors to participate, you've still engaged in illegal price fixing.
It doesn't matter if individual price negotiation happens or not. If a bunch of companies agree to set the same list price, but also agree that they can offer deals to their customers, they are still engaging in illegal price fixing.
It doesn't matter if the scheme actually succeeds in changing the prices. If two companies meet and agree to set prices at a certain value, but then they backstabber each other and undercut the agreed price, or simply other companies in the space who were not part of the scheme have too much market power to allow prices to change, the original companies still agreed to an illegal price fixing scheme and are guilty.
All of the above will probably have a massive impact on the amount of damages and so on. But they have no bearing on the verdict, as the FTC lays out at length in the filing they link from the article. And this is not speculation, it is established case law.
so the question becomes what it means to "meet and agree".
If these companies never communicated, and all came to the same conclusion of a price floor (that happens to all be the same), then how can it be price fixing?
To me, price fixing require that the parties agree (explicitly, or implicitly with punishment) to _not_ lower the price regardless of the lack of sales. It is not enough to have the same price (however that price comes about is irrelevant).
If they can prove they never met otherwise agreed on a price, but they just happened to take the same decision, then yes, it's not price fixing.
But if they are using the same third party that is telling explicitly telling them "your price should be this", then it's quite clear that they have agreed on the same price. Doing so indirectly doesn't make it any better.
The issue is, you're one person doing this manually. That means there's also a ton of people who don't.
This algorithm, unlike a single person, ends up taking over entire cities, which means now there is no supply & demand. There is supply, and all that supply is effectively the same number.
Demand has no other choice other than meet the supply where they are. It's either that or being without a house.
But it is not talking and agreeing. It is algorithm that determines some abstract price that makes sense in the current market. If me and my neighbor use the same formula from Wikipedia, is this also collusion?
> What if there are multiple vendors selling algorithms?
Then each vendor’s customers may constitute a small price fixing conspiracy, which is still illegal (price fixing doesn’t have a market threshold before it is illegal) but also a lot less effective, so it probably would be a transitory condition even if it didn’t get punished.
If you own a house and it sits empty for a year because an algorithm told you you could get more for it, you’re an idiot. If you use an algorithm to effectively collude with others and you fail to rent your house but keep rents artificially high, then you an idiot and a criminal.
This generally isn't targeted at single property homeowners/landlords.
RealPage says if you have a portfolio of apartments, that following their recommendations will generate you more overall, regardless of occupancy. Their algorithm literally is "it is better to rent out 19 units at $X, when the demand will drop to 0.94X if there's 20 available". And it can do so because it happens to know that the other 80 units on the market with other landlords will be following the same rule.
I don't think it suggested leaving places empty for a year. Rather they wanted to spread out lease renewals. If everybody's lease ends in September then your property is competing with a lot of others. Whereas if you keep it empty until February then offer a 12 month lease, your renter will have much fewer choices and is more likely to stay (despite your demand of a high rent increase).
The service also requires you to go with their recommendation 95% of the time, and at a certain point requires you to go with their recommendation, and you can only "request an override" that RP can allow or deny at their discretion (of course, they can't enforce it, other than to kick you off their service, with no refund).
> I'm naturally going to go onto rental search sites and look at what similar houses in the area are renting for, and probably ask something pretty close to that.
Or, Say I own and house, and I want to rent it out. I would calculate how much I would have to charge for rent for it to be worthwhile to me. Why would I care what anyone else is charging?
Because you want to maximize your profit and get the most from your investment. You also want to see, generally speaking, if it is even reasonable that anyone would to rent out your house at that price
It’s generally good to have an economy where you can just exchange the market price for the thing, vs. the “price” is low but the actual criteria for getting access to stuff is connections, bribes, waiting, luck, conformity, etc.
You can of course advertise at any price you want.
But, if the price you calculate this way is too large, no one will rent your house.
And, if the price you set this way is too low, you're leaving money on the table, which you may or may not be fine with. If the difference is high enough, someone might even pay you the rent you asked for, but then rent it out themselves to someone else for the higher price, and pocket the difference, which you may feel cheated by.
Generally when you first build / buy a property the market rent is below your calculated needed rent. however with time you pay the property off and inflation raises the amount the market allows you charge. Thus you need to follow the market price and invest for the long term. In year 40, you can charge below market rent and be fine, but until then you haxe to charge as much as the market allows to break even vs other investments.
Because the rental market is detacted from the prices in the ownership market. Rents can be much higher or much lower than the carrying costs of owning.
If you just charge what you need to cover costs you may find yourself with a vacant apartment.
That's like saying people shouldn't invest in farms, or pharmacies, or water pumps because there are poor or mentally disabled people who have trouble securing and affording those products.
The difference is whether the good in question is being produced by investment, or monopolized by investment. This has been enshrined in law for over a century.
You want to make more money in housing? Build more housing.
Pulled from the Sherman Act, Section 1. Available on wikipedia
> Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal
It is written in a general way to catch all problems going into the future. The problem is translating this to case law. Often judges ask the question "Is this bad for the consumer?" If rents are rising faster than inflation with more consumers becoming homeless citing cost of rent while vacancy rates are increasing, the market is bad for the consumer and the country.
Your acting on independent research doesn't distort the market. If you directly or indirectly control pricing in 30% of housing stock you can drive prices up incrementally because you have influence on every lease offer in that population.
Imagine you are Microsoft and you want to collude with Amazon to rig compute prices.
You both agree to follow the recommendations of an unbiased Amasoft Price Calculator tool. This tool uses an advanced algorithm looking at thousands of data points and always returns the same price, $10000 per month.
You both follow this independent tool and end up pricing it the same. Is this a fair system? You’re both subscribing to an algorithm.
You're missing a critical point, which is that using this software requires agreeing to follow its recommendation (else penalty) and to give them access to your pricing.
I worked on a direct competitor to YieldStar and we had very high parity to YieldStar before we were acquired by Realpage. At least, the discussions at my smaller company pre-acquisition about negotiating price was that one unfortunate mis-negotiation could result in a Fair Housing incident (legitimate or not)
For example - Tenant 1 of racial profile X walks through the door and is a good negotiator. Tenant 2 of racial profile Y walks through the door and doesn’t negotiate. Tenant 2 finds out about Tenant 1 and opens a discrimination case under FHA.
At least the culture at my smaller company was to do everything to steer the rental property away from potential Fair Housing incidents. However, we did learn while working on the competing YieldStar product that the simple act of removing the negotiations caused a big knock-on effect of creating a revenue increase. That kind of put a bad taste in our mouths, because we didn’t like the fact that it wasn’t the software that was causing the increase so much as the pre-requisite of stopping negotiations. We started experimenting with how to improve the algorithm even more and if it could create bigger gains that drove more product value than simply the “don’t negotiate” effect. But we were then acquired by Realpage.
There are other ways these algorithms discriminate indirectly. For example, these algorithms tend to dial up prices around holidays like Christmas. And they do that because anyone who wants to sign a lease around the holidays has a much higher percentage chance of having some sort of life turmoil. (like maybe a family fight broke out or abuse happened on Christmas that caused someone to move out) From a business standpoint, the rental property would argue, “Someone in a bad way has a statistically more significant chance of also causing undo cost increases or breaking leases early.” — so the algorithm cranks up the prices to make up for potential costs.
Dialed up at the level and scope of industry control that Realpage has gained over the years, then you encounter all kinds of other issues.
The other perspective that these products take is they look at the short term rental industry like hotels and AirBnB. The business approaches by wondering, “Why can’t long term rentals be as technologically sophisticated as the short term rental industry. Let’s create a product that brings long term rentals automation into this decade” and the issue you run into is that short term rentals have 30x-100x the data points that you have. So it creates a gravity towards reaching into as many data points as you possibly can in order to make the product half as compelling, which includes reaching into your own internal data.
How did you feel about all of that personally? What was the culture inside a company like that?
From the outside, i couldn't possibly imagine any person who's ever had trouble making rent playing along while their company was unnecessarily inflicting that pain on large numbers of other people. Yes, when a company is running things they'll do what they can to avoid lawsuits, even if that is "become a soulless algorithmic profit extractor". But businesses are made of people. Was there anyone in the company that had a problem with it?
The loudest part of the company that inflicted pain on people revolved around the background checks. We had a call center dedicated to taking those calls, e.g. “You have a DUI and your landlord doesn’t allow” / “You committed a felony and your landlord says they don’t allow felonies.” - everyone was encouraged to sit on those calls to know what it felt like and have empathy.
Most products centered on whether you actually got a lease or not in the first place (and it was mainly crime related). Once you got into a lease and were struggling to pay rent, anything else would have moved to a manual action taken by the landlord if they wanted to be a soulless jerk. (Not sure about whether Realpage has some kind of automated product for that but we didn’t)
As for competing YieldStar product. Our main objection was that if we were to build price projection software, it’d better reflect the actual market. The algorithm and heuristics like “raise rent on Christmas” didn’t sit well, so we raised the conversation and stalled the project for a few weeks. Eventually we were told we’d get to revisit our concerns in the V2 but we’d be overruled for the time being “just to get out this MVP”.
People who write software tend to be underrepresented in the group of people who have had trouble making rent as a working adult. And it's not hard to fill out sales, HR, etc with similar people.
It's amazing that they are providing tons and tons of public admissions on how they are colluding together to make an in "quacks like a duck" monopoly. I personally think this should be codified in law rather than court precedence, since that doesn't seem to mean much in the US "justice" system any longer.
But YieldStar is just automating what every landlord does anyways - looks at comparables. And large rental corporations can get pretty sophisticated in data analysis.
So the FTC says "price fixing by algorithm is still price fixing". If I scrap rental data from a website and then determine my own rental price, is that price fixing? Doesn't seem to me.
If you scrape rental data, then send an email to every person renting a unit saying "I recommend you allow your unit to sit vacant rather than renting below this price", that would be price fixing.
What’s missing from your view is the scope. yield star is provided the same data to a large chunk of the market (in some rental markets). Going online and looking at comparables isn’t one company setting the price for every market participant.
The scope isn't exactly what's important. Whether their selling to 80% of the market, 1% of the market, or even just to 2 competing landlords, what they're doing is still price fixing.
The only thing that's legal is doing your own pricing research, using your own methods. You can hire a consultant to do this for you, but this burden then transfers to them: they can't consult for multiple competing businesses.
Well, yes, if you continuously adjust your prices to match your competitors, rather than basing your changes on other factors (changes in maintenance expenses, inflation, property values as a whole, changes in area demographics like crime rate, school quality, walkability, availability of services, etc), and you do this at the same time they do, then that can be an indicator to the law that you're engaging in price fixing.
But it's not the only indicator, and likely is insufficient on its own if you don't have significant enough share of the local market for changes in the prices you make to ripple outwards to smaller players. It's hard enough to get them to go after the big players, so they won't go after you.
Usually price fixing requires multiple indicators. The law doesn't have to prove that Bob is talking with Alice and prove that they're discussing how to raise rents with each other. Prosecutors just need to demonstrate that Bob and Alice are both doing the same things, around the same time, which contribute towards artificial increases.
As players get larger, their policies and procedures have greater impact over an area. Their practices get more scrutiny because of this greater impact. That's one (of many) reasons we see large companies spread themselves to multiple cities. While nobody bothers when someone who rents a dozen units uses algorithms to set their prices, they start to notice more when it's thousands of units all concentrated in a single area.
When you get to a position where 4-5 companies can significantly inflate prices for a city with millions of people, how they behave is important.
There are other tricks they use beyond third party algorithmic engagement.
Consider this:
If only 30% of the rental market engage in a laddered renewal scheme where they push renters towards always renewing within the same 2 month period of the year (via 10 or 14 month renewals that are more financially viable than 12 month renewals, or are simply the only option for renewal until the renter is within that two month period) and also add significant lease penalties for breaking out of that schedule, it takes less than a decade to reach a point where 90+% of rentals are renewing within the same two months every year.
And what does that do? It artificially constricts supply (nobody releases their lease until they've found a new apartment, so many units are not displayed as available or need to be accepted sight-unseen) and artificially inflates demand (everybody is looking during this same time period).
The result is artificially increased rent. Which has a side effect of inflating bubbles in the housing market. That may _seem_ good for property owners, as they can sell their houses for more. For a time, until the next pop that everyone blames on lenders with dodgy loan acceptance criteria or other criteria. Until then, homeowners pay inflated property taxes. They might overextend their mortgage with the new perceived value of their home that may eventually drop, etc.
The point is: rental price fixing is real and deliberate, large players with greater impact know better but do it anyway, and this is not the only trick they use. It's just the one they've currently stepped far enough over the line on to get caught at.
> The law doesn't have to prove that Bob is talking with Alice and prove that they're discussing how to raise rents with each other. Prosecutors just need to demonstrate that Bob and Alice are both doing the same things, around the same time, which contribute towards artificial increases.
While you're right about how regulators typically approach this, it's also important to note that the converse is also true. That is, if they happen to get clear proof that Alice and Bob agreed together to raise rents, then it doesn't matter if they actually succeeded in increasing rents in the area, and it doesn't even matter if they didn't follow through with the agreement: the agreement itself was illegal, and they would get an easy win in court (though damages may be low if the material impact was low, so the case may still not be worth pursuing).
It is typically very rare for such direct evidence of collusion to exist, and thus indirect evidence like you suggest is normally how this is investigated.
However, RealPage and the others here have provided this evidence directly: the way their price recommendation service is structured, the terms and conditions and so on, constitute direct evidence of an explicit attempt at price fixing. So, even if it turned out that all of landlords participating in this scheme actually "cheated" the price recommendation algorithm, and even if it turned out that rents went down or stayed the same when RealPage moved in, they would still be guilty of price fixing, per the FTC.
I lived in a building that was owned by a hedge fund and used algorithmic pricing. It was frustrating to know the vacancy rate in the building, how desperate the sales people were for residents, and still be told that rent was going up hundreds of dollars a month because of demand in the region.
Another thing they did was to offer lower rent if you moved into a unit that was vacant. They ”incentivized” people to move every year instead of just increasing the rent a reasonable amount. I’m talking rent going up $500-$1,000/month unless you moved into the identical unit next door. Most of the people in the build paid the increases but we were young so we moved.
Our first year we lived in a small 1br. When the lease came up they wanted to increase our rent by $600/month. We opted to move into a huge 2br with limited light that had been vacant for a year or two. When our lease on that one came up they wanted to more than double our rent because there was such high demand for the unit.
> how desperate the sales people were for residents, and still be told that rent was going up hundreds of dollars a month because of demand in the region
This literally sounds fraudulent
I have a hypothesis, that the reason for many ailments in Western economies is that in the past 20-30 years we have created a lot of parasitic, highly-sophisticated economic fraud, and regulators have not caught up to it yet.
This is literally what I'm facing right now. We were hoping to stay in our place for one more year, but the company is raising our rent by 10% while at the same time are running a special for a free month's rent. Every place I've rent from has done this, raising rent at least 5% to 10%. I just want one place where I can stay and try to save up money for a house.
If both of you aren't on the lease, alternate between the two of you. At least you won't have to move very far.
When I was just out of school I did this in a large complex with my wife more than once (we had different last names and used her parents address for mail).
The first time, we didn't even have to move, because she got the pick of open apartments... one of which was ours. We worried they would want to paint it, but I guess since I'd only had a it a year, they didn't bother. The Sales person was happy because they got commission anyway, and we got a free months rent rather than paying an extra month's rent in increases.
EU citizens love this attitude from Americans as they invest in REITs while sitting in their cheaper apartments. The EU states love it as they got to tax that income from US REITs.
In Denmark we have "Bopælspligt" meaning that an owner of an apartment is obligated to have someone living in the apartment. While i know this is detrimental to the US mentality is forces a free market on real estate and is, IMHO, the only way you can ensure a fair rental market without rent control.
As a result real estate in Copenhagen is cheap enough that most working people in Denmark are able to buy (albeit that being a small apartment).
>In Denmark we have "Bopælspligt" meaning that an owner of an apartment is obligated to have someone living in the apartment.
What happens if no one is living? Can't find a tenant or simply takes a really long holiday or goes abroad to to work for a few years?
I'm under impression that Americans freak out because they tend to go full technical on laws, that is, they don't care much what the governments are trying to achieve with the laws but work within the limits of strict technicality. So a lot of Americans were freaking out here on HN when GDPR was introduced, some shutting down personal projects because were afraid to get in trouble with the EU laws and find themselves in huge and expensive lawsuits.
The GDPR comment perhaps is indicative of this out of all. GDPR enforcement has been small, ineffective and nowhere close to "every kind of violation gets an expensive lawsuit attached". It's as if this is meta-commentary.
I don't know why there needs to be "iron fist nazi approach, hanging people for the smallest violation" kind of enforcement of the GDPR to be effective. Europeans are not that much into laws and enforcement of it, there's always some level of disorder and lawlessness and the police wouldn't start shooting immediately. Things tend to be corrected after some scandal or if the issue grows to be actually impactful.
GDPR essentially makes companies mindful about how they store and transfer data and if something goes wrong, it is useful to tell what went wrong and who is responsible about it. There's no EU police going around and nocking on the doors, taking people in for the smallest violation.
There should be sth closer to an 'iron fist' approach, though. GDPR is a general data protection law. It's the lowest common denominator for all of industry. Industries that are particularly invasive to privacy are to be (and currently are) regulated with more specific legislation that adds to GDPR. Some provisions of DMA and DSA, for example, add more regulatory cost to Big Tech and Big Tech solely. ePrivacy is also lex specialis to GDPR, and further hampers adtech privacy invasions.
There must be more GDPR enforcement. Not just against the primary culprits.
Maybe, but EU doesn’t actually have a way to enforce it directly. Instead, countries adopt their laws to the requirements and they enforce it. You end up with something that represents the character of every country, this usually means laws followed and enforced in the north and west, not so much in the south east.
I don't know how regulators can look at this number of vacancies and conclude that yes, the taxation on property with vaccancies is as high as it should be.
I am really a proponent of the Chinese system. I’m a real estate investor and this “free market” isn’t going to last much longer since owning vacant homes will net you more than virtually anything else you could do legally. Real Estate is a free money machine, and it won’t stop until we adopt realistic government controlled system.
> Real Estate is a free money machine, and it won’t stop until we adopt realistic government controlled system.
Real Estate will stop being a free money machine when the government stops artificially restricting housing supply with single-use, single-family zoning.
It won't. Zoning is stupid and harmful in the US. But real-estate will always be rising in value. There is no way to make more land. And land you do nothing to gains value from others around you improving their own land.
A land value tax that ignores the value of improvements on the land would make a dent. Freeloaders who buy a lot just to sell it later would see their gains evaporate. So land holders would seek to actually improve their land.
Land increases in real value (beyond inflation) aswell. This is due to people building roads nearby, schools nearby, nicer houses nearby, etc. It's effectively the old adage 'location location location'.
Currently another big driver of land value is zoning. But it isn't the only one. And until society starts degrading hard, the other drivers aren't going to slow down either. maybe with an exception for suburbia where the roads will need replacement even though the area doesn't raise enough tax revenue to pay for the replacement roads.
Real-estate does not increase in value in Japan. Land might increase in value, but the developments depreciate. Agree that land value tax is much better than property tax.
I agree that we should relax residential zoning laws but it does feel pretty naive to think the free market alone will solve this. I doubt everyone being adequately housed is even the optimal state of the free market.
The Soviet Union had chronic housing shortages. Multiple families would live squeezed together in one small apartment. The waiting list to get your own took years and years.
It's kind of funny how Chinese communists tried to build enough concrete prefabs not only for people to be housed but also for people who want to invest and it backfired spectacularly.
The investor class is simply insatiable and you can't just satisfy the demand because it's always growing beyond all reason.
You need to curb investors interest in real estate.
Ok, I have an idea, lets stop printing new money directly into the housing market through the federal reserve. Without it, there is no guarentee that a house will appreciate, in fact most homes would be considered depreciating assets. The cost of homes would plung 80, maybe 90%, and housing would be radically more affordable. Id be totally hosed, but I would find that a reasonable compromise.
> Ok, I have an idea, lets stop printing new money directly into the housing market through the federal reserve.
So basically ban buying residential real estate on credit. That's a start.
It would have interesting sideffects. One of them would showing clearly to the masses how unaffordable houses actually already are.
Unfortunately rents would go up in the short term from increased demand from people who'd otherwise get a loan. So the rich people would keep buying them raising the prices till the new equilibrium is reached.
Eventually rents would settle at how much people who rent can pay without starving and house prices would settle at whatever's the price of whatever asset that yields similar returns.
I don't think it would be at 10% of today's prices
The Netherlands doesn't have the US kind of weird zoning laws, yet we're still suffering a housing crisis.
The power is simply way too skewed in favor of gigantic companies with coffers that are infinitely deep when you compare them to any individual looking for housing. They can buy dozens of building at a time and completely eek out individuals looking for a home for themselves and their families, and what can anyone do about it?
Imo corporations should be legally barred from owning residential property of any kind, and there should be limits to what an individual can own for themselves as well, be it at the neighbourhood/district/city/state/country level. The overwhelmingly large majority of people need no more than a single home, the only people this kind of rule would affect negatively are the ones that aren't struggling in the first place.
> it won’t stop until we adopt realistic government controlled system.
Are you aware that the government is the entity preventing housing from being built in many cities?
I don't think zoning should be abolished or anything but clearly the regulations the US has now, at least, are incorrect and restrict supply far too much.
Yeah, and allegedly the super-efficient government controlled system has built on the order of 4 bn houses for 1.5 bn Chinese. This might be the largest and most costly housing bubble in history, and I believe it happened partly because China is terrified of letting its banks fail. If you think the "Greenspan put" is a thing, just wait till you hear about the PBOC put.
The Chinese system restricts foreign nation state actors from buying everything so they will not be able to do what China is doing to the US. The US has only just started writing policies to address that (for example: [1]), probably because for so many decades Americans wanted to believe that China was an ally, or at least a well meaning business partner. China proves that capitalism doesn't work by destroying it.
China is not doing anything to the US, western countries were willing to hide the black money of countries before as it helped their economies. As China and other countries got richer the amount of money those people started bringing and putting into the real estate of western cities in the world exploded. The property market crash of 2008 and low interest rates made the situation worse. Now people in the west are crying about property prices but if they stopped allowing in black money from countries they would not face the problem they do. If they can find out about terror financing etc then they for sure can find all the corruption and black money coming into their countries/cities.
China is doing the same in the EU. In european capitals, they are buying up the properties, increasing the rents and pushing out young couples from renting flats for a reasonable price. There are districts in Budapest where all flats are owned by chinese people. How does it help the EU economies, if they are leasing without contract, without tax, without anything illegally? They came every month, you pay in cash, no trace (but this applies to 99% of hungary renting, so it's the issue with the current rental system), they aren't even injecting money into the economy this way. And it's getting ridiculous that 26-28 year old people cannot rent a flat by themselves and have to resort to renting a single room only for 30-40% of their salaries.
It's not china ie chinese government doing it but rather Chinese people purchasing residential properties. Chinese government is interested more in stuff like ports, airports/infrastructure. In actual fact China would prefer the money it's population is spending abroad is spent at home specially since the COVID slow down has slowed it's economic growth. So china restricts money going out of its borders now western countries could help China block it but that would be helpful to Chinese communist government so they don't and that is resulting in their own citizens getting priced out of their own cities.
At least in regards to the US, no one can really know that. The Chinese government technically doesn't own anything in the US anymore. The alarm is being raised because supposedly private Chinese enterprise includes ownership of significant American food production (e.g. largest pork manufacturer), farm land, homes near military facilities, etc. Those are strategically sound holdings for national defense in both countries. Suburbs are built on farm land, etc. It's very difficult to decouple real estate from national defense, really.
That said, "Chinese people" don't own all that much in the US overall when compared with other countries. China is being singled out because they have been caught spying repeatedly. They stood and burned their embassy and refused to allow firefighters in. There is military posturing. They are invading American airspace over the US mainland. All these combined paint such purchases in a suspicious light at the very least.
There's enough evidence to know that the Chinese government is funding at least some of the purchases. It could be most of these purchases. No one can know for sure, not even the individual buyers themselves. Only the Chinese government knows.
In the US this term is used to distinguish a country's government from its people. It refers specifically to a person or enterprise acting at the direction or as part of a country's government or military, as opposed to a private citizen. That's an important distinction in a country obsessed with protecting civil rights where nationality is a protected class. Under US law, preventing the purchase of a house based on national origin is unconstitutional. But if they are acting on behalf of a foreign government... You get the idea.
Should be a formula that keeps increasing the tax liability per empty month, so eventually the owner has to dump it for zero or give it back to the government.
You want a number of empty units in your city so that if you want to move there is a place to move to. No empty units means someone does without. You don't want too many empty units of course. some is needed.
this price fixing is partially about units not even for rent which is a different problem you don't want. (but you want some units not for rent while they remodel)
Obligatory Georgism callout, but a high land value tax would solve this issue. Landlords would be forced to put the property to productive use, and it discourages the kind of speculative land holding that these companies are engaging in.
It wouldn't get passed on. Without land value tax, holding real estate is a good enough investment on its own that rent prices can be left artificially inflated. LVT puts pressure on landlords to actually earn back the value of the property to avoid losing money. In practice, that means offering competitive pricing.
> But all landlords would pay the tax, and none of them would want to lower prices below their own costs.
This is true ...
> If it becomes impossible to rent properties profitably, then eventually there would just be fewer rentals available.
But this is a leap that doesn't apply to the Georgist scheme. A key feature of the scheme is that taxes on buildings (possibly among other taxes) are removed in favor of the land value tax. It's true that if the tax on some piece of land increases sufficiently, it will eventually become impossible to profitably charge rents on existing buildings on that land--but improving existing buildings or building some superior building (for example, a new building with more units than a pre-existing building) allows landlords to continue profiting.
If the current landlords don't want to improve buildings there, they can sell the land to someone who will. And it's clear that someone will, because if there's enough demand for the land that the land value tax makes it unprofitable to sit on it without improving it, someone is going to want to do something more with it.
The reason we don't already have a Georgist-style economy is quite obvious, of course: the homo sapiens landlordicus is a very soft, squishy, vulnerable subspecies. If they had incentives to improve their properties and thereby possibly even work as hard as the rest of the human species, they might well go extinct. And no one wants that.
That would require removing the zoning restrictions that prevent the construction of new housing.
But here's the rub: if you remove those restrictions, you don't need to change the taxes. Even with current taxes, people will build more housing units, if they're allowed to and they can make money from it.
Land value tax can't be passed on to tenants. Whether or not a tax can be passed on depends on the elasticity of supply. The supply of land is fixed, so land value taxes reduce the price of land, and generally also reduce the price of rent as a result.
Yes, but adopting Georgism would mean eliminating income taxes as well. In principle most people should end up paying less in taxes (because they don’t live in a densely–populated area, or because they live in a dense area but are in an apartment instead of a house on a whole acre), while the overall tax revenue stays the same.
I lived in floor 30 of a “luxury” skyscraper in Seattle built after ~2015. We had an algorithm for pricing according to the landlord and the class action letter we received. Amazing water views and city views. Clearly desirable housing in a city flush with rich people and a massive housing shortage. I was the only occupant on the floor and the only tenant at the time ever to live in that unit. They tried to raise my rent like $1000/m when lease was up. We paid it since we had just gotten a raise. Next lease renewal was about $1000 again and we moved out because $2k extra was just too far above comparable units nearby. They literally offered us a Starbucks gift card to stay. We could see the other vacant units listed on the buildings website and they were always priced way above comparable units in neighboring buildings.
Oh and to directly answer your question, I’m guessing the building was never more than half full. The mail room was never full, and the parking garage had about 20/100 spots in use.
Thanks for the details! I'm asking because the overall rate is historically super low, and that kind of behavior from the landlords seems ... bananas - to use the terminus technicus. (But of course, maybe during ZIRP it was not a problem to try to experiment with various crazy - and inhumane - pricing schemes.)
The data you showed says there were 7 million units held off-market. My building had only a few hundred tops.
I wonder if there is more to the story though. I think that the building would be less desirable if it was full. Skyscrapers already have long lines for elevators, and common spaces get a lot of wear and tear from so many people in small areas. I wonder if they keep it below capacity while they can charge a “newness premium”, and once that fades they add extra units to the market to increase revenue.
those held off market usually means summer houses and the like.
and just natural turnover - people moving, outgrowing their home (or on the other end when someone leaves the home, or pass away) - leads to a vacancy of millions of homes. people usually harp about this a lot, and I also think it would be good to get people into homes, even if temporary, faster. but the effective solution is land value tax, and high density. everything else is just bad and worse trade-offs (like rent control and various machinations with 'affordable' units, and so on).
regarding highrises, I noticed that they mostly look the worst when they are new. everyone is moving in, elevators are full of scratches. there's a lot of ongoing construction (inevitably there will be someone from a hundred tenants, who wants to change something). and then eventually it settles into some steady state. ... so this forced cycling or whatever this management company did is just 120% WTF to me.
Unfortunately this is because they know there's a massive cost to moving and the operators are pushing the rent as much as they can for "convenience"... Regardless of external demand.
Jacking up the price on renewal is the first move any landlord who is looking to maximize profits will do because most people really dislike moving. Plenty of people will accept the rent increase instead of the hassle of moving, allowing you to charge above market rates..
In a lot of European countries, the landlord cannot raise the rent as he wants, there’s a maximum per year (usually a bit lower than official inflation).
Maybe it's obvious to people smarter than me but what possible advantage could there be for them to move people to a new apartment, or was it simply the apartment managers letting you know that was a way to save some money and beat the algorithm?
Some people will opt to pay instead of move, they can take down the worse apartment listing and relist the one that draws people in to the building, and I’m sure it’s an easy way to pad some average time on the market stat for their listings to make themselves look better to investors and real estate websites.
> It was frustrating to know the vacancy rate in the building,
Isn't the ideal vacancy rate always one unit? Any more than 1 unit and you could be collecting more money. Any less than 1 unit and you may be underpricing.
I think the only reason this should be surprising is that we've let it be the status quo for so long, despite being pretty obviously illegal. Nonetheless it's good that the FTC has explicitly made a commitment to start enforcing the law
It's nice when federal agencies are funded and led by people who aren't trying to sabotage them from the inside.
Ignoring all other considerations, the current incumbent political party in the US presidency on average tends to produce effective & functioning federal agencies, and the other party on average tends to produce corrupt & dysfunctional federal agencies.
I try to point this out frequently because voters tend to ignore this kind of thing until it affects them personally, or they read about some isolated grievance in the news. But it really should be considered a more important topic.
>and the other party on average tends to produce corrupt & dysfunctional federal agencies
the federal agencies are mostly employees have been there through many administrations. How do they suddenly become corrupt and dysfunctional besides these employees (90% of the current incumbent political party) suddenly becoming corrupt and dysfunctional?
Employees will often internalize past actions they took, whether forced to by their bosses or not, as good actions. they will even build up a worldview to support those actions.
For the alternative is to accept that you were bad, or even evil.
That means leadership can change the course of an organization by ruthlessly making them do other things until people internalize those things as the right thing, or leave.
That only explains decay though, not the magical idea that under the right party things spring back. The best to hope for is a democratic president to slow down the decay. But it is simply so much easier to tear things down than to build things up, that it will take a lot of democrats to see actual improvement.
This is mostly true and is part of what helped soften the absolute disaster that the Trump administration was. In multiple instances, Trump and his ilk wanted to do absolutely illegal and unconstitutional things but we're thwarted by career civil servants.
However, they've learned. At the end of his term, Trump created a new classification of employment, Schedule F. Schedule F employees did not have civil-service protections and could be fired on a whim. Fortunately, he lost the election before he could use it. Biden removed it.
Now, Trump-aligned groups like the Heritage Foundation are running programs to recruit Trump loyalists whose main and almost sole qualifications is loyalty to Trump (see Project 2025). They don't want a repition of last time where federal employees had the gall to actually follow the law instead of the dictator.
voters tend to ignore this kind of thing until it affects them personally
And when it finally becomes a problem that cannot be ignored, scapegoats will be found and used, even if they have to be invented in a fairy tale (internet conspiracy).
Often it suffices to blame the agencies themselves, citing the very failures caused by mismanagement, corruption, and underfunding as evidence of the foolishness of using government agencies to do things. This in turn is the kind of nonsense you can get people to believe if you've systematically misinformed them while also convincing them they can't trust other sources, which is another well-known strategy of the same political faction
I don't understand how it's possible that every single biglaw firm offers the exact same starting salary but that isn't considered illegal collusion, while landlords using a market-estimation service as a starting point for pricing their units (but sometimes pricing below or above the algorithm's recommended price) is considered illegal collusion.
(studied competition law in law school). Everyone having the same starting salary can be arrived at by non-illegal means, such as seeing what the others are offering and matching. To successfully prosecute for price fixing you need actual evidence of collusion. That is usually obtained by whistleblowing, as the first person usually gets a reduced sentence (example: https://www.accc.gov.au/media-release/cartel-immunity-policy...).
Price fixing in buying/hiring is not monopoly btw, it's monopsony.
Sorry to nitpick on this tangential detail, but what does “reduced sentence” entail? On paper it sounds like many people would rather take the secret to their graves.
It's not tangential at all. Depends on jurisdiction and policy by prosecuting authorities. Could be smaller fine, to complete immunity. I'm not familiar with American case law but I remember seeing that Matt Damon film "The Informant" that is based on a true story. The whistleblower (Matt Damon) was going to get complete immunity as he was the first to tell the FBI. https://en.wikipedia.org/wiki/Lysine_price-fixing_conspiracy. He ended up having his immunity rescinded for other reasons.
May need to read more for your jurisdiction (depends on your case law in your country). Usually it's explicit communication between the parties to price fix. If you were using those services that share salary information to communicate to your competitors, it probably does. If your employees/ex-employees do it without you telling them to (with evidence that you did), probably not.
So the thing with lawyers is that there is no communication (i.e. it's only "tacit collusion"). In this case there is communication via the company with the pricing algorithms.
My brother studied tacit collusion as part of his econ PhD (and new lawyers was one of the markets he looked at) but it would be a hard thing to actually legislate against and isn't illegal. You can't just be like "you guys can't pay the same".
I mean yeah they can see what other firms do but they aren't actually talking to each other (or at least not in a proveable way) to organize prices. It's a very different situation than having a business with an algorithm to share pricing models.
Obviously law firms colluding on prices isn't good but how they are colluding is completely different.
When I worked in investment banking 1st year analysts made pretty much the same base at every big bank. They all used the same compensation consultant, which seemed iffy.
Probably because legal defense outside of public defender is considered a luxury good. And it's rare to need a public defender if you're living a "normal" life.
I would like to see that this action will lead to meaningful change in (imho) an unhealthy rental market.
Unfortunately, I think the genie is out of the bottle, and the actions by the ftc will be reduced to whack-a-mole attempts to bust transgressors who make the effort to have plausible deniability while still using price-fixing algos.
Adding to that: once you’ve shown that keeping rates high while allowing greater vacancies works, no one is going to lower rates afterwards. So we are stuck with this higher rent environment.
Lots of people are saying it's the same as doing it manually with public data. I don't think that's the issue. The article is explaining that the focus is the shared pricing database.
Public information doesn't tell you if competitors will underprice to sink you, or if they are likely to hold a high price even against lower occupancy. This software tells you and your competitors whether or not to do that, and bases that guidance on its inside knowledge of its own customer base. That is what the FTC and DoJ are calling collusion, based on my reading of the article.
Tangential to this: In Norway and Denmark (as the only countries AFAIK) there are laws stating that a unit needs to have inhabitants. Ie. it can not sit still on the market. If the owner does not live there, he has to rent it out.
It baffles me, that this is not a general rule as it forces fair market prices for a illiquid supply (it takes time to build new housing, if it is even possible).
In this case you'd just complain that a company keeps units vacant to the municipality who would fine the company until it is brought in order.
Berlin has similar legislation. I doubt there's much enforcement about it, I would imagine that someone has to file a complaint or something before anything happens for an empty flat.
Despite what is going on with this rent price collusion situation, the problem that high priced cities face is far too few vacant apartments not too many. The vacancy rate in some places is as low as 1-2%, which is much lower than it should be.
Lots of tech companies use Ravio, Pave, etc to track the compensation their competitors are offering employees at similar levels. These tools plug straight into your payroll to give all the participants “live” market data.
The issue with the rent thing is that the algorithm sets a price, so collusion could easily be offloaded onto the algorithm. Something similar should also happen with salaries before this becomes a real problem right?
If they have material nonpublic information about salaries and share it for the purpose of coordinating salaries, then yes, this is or should be illegal price fixing.
They can solve the problem by making the data public, thus giving the same competitive negotiation advantage to the employee. The publicness is the key part -- it's price fixing when They trade information with Each Other, information that is unavailable to You and is essentially valuable to both sides in negotiating an employment offer
> Such software can allow landlords to collude on pricing by using an algorithm—something the law doesn’t allow IRL. When you replace once-independent pricing decisions with a shared algorithm, expect trouble.
Enjoyable to watch norms about language (IRL) change.
Having adults give this a once-over would have been better. Does the law allow collusion online rather than IRL? This sentence implies that it does, otherwise the "IRL" is superfluous. Most (but not all) of us know, based on our knowledge and experience with zoomer writing, that the writer is not speaking literally or carefully. But this is a summary of a legal document and can be used in a court of law. This writing is terrible given the context.
It's not the only example of bad writing.
> And even if some of the conspirators cheat by starting with lower prices than those the algorithm recommended, that doesn’t necessarily change things. Being bad at breaking the law isn’t a defense.
Breaking the law less or not at all is indeed a defense, possibly a successful one. It also doesn't constitute being "bad" at breaking the law.
Lots of people who work in government agencies feel that it is okay to lie to the public to try to achieve greater goods. They are wrong.
IIUC it’s still valid to use an algorithm to recommend prices, but you’re not allowed to make an agreement with a competitor that you will both use the same alg? Or is this saying that any algorithm which takes competitor prices into account is out-of-bounds?
There were antitrust suits filed against RealPage after a ProPublica piece
> In one news release, Realpage offered its property management clients the ability to outsource daily rent-setting and revenue oversight. “We believe in overseeing properties as though we own them ourselves,” the company said in a presentation that plaintiffs’ lawyers referenced in the lawsuit.
> The lawsuit quoted one unnamed witness, a RealPage pricing advisor, saying that some pricing advisors told property management employees that they had to follow the software’s recommendations. A leasing manager at a RealPage client said, “I knew [RealPage’s prices] were way too high, but [RealPage] barely budged” when the manager asked to deviate from the suggested rent.
> An update to the software tracked not only clients’ acceptance rate, but also the identity of the landlords’ staff members who had requested a deviation from RealPage’s price, the lawsuit said. Compensation for some property management personnel was even tied to compliance with the company’s recommendations, it said.
So if this is true, this also means that managers are being compelled to adopt the recommendations more than as mere suggestions.
The law doesn't work on hard and fast rules like that. It's more like "If the effect is that you are working together to set prices, that's illegal", regardless of whether you use algorithm A or B, regardless of whether you share prices in advance or watch how other companies set prices, regardless of any details of the mechanism.
If you use the same algorithm it's not necessarily illegal, but it will be if it results in price fixing. If you take into account competitors prices its not necessarily illegal, but it will be if it results in price fixing.
We can start with what is definitely price fixing and work our way up to why algorithmic pricing is price fixing.
To keep things simple, let's say a city has two landlords, Alice and Bob, who each own around half of the residential rental properties in the city.
Textbook definition of price fixing is if Bob and Alice agree to never rent for less than $5 per square foot.
Next scenario: Instead of a minimum price, let's say that Bob and Alice agree a formula on how to price their properties based on vacancies. The formula can be as simple or as complicated as you like. But in this scenario, if the formula never gives them a result less than $5/square foot, it has the exact same outcome as the textbook scenario. And since there is direct coordination between Bob and Alice, this is definitely price fixing. In fact, it's even worse than the textbook scenario, because now they're coordinating on exact prices, and not just a minimum.
Forgetting formulas for a minute, let's say Charlie, who is unrelated to Alice and Bob, approached them separately and offered to sell them information on how to set their prices. In this case, there's no algorithm involved. They each pay Charlie a small fee per month, and he tells them not to rent for less than $5 per square foot. There's no direct communication between Bob and Alice, but because they both know that the other is acting on the same advice from Charlie, the result is the same as the textbook scenario. You could even argue that there is indirect communication between them, and that Charlie is running some kind of price laundering service.
Finally, you can combine the two. Bob and Alice both tell Charlie how many vacancies, delinquent payments, etc. they have. Charlie feeds all the data into his computer, which contains a really complicated formula, and that computer tells them how much to charge. And wouldn't you know it, that formula never produces a result less than $5/square foot. Again, because Bob and Alice know that the other is using this service, and because they have an exact price, rather than a minimum, they know they don't have to negotiate with potential customers. The other landlord won't give that customer a better deal.
Except no city has only two landlords, and most cities anyone who owns can be a landlord if they want - and will have plenty of incentive if either Alice or Bob goes much higher than fundamentals no?
The exact number of landlords doesn't quite matter here, as long as enough of them are using the algorithm.
One of the cases specifically being looked at in this investigation is Washington D.C. Google tells me that around 60% of rentals in D.C. are in large apartment buildings, but that's just a quick search so take that with a grain of salt. ProPublica says that 90% of these apartments are using the software. If we accept these numbers are close, and knowing that 90% of buildings doesn't necessarily mean 90% of all apartments, we can guess that means somewhere around 50% of all rental properties in D.C. are priced using this software. The number might be higher, since I don't know if any non-apartment buildings are using this software, or it might be lower if the data is inaccurate.
So yes, the remaining 50% of the market could undercut the 50% using the software. However, it's still possible for 50% to have an effect on the housing market. This is because the housing market is generally considered to be inelastic and because it is difficult to increase supply quickly.
Compare it to, for example, soda, which is an elastic market with a lot of production. If Coke and Pepsi lost their minds and started charging $100 for an 8 oz can, they're creating a lot of potential for other companies to undercut them at, say $2 a can. As long as $2/can is profitable, they can win Coke and Pepsi's market from them overnight.
If 50% of rental properties started renting for $1 million/week, obviously, very few people can afford that, and I doubt anyone would pay it. But what could the other 50% of the market do? They could keep their rates lower, but all the rentals will fill up. Again, numbers are hard to find, but vacancies in D.C. are probably around 6%, so prospective renters will play musical chairs for the 50% of rental properties that have more reasonable rents. There's a potential here for companies to build new properties and undercut the 50%, but building is lengthy, expensive, requires permitting, etc. The market can't respond very quickly, and because new construction tends to be expensive, rents from new buildings tend to be higher.
Very good points! And yes, I can see what you’re talking about rent movement wise.
The challenge though is that at least the Fed data doesn’t seem to support it across the industry, at least as far as I can tell. Rents seem to be moving in almost lockstep with inflation (and fed rates?), and have been since before COVID started. Which is odd in itself, actually, and I think might support the case of ‘have to raise rents or our financing will collapse and we’ll go insolvent’. I’m wondering if these large complex vacancies are inversely correlated? If so, seems like an opportunity to short something somewhere.
I’d argue there is a third market option here too. While someone can quit drinking soda, they can’t quit having a roof over their heads.
Well, technically they can and increasing homelessness is proof of that - but that is a very extreme option with incredibly high costs, so we’ll ignore that for now.
But if remote work is an option, or if the local salaries don’t support the higher rents, people can and will move, or double up, or sublet, etc. Or just go bankrupt, and be out of the ‘renter’ pool that way.
The inflexibility of real estate does mean it takes time for all this to play out, but in your $1 million/wk option, the inevitable outcomes here seem to be:
1) the apartments keep that crazy price, have zero (or near zero - until the few crazy renters went bankrupt) renters, and eventually go bankrupt themselves. Since even if they have a cash cushion, that cushion will run out eventually. High financing costs mean they’ll even be unable to get business loans to cover cashflow issues, which would typically give them more breathing room.
And since local renters don’t make enough to pay that rent anyway ($52/mil a year on rent is hard to pay), and even hotels or SFH rentals would be dramatically cheaper. Why would Jeff Bezos want to rent one of these, after all, and he’d be one of the few would could?
or
2) have legislation passed which outlaws what they are doing by setting rent caps or the like (and there would be plenty of support).
or
3) have their properties burned to the ground by pitchfork wielding mobs.
Possibly all 3 at the same time?
Alternatively, what I think they’re all hoping for, is that income inflation for renters means renters will be willing and able to pay these higher rates, and they’ll be saved by a post-COVID boom and everyone will actually be - at worst - moderately grumpy.
Agreed. That is indeed what may happen. I'm definitely happy for the federal government to investigate the impact of these algorithms in cities with the fastest range of rent growth, however. It makes sense to ban it federally even if it's only really stopping price fixing in one or two cities.
To be clear, the million dollar scenario was intended as one in which the landlords collectively lost their minds and plunged themselves into long-term economic doom. In a more realistic pricing scenario, they'd collude to determine the absolute maximum price they could charge and still get tenants.
And when you think about it, that's how markets are supposed to work. Landlords want to charge as much as the market can bear, no more, no less. Renters want to pay as little as possible, and in a perfect market, it would reach price equilibrium.
But from the federal government's point of view, it's not as simple. Housing must be profitable in order to encourage new investment in housing. We're currently playing musical chairs with too few residential units for too many residents because there hasn't been enough housing investment since the 2008 crash. At the same time, they want to keep rents low, since money spent on rent isn't going into productive areas of the economy. They also want to keep rents variable, because strictly stratifying locations based in income has bad effects in society. (E.g. police officers not being able to afford to live in the large cities they work in.) Retaining the ability for lower-income renters to negotiate rent is helpful in that regard, but obviously not a silver bullet.
One thing I would be careful of though, is comparing rental prices to inflation. Housing costs are the single largest factor in the CPI-U, so it's almost a tautology that rents rise at the same rate of inflation, because inflation is largely measuring the rate at which rents rise.
Comparing to fed rates is more interesting. If you're getting less of a return on your investment than the current fed rate, you'll make more money by divesting yourself of your properties and putting the money into bonds. (And I believe this is the biggest driver of recent mass layoffs.)
Its worth noting in US federal law, there isn't a distinct statutory prohibition or definition of price fixing. “Price fixing” is a description of one general pattern of violation of a very broad statutory language in the Sherman Act (15 USC § 1) prohibiting “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations”.
State competition laws may have separate rules for price fixing and other specific kinds of behavior or have similarly broad language to the Sherman Act.
Is it collusion to go to a rental search site and survey the asking rents, then asking similar for your property, knowing that your competitors are (probably) doing the same?
Is it collusion when a gas station manager drives around the neighborhood, looks at the competitors posted price for gas, and sets his prices the same?
Neither of those examples are what I described and are perfectly fine.
You have to use a third party that is setting a price and stick to that, knowing others are doing the same. You're describing individuals determining their own price using their own judgement.
I think the argument in this case is the algorithm is effectively acting as a single agent that will always come to a fixed price and is actively recommending having vacancies to prevent competition.
Where as if individuals are assessing the prices they are in a sort of prisoners dilemma, if they leave a property vacant someone may lower the average price meaning they can't recoup the lost earnings when it is occupied. So their best bet is to keep a property occupied as much as possible.
Eh, I'm really not convinced they'd be effective. If they're trying, then sure whack them with price fixing charges.
I'm just not aware of any markets where these guys are dominant. You STILL have the prisoners dilemma issue, as there are tons of smaller landlords out there that definitely aren't playing in this game no matter what you're doing.
And I don't see how this is THAT much different from just doing a search for rental properties in your area on zillow and setting your rent prices accordingly. If THAT is price fixing, then how does anyone expect a market to work at all?
IANAL but it probably would it you did it whatever the circumstances.
If you were the cheapest gas station in the neighborhood with prices appropriate to your operation but one day decide to align your price to your competitors and keep adjusting your price to whatever they set while nothing changed for you, that feels like the very definition of price fixing.
Who isn't going to set their prices relative to their competitors in a market? And also try to have as low a cost as possible, so they have as good a profit margin as possible? It's basic business 101.
If THAT is price fixing, then literally every business ever in the history of business has done price fixing.
That also isn't colluding with anyone, near as I can tell. Maybe if you did a wink-wink-nod-nod to each other while driving by? Typically when I've heard of price fixing, there was some explicit cartel or industry assoc or meeting between folks or whatever where they could actually agree to something, punish 'non compliance', etc.
This feels like the Google Antitrust case, where no one can even seem to say what they would have reasonably expected Google to do instead that would make any sense, and the issue is more that there are as-yet-unresolved structural components that no one is able to articulate a rule that would prevent whatever problem everyone is getting worked up about.
> Who isn't going to set their prices relative to their competitors in a market? And also try to have as low a cost as possible, so they have as good a profit margin as possible? It's basic business 101.
The text book behavior would be to price yourself lower than the competitors and try to get market share from them.
In our current paradigm, if you have low costs while keeping your price as high as the incumbent, there should be other players entering the market and disrupting it by going for lower margins. That mechanism not happening even as there's a variety of actors in the market is where it's qualified as "price fixing" IMHO.
PS: about Google's antitrust case, are you refering to them stopping other stores from getting installed on android phones ?
Not really - in a rental market, you can't get 'more market share' due to pricing, once your units are rented out 100%. 'market share' in a highly inelastic market like housing is only achievable by long term capital intensive purchasing, building, or upgrading of units.
In this kind of business, in the short-medium term (aka when setting rents), they're usually looking to reduce vacancy rates (aka achieve the highest utilization of their assets), so they'd set their rents to be relative to the market (same, lower, higher) as necessary to achieve their target vacancy rate. Notably, the market itself usually has highly variable seasonal demand and relatively low volume, so it can take months to figure out if you're high/low/just right unless you're managing a LOT of units.
For landlords, vacancies can practically never be zero for very long without problems, for similar reasons why unemployment at zero for very long creates problems - there needs to be some downtime to do things like unit maintenance and upgrades, adjust timing to have availability during peak times for good tenants, etc.
Zero would be ideal from a ROI perspective though.
Attempting to corner the market - in all but the smallest markets - can be VERY expensive and high risk, due to high capital and cashflow costs for housing stock, high workforce
(and household) mobility in the US, and a very diverse set of competitors.
After all, anyone who actually owns housing in the area is a potential competitor if rents get too high, let alone all the small/medium landlords which don't have nearly enough cushion to attempt that kind of maneuver without going almost immediately bankrupt.
So even if all the big corp apartment complexes or whatever were in on it (and the big property management companies too), all the smaller/medium landlords would be unable to even attempt to participate and folks would end up moving to subletting SFH pretty quick.
"in any way" is doing a lot of work there though. The way they're using a 3rd party algorithm is effectively communication and the FTC isn't standing for it.
But yeah, your latter case sounds easy to fall into gray territory, since it seems illegal to agree on prices even if intermediary makes it unclear with whom exactly you're agreeing with
This is a case of information asymmetry being used as an additional advantage by property managers.
The software cited, RENTMaximizer, offers aggregate price information for property managers with the aim of maximizing prices.
Would a RENTMinimizer product, given away for free to tenants, help? It would show aggregate rents that tenants pay, including minimum ones, with the hope that they can use this information for more confidence when negotiating rents.
Could this change how tech salaries are set? I know many companies base their salary grades on an algorithm that amounts to looking at what "comparable" companies are doing and aiming for the middle of that.
They're seemingly already doing that for benefits. I've had benefits reduced at two separate places 'because our research shows we were a little over for similar companies.' If that's not collusion, I don't know what is.
No. Collusion requires agreement among the parties to not compete. Sure they copy but no one is forcing you to stay at the company or accept the new job offer. You walk to somewhere that does meet your ask or negotiate.
It's collision when companies agree to not compete.
Is there a way to keep rent prices in check without strong market regulations? Every business will do everything legal to max out the profit, this is a nature of business. Freezing prices in some places will only rise it everywhere around. Building more is not an answer: most large cities has no adequate lots for new buildings, and where they do - it is undeveloped areas, where no one wants to live.
We thought that cars is answer, but cars only deferred the market saturation, plus we need more roads and parkings.
Remote work may be an answer, but people still need schools, shops and restaurants.
Mercer is an 80 year old, 25K employee "consulting" firm that makes over $2B per year primarily by providing human resources consulting, ie helping firms set salaries. Why is that not considered price fixing, under the same collusion rationale?
It would probably be relevant that Mercer doesn't ever say, "Don't hire anyone for this position if you can't get someone willing to do it for the market price." (I'm assuming they don't.) You can advise people on how to set the prices of things, and you can advise a lot of people at the same time, you just can't advise them to participate in what essentially amounts to reverse collective bargaining.
> Agreeing to use an algorithm is an agreement. In algorithmic collusion, a pricing algorithm combines competitor data and spits out the suggested “maximized” rent for a unit given local conditions.
This sounds exactly like what a compensation consultant does (collect competitor data, including data from other clients, and suggest a comp range)?
Maybe this is a stupid question, but how would airbnb be looked at using this as precedent. If I sign up for airbnb and use their automatic price optimization engine would this fall under the same algorithmic collusion?
First off. I dont like collusion or rental pricing software that colludes across companies. However, now this means really big companies can use their own internal data to get advantages that littler players cannot. I also do not like laws that favor big companies over little ones. With the collusion software then littler companies could at least band together to get similar competitive effects that larger companies can.
I'm open to discussion of how to resolve that though, any ideas?
Simple: the big players will need to compete again. They can charge high rates but they will face high vacancy in the face of nearby housing units interested in low vacancy.
these services are a form of collusion that basically bypass normal supply and demand and are effectively anti-free market. i can see it being ok if all the properties were owned by one person (which they aren't) but then the gov't would be within its rights to go break it up as an unfair monopoly. which i might add, is a monopoly on a basic human need for shelter. a right even? this is corrupt greed at its worst, market manipulation at best.
One interesting things that Singapore does is that it collects and shares all rental data.
When you lease a place to a tenant, there is a stamp duty ($100+) that the tenant pays. Then the landlord submits details about square footage, number of rooms, and the price it was rented at.
> an agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.
Someone explain how this is different from pricing vehicles based on KBB or other data? Genuinely curious because I don’t know what these agreements look like.
If multiple seller/landlord parties all agree to have a single algorithm set prices I understand the FTC’s point. If however they all reference an algorithmic data point and freely choose to set prices I don’t see how that’s collusion.
If multiple seller/landlord parties all agree to have a single algorithm set prices I understand the FTC’s point. If however they all reference an algorithmic data point and freely choose to set prices I don’t see how that’s collusion.
You've hit the nail on the head. It's the former, which is why it's collusion.
I imagine it's tricky to really prove. Airlines, for example, have been doing somewhat similar things for decades, but there's no simplistic path to showing collusion.
Pretty much all companies, especially large ones, rely on a series of intermediary sources for things like pricing, salaries, etc. They're not constrained by those sources for individual products, services, and people but they're absolutely aware of them. And it's probably a fairly short distance from there to "We're not going to pay you more than an equivalent level at Google" whether or not that's explicitly stated.
Funny you mention that. One of RealPage's architects has experience in making cartels in the airline industry, and getting caught. The trick to getting caught here is to be very blatant and just pretend the law doesn't exist.
>A genial, self-described “numbers nerd,” Jeffrey Roper was Alaska Airlines’ director of revenue management when it and other major airlines began developing price-setting software in the 1980s.
>Competing airlines began using common software to share planned routes and prices with each other before they became public. The technology helped head off price wars that would have lowered ticket prices, the Department of Justice said.
>The department said the arrangement may have artificially inflated airfares, estimating the cost to consumers at more than a billion dollars between 1988 and 1992. The government eventually reached settlements or consent decrees for price fixing with eight airlines, including Alaska Airlines, all of which agreed to change how they used the technology.
But based on the post, this really seems to not be the case?
"Price deviations don’t immunize conspirators. Some things in life might require perfection, but price-fixing arrangements aren’t one of them. Just because a software recommends rather than determines a price doesn’t mean it’s legal. Setting initial starting prices or recommending initial starting prices can be illegal, even if conspirators deviate from recommended prices."
Would be better to see an argument from the FTC grounded in evidence and analysis, because I don't get what this is based on. Software recommends a price, sure, but so does any appraisal in any industry. For how long can I use an appraisal service before the FTC says I'm committing a crime? I just feel like the lines are not drawn very clearly with this argument.
Aside, if anyone from the FTC is here right now, for God's sake do not use "IRL" in official writing.
But based on the post, this really seems to not be the case?
I don't understand how you came to that conclusion. From the post:
an agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.
Also from the post:
The agencies filed a joint legal brief explaining...
From that legal brief (emphasis mine):
... when competitors *agree to fix* end prices, ... *the agreement* is the violation, and unsuccessful price-fixing schemes are as unlawful as successful ones.
Another commenter asked how this is different from car dealers using the KBB values. If a deal uses KBB values to inform themselves of the approximate value of a car, before deciding their opening bid/offer in a negotiation, that's fine. If they agree with a neighbouring dealer that they'll always start their negotiation with the KBB price, this is illegal price fixing. From the brief:
In Plymouth Dealers’ Association, 279 F.2d 128, for instance, a defendant convicted of price fixing for agreeing with competing dealers on a “fixed uniform list price” for Plymouth cars argued that the conviction could not be upheld because the government’s case required “proof of something more—that [the uniform list price] was adhered to; that it was utilized to fix prices; or that it did actually fix prices.” Id. at 130. The Ninth Circuit rejected this argument, stating that “the fact that the dealers used the fixed uniform list price in most instances only as a starting point[] is of no consequence.”
That's the key. The problem is the agreement; that results in price fixing. Even if someone is allowed "some pricing discretion"(ie maybe they can deviate 8%) it can still be illegal.
Maintaining full pricing discretion is what referencing KBB on your own and making a determination outside a pricing agreement would be; not illegal.
I don't get how this FTC position is compatible with the existence of things like commodity futures markets.
A second point that bothers me about the blog post. It's immaterial to the brief, but the blog says the rent is up 20% since 2020, citing CPI-U. But it fails to account for increasing incomes. Median household incomes, nationwide, have kept pace with rents.
Why do increasing incomes support demand? I am not going to move to another place exactly the same just because I make more money. In order for prices to increase, I would have to be moving into a better place than I am in now, which means it would cost more anyway. Me moving laterally gives me no utility.
In the American rental market, for most lessees, the lessor can raise the price an arbitrary amount periodically. This is true for virtually all tenancies in this country.
>The Department of Justice has previously secured a guilty plea related to the use of pricing algorithms to fix prices in online resales.
This is no idle threat. Be sure to click on that link and find out that in 2018 the FTC stopped the greedy corporate profiteers in the wall poster industry from price fixing back in 2013. Algorithmic price fixers beware.
> [..] a brief filed by the FTC and the Department of Justice offers a helpful guideline for antitrust compliance: your algorithm can’t do anything that would be illegal if done by a real person.
That one weird trick that doesn't work well under the law.
Has this defence worked for people caught up in copyright infringement lawsuits who claim that an infringing torrent download was initiated by something like Sonarr/Radarr?
No, because Airbnb is sharing market information with you, and is quite happy for you to undercut the market to drum up demand, or raise prices if you think you’ve got a winner, which keeps market efficiencies intact.
What’s described in the article is a bunch of estate agents agreeing to use a price recommended by 3rd party software and minimize cheating on that price, which is price fixing.
$1 in 2020 is equivalent in purchasing power to about $1.19 today, an increase of $0.19 over 4 years. The dollar had an average inflation rate of 4.48% per year between 2020 and today, producing a cumulative price increase of 19.17%.
This means that today's prices are 1.19 times as high as average prices since 2020, according to the Bureau of Labor Statistics consumer price index. A dollar today only buys 84.034% of what it could buy back then.
gas was $3.22 in 2020 but is 42.17% higher in 2024, so by that metric rent is proportionally lower (than the 20% increase in rent)
information that comes from government agencies is almost always data that has been arranged in such a way as to make those in power look like they're the good guys.
Considering that rent is around a one third contribution to US inflation measuremnt (which is done by some indirect estimation), I would also ask how much inflation that software caused by essentially a feedback loop.
If this lawsuit is successful, would renters have standing to sue for damages? And how far would the liability go, just their landlord + RealPage (who is probably bankrupt by that point)? Or would everyone who colluded to keep prices high be liable, possibly even to renters whose landlord was not part of collusion but rents in the area increased due this?
Price fixing is when two or more land lords agree to not lower their prices beyond a certain point. There is no agreement here. I don't see how this is price fixing.
Search for "adherence to the agreed-upon Prices", "fix list price", and "Express delegation".
They argue that collusion through delegation counts as price fixing. They argue colluding to set list prices even when there isn't a price floor is price fixing. They argue that replacing the delegation with an algorithm is still price fixing. Most of their arguments are based on already settled cases.
After pricing auto insurance recently it's pretty obvious this is happening in that industry as well. While shopping around multiple quotes across 7-8 providers and calling at least 5 separate insurance agents to try to gather quotes, all of these companies are providing similar quotes within a few cents/dollars of each other.
I vent my frustration to a few agents about the yearly rate increase insanity and they all shrug, give their non-empathetic "I understand" telephone script and blame it on the "system" calculating the prices and make some useless excuse about inflation.
I've got a clean driving record, a fully paid-off cheap vehicle, in a reasonably responsible age bracket, and the cost of decent auto insurance these days is essentially another car payment. Within 5 years I'll have paid back the insurance company 60-70% the value of the vehicle. The Gov/FTC needs to take a look at these companies, especially if they're forcing us to hold the insurance to reasonably participate in society.
The fact that you car is 'cheap', is not the driving force behind the cost - you may drive a $10K used car, but you can still crash into someone else's $120K car and also put the other driver in the hospital with 100's of thousands of dollars of medical expenses.
Once your car is paid off, you can usually drop the collision damage on your own car - but don't be surprised if you are still paying thru the nose.
Curious though: what state are you in, and how much are you paying?
As comparison, we own three cars (2015, 2013 and 2011), for three drivers (youngest is 21) and have pretty decent level of coverage, including coverage for damage to our cars even though they are paid off - and only pay ~$1600/year in total for all three cars/drivers in Mass, which to me seems pretty reasonable.
I don't know the exact calculations but people in Europe have nationalized healthcare, more easily lose their license, drive less, and generally have smaller and cheaper vehicles.
The significant increases in relatively irreparable high value cars on the road is presumably a driver of increasing insurance rates.
One solution would be to cap liability for damages to other people's cars to the median value of a car on the road. If you own a car worth more than the medium and want/need damage insurance for the full amount, you should take on that cost rather than saddling the public with it.
Certain brands are designed without any consideration for repairability. Like a smartphone (on wheels). Or an "inverse Toyota".
All the median-priced-cars from these brands, which are instantly totaled by anything other than cosmetic damage, are still driving up everybody else's rates.
I don't know how to draft a law that deals with that, ... and it's probably a worse problem than the high price cars simply because fender benders are more common than serious accidents.
Great. Socialize healthcare as the current non-single-payor market is forcing all sorts of market distortions in unrelated markets, AND fix the price fixing. Win win win.
ED: adding clarity for the call for socializing healthcare to dampen the massive price distortions in other markets.
Healthcare is socialized in Europe and car insurance is still similarly priced (750 - 1500 per year, average in NL is 950 per car for only liability) mostly due to liability costs.
Required insurance covers € 7.5 million for personal injury, € 2.5 million for property damages.
Edit:
P.S. I am in favor of single-payer healthcare, I just don't think that is the particular cause of expensive liability car insurance - rather personal injury and property damages would seem a larger driver to me.
This is interesting to me, an American unfamiliar with European systems.
> Required insurance covers € 7.5 million for personal injury
So in Europe (or at least some parts of Europe with otherwise socialized healthcare?), if someone is injured in a car accident, their medical bills are paid for by the insurance of the person who hit them, and not that country's single-payer system?
I think in my country, the single-payer system is still linked to an individual, by his social security number, so the culprit's insurance will "pay", even though what will be paid in healthcare will mostly be aestethics or other non-reimbursable. But mainly, it will pay for damages. In my country, f you are hurt in a car accident, you can be paid depending on your average salary and invalidity percentage, called an "invalidity rent". If docotr estimate you're invalid at 80%, you'll get paid 80% of your last month salary until they check on you again, then if you're 40% invalid its 40% of your salary (before the accident, even if it was years before)... up until you're fine. I think they have to give you at least 10% as long as you have sequellas, even minor ones. That, plus fixed damages (between 5k and like 40k).
It isn't perfect. It doesn't take into account missed career oportunities, inflation, the pain, or mental issues. But you can work besides the money they give you, and oftentime, you'll get the 10% for a long time, because paresthesias (whatever that thing is spelled in english) and small sequellas can stay for a long time (I know soemone who earn roughly 200€ per month, but she has trouble working in most kitchens now. She used the main check to get into academia though, and will probably end up with a master's degree for her troubles).
I'm in the UK so we don't have "medical bills", the hospital doesn't have a billing system. There is one they dust off for international patients, and there is internal billing between regional and local organisations, but these bills aren't attached to individual patients. Edit: to be clear, this is unlike most European countries which still have multiple health insurance providers, but the health insurance is almost entirely government paid. The UK doesn't have health insurance, the government directly funds and runs the healthcare providers.
Still the insurance needs to cover loss of income, private care when NHS care is not fast enough, and "general damages" ("This covers the pain and suffering you have gone through and the [non financial] impact the injury or illness has had on your life")
No, those are not billed to the person who caused the injury.
The personal injury part is meant to compensate for personal injury, such as "compensation" for becoming unable to work, or live the same way as before.
Yep. Median wage in Belgium is ~3.5k euro / month, equivalent to ~3.8k USD / month. Median US wage is ~4.9k/month, about 30% higher, certainly not 150% higher.
Belgium is definitely an outlier. It's 2k after taxes and contribution in France (so like 2.9k/3.1k if you are working for the state or a private company)
It makes sense with some extra punctuation: Great. Socialize healthcare. As it, is blah blah.
If you want even cheaper car insurance, you can even go beyond socialized healthcare. You can have socialized car insurance! Or in some cases a hybrid system where you insure your vehicle but not all trauma and damage to the other party. But I don't think Americans would be a-okay with seeing a government employed doctor when they make their injury claims. Even if outcomes are better than a purely private system.
If a large portion of the cost of auto insurance is to pay for potential injuries to someone that you hit, then we can conclude 1) single-payer healthcare would significantly lower the cost of auto insurance, and conversely, 2) the lack of single-payer healthcare is a significant contributor to the current state of auto insurance markets/pricing.
I completely agree with your assessment and logic, but the parent posted suggested that socialization of healthcare (e.g. ObamaCare) is contributing to auto rates. That I don't understand.
Looking again, I think their comment can be parsed in multiple ways.
> Socialize healthcare as it is forcing all sorts of market distortions in unrelated markets
I interpreted that as a call to socialize healthcare, not a description of market effects that "socialized healthcare" has to the extent that exists in the US.
I work in insurance. Most states have a Department of Insurance who approves price changes. Insurance prices are calculated using simple features, such as "If car is from year 2016, then multiply price by x"
However, the numbers are not publicized because they don't want competitors to have that info.
Another fun fact, a lot of people wonder, "Why doesn't an AI startup just disrupt the insurance industry?" It's because the Departments of Insurance have to understand the price formulas. Neural networks are infamously hard to interpret, so we would have to reform regulations before we can use neural nets.
> Why doesn't an AI startup just disrupt the insurance industry?
Also insurance requires that the insurer discriminate a good driver from a poor driver. However they should not discriminate against a protected status.
Good luck setting up a system that can only discriminate using some signals and not others.
It is a good mental exercise trying to think of ways to set up a startup that can discriminate without being obvious about it.
And if it's actually systematically charging e.g. a specific minority more than other people, it will get caught in a hurry and end up being hugely costly for the company.
This kind of stuff is easy to catch. A single person typing some different parameters into an insurance quote webpage can catch it.
It's one thing for people to know what you are doing, it's another to prove it in a court of law, or even to get law enforcement interested in the first place.
Until you are forced to explain exactly how your helper algorithm came to that conclusion, explaining the logic and calculations step by step in easy to understand language... (With the "I can't" not being an acceptable answer.)
It's because the Departments of Insurance have to understand the price formulas. Neural networks are infamously hard to interpret, so we would have to reform regulations before we can use neural nets.
I'd like to know that the methodology is understandable and defensable and correctable, and having "an AI startup" disrupt with neural networks isn't going to do that. At best it will just be another excuse used to justify the state of the industry, "the computer said it so it must be right". Reforming regulations so it can be made even less transparent is not the way to go.
What's interesting though is that while pricing is strictly regulated, underwriting is significantly less regulated, at least in P&C commercial insurance. Insurance companies have been exploring the use of ML and AI for that task since at least 2017, when I got a job doing precisely that.
Also, things like machine learning for image recognition in claim photos, satellite data, etc. has also been in use for at least the same amount of time.
I believe the Lemonade renters insurance product also does some kind of "AI" claims processing. I wouldn't know what that looks like, my focus when I was in insurance was solely in underwriting.
> the numbers are not publicized because they don't want competitors to have that info.
What do you mean? Pricing is all publically available (sometimes not all the details that feed into the model that create the pricing tables.) You can search SERFF by carrier, by line, by State, and read the actuarial filings.
Most of the time, pricing is refined by looking at prior year(s) losses, and adjusting. You go to the State, explain how much you've been losing, and they review. All that correspondence is public as well.
> Why doesn't an AI startup just disrupt the insurance industry?
More than this, it's a fundamental misunderstanding of what AI is and what it can do to ask this sort of question.
Best thing I've seen come on the market was Root, based in Columbus and founded by a former Finance director from Nationwide insurance. It used your cell phone to send telemetry signal to classify your driving behavior.
Shamelessly greedy auto insurers like Progressive and Travelers are raking in record profits and enjoying sky-high stock prices, with Travelers even surpassing a $100 billion market cap, yet they still have the audacity to gouge policyholders with double-digit rate hikes up to 45%. If payouts truly exceeded premiums during the pandemic as these corporate behemoths claimed, how can they now be pocketing their fattest profits ever after the extreme hikes? The simultaneous jackpot profits and outrageous increases in what people pay expose the insurers' justifications as bald-faced lies. The industry giants are clearly bamboozling regulators and customers simply to boost their already-soaring income and profits at regular folks' expense. Their profiteering tactic: fabricated reasons to hike rates exorbitantly no matter what the economic reality [1].
The cost is due to the increasing repair costs to other people vehicles, not mainly your own. You also don’t have to get collision and comprehensive coverage, or at least not with a low deductible. Then you’re really just paying for the damage you cause to others and in that case your vehicle cost doesn’t mean anything at all.
Also, not sure your state or credit score but if you’re not in CA you’ll need good credit to get good rates. The only way to change that is government regulation.
Also if you’re getting the same rates from different places, it sounds like you’re being quoted the same company not different companies. If you aren’t going directly to the actual insurance companies website, that’s what’s happening.
> The cost is due to the increasing repair costs to other people vehicles, not mainly your own.
That doesn't sound right to me. That would mean only the liability component is increasing in cost, but aren't the percentages being applied across the board?
Aren't most insurance rates / rate ranges set by the states? And any further variance is down to the actuarial tables? It seems pretty reasonable that most of your quotes would be within a few dollars of each other because they're all insuring the same risk, in the same location, under the same legal framework.
Aren't most insurance rates / rate ranges set by the states? And any further variance is down to the actuarial tables?
If that's true, I certainly couldn't find a table on allowable rate ranges when I did some basic research on pricing and what factors influence it. Certainly open to being schooled on how auto insurance works.
Then search by carrier, line of business etc. You want "rate" filings. You will find a report by an actuary, lots of justification explaining price changes, correspondence between the company and regulators asking/answering questions, details on how the rate changes will affect current customers, etc.
SInce most rate filings are to adjust current in force rates, they don't always repeat all the underlying details. With a little more effort you can look up initial rate filings, and they will walk through methodologies in more detail.
Once those prices are filed, they are locked in (for consumer types of insurance). Companies can't deviate in any way. (including giving unauthorized discounts).
I see lots of people are just parroting insurance PR of “repair costs are up”. I’d love to see the data and see if it justifies the hikes in insurance costs
I’d also love to see the average repair cost by part, broken down by whether it’s the insurance company paying or an average Joe privately
People choosing to drive more expensive (and physically punishing in the event of a collision) vehicles is some part of it. But insurance companies like that, so they're not about to include that in their PR script.
Auto insurance pricing is already very heavily regulated, by State. Pricing and underwriting models are public (Search term is SERFF + "State"). The fact is that costs continue to increase for a variety of reasons.
State Farm, for example, lost over $14 Billion last year, mostly from their Auto insurance line. Payments related to losses were 95.2% of the premium they collected, resulting in them having an overall -17% profit margin in that Line.
Insurance is based on the coverage I purchase. Are you saying the insurance company is instead selling me an unlimited amount of liability based on the price of _other_ cars and not the $50k of coverage that I selected when I bought the policy?
Perhaps it would make more sense to think of it as buying “up to $50k”;they’re certainly not paying out the whole amount every time.
If more expensive cars leads to more expensive claims on average, the price of insurance might reasonably go up even if the worst-case exposure is the same…
It does somewhat but that coverage also extends to medical injuries that I may cause. Those costs have been skyrocketing for years without seeming like they made a similar impact in insurance prices.
I guess underwriting is less a game of building an appropriate liability shield but undercutting that liability shield as much as is profitable without at the same time bringing the company into insolvency.
I had always wished the idea of "open source" would have translated to some of these industries. Particularly given the level of technology available, instead of making the system easier to use and more transparent, they've made the easier to manipulate while blinding the consumer to any part of the process.
I wonder if the spike in prices of used cars have also affected this. If average "book value" of car has gone up, then the write off cost has also gone up substantially. So cars might be same, but their value is now substantially higher, while still being under the 50k.
It's based on a whole lot of things. Drivers of Ford Mustangs may be involved in more accidents than drivers of Toyota Corollas. The number of miles you drive, and for what purpose, and your personal accident history, and your age and sex and marital status and whether you live in an area with snow and ice in the wintertime or not, all factor in to the rate you are charged.
I’m sure car insurers pay out significantly more for vehicle damage than person damage. Most accidents don’t involve harm, but body shops are getting expensive. For WA:
> In 2019, there were 45,524 reported car accidents in Washington State. Although 32,106 resulted in no injuries, 325 were fatal and 973 resulted in serious injuries.
I'd bet that the median claim is quite different than the mean claim, because the outliers are so large. Much like the "shocking" statements you hear about wealth distribution -- the largest 10 are bigger than the bottom 50% or similar. That's how log-normal distributions work. Though of course the Gini coefficient can vary.
I've wondered what happens if I have an at-fault collision where I total a hypercar whose value exceeds my maxed-out $2 million liability coverage. Can the car owner come after me for the difference?
Yes, you're ultimately liable for damages you cause.
I would expect your insurance to ask the damaged party to release you from further liability as a condition of accepting settlement at the coverage limits, but if the damages are significantly over the coverage limits and it seems likely that they could significantly collect on a judgement beyond your coverage, it's a possibility.
Umbrella insurance can go up to much higher limits ($2M is maybe already be an umbrella policy), sometimes up to $10M is easy to get, and depending on your insurer, often the upper millions are much less expensive. The tail risk is pretty small. If you're worried about it, may as well ask for quotes at $5M and $10M.
> Liability insurance is based on other people’s cars.
This is what I dislike about insurance. If someone hits my (hypothetical) $100k car and ruins it, I win $100k, but if someone hits my $1k car, I only win $1k.
Yet the person that hit me did precisely the same action/error.
A big problem at the lower end is that insurance companies don't value cars based on their utility. I have a well maintained older car that is reliable and I trust the work that has been done, but it would be valued at around $2k by insurance. In order to buy a car with similar reliability would be closer to $5k. If someone else hits my car, it will be probably totaled at current repair prices and so I will have lost ~$3k.
Indeed, it doesn't take much damage for the insurance company to declare a low-end vehicle a total loss and salvage it instead of repairing. Could be just cosmetic damage and you find yourself in that problem.
As a result, I don't pay for coverage for my own vehicle in case I'm at fault. My jurisdiction now lets me opt-out of repair coverage others are at fault, but I couldn't stomach that. I think it's just for rental car cos that have their own repair facilities and to avoid ever getting a salvage title.
> think it's a bit unfair if you have to pay more for liability insurance because other people have chosen to buy more expensive cars
Yes, this. You can opt-out of insurance for your own vehicle if you want, but generally required to buy some minimum for everyone else's property that might be involved.
Insurance is not a punitive fine or lottery. If someone drives into your house and causes $100k in damage, you would also get $100k (assuming the minimum legal coverage is that high, which it might very well not be in many or even all states).
I specifically recall New Jersey letting poorer people drive “insured” by letting them purchase insurance for effectively fender benders, and if they caused more damage, good luck pursuing them.
You could also look at this the other way: the person driving the rust-bucket with 0 functioning airbags might win more injury compensation than the individual driving something solid with 9 airbags and walks away.
The point of insurance is to make you whole, not to make you better off.
If it did, you'd have more incentives for insurance fraud.
(Also it's the other guy's insurance that pays for it, and if the insurance industry disappeared overnight, and you had to sue for damages directly, no judge would award you more than the damages you sustained. (For an honest accident.))
This doesn't bother me. It's about making you whole after random events. It's better to imagine a meteor hitting your car. If it turns your $100k car into a crater, you have a $100k car afterwards. If it turns your $10k car into a crater, you have a $10k car afterwards. If the meteor hits a big open field, you still have your car. It's like meteors no longer exist, so you no longer need to worry about them. That's all insurance is.
I wouldn’t be surprised if this was caused by concentration in the under writing market. You might find a lot of insurance companies at a thin retail layer on top of a very small wholesale layer.
> I vent my frustration to a few agents about the yearly rate increase insanity and they all shrug, give their non-empathetic "I understand" telephone script and blame it on the "system" calculating the prices and make some useless excuse about inflation.
Thing is, they're not wrong. The cost of accident coverage has gone up, actually way beyond inflation - assume you hit a Tesla and it sits around 9 months until Tesla can be arsed to get spare parts, your insurance will be billed for the damage itself as well as a loaner car for the counterparty. And damage repairs themselves have gotten more expensive as well: what used to be a simple bend that your everyday farmer neighbour could fix with the basic tools in his garage all while being drunk out of his mind isn't even possible with modern cars made from aluminium or carbon-fiber composite, not to mention all the tech like distance sensors that go into modern fenders which has to be replaced and carefully recalibrated.
On top of that come all the issues with regular inflation (e.g. labor cost, real estate rental for shops) and the aftereffects of the covid pandemic and its supply chain shocks (there's still a massive number of car carcasses that couldn't be completed and now get priority in parts delivery).
I haven't had auto insurance in nearly ten years (because I don't own a car myself), and I gotta say, this is increasingly saving me more and more money over time. Everything about cars in the US is just getting so expensive (including the cars themselves); I wonder when it will start collapsing?
You're not paying to insure the car, you're paying to insure yourself against a crash where you land someone with a 5-million dollar hospital and lifelong disability bill.
The price of a car is trivial compared to the price of a person.
They won’t sell you umbrella until you max the other policies, but at some point you’re not paying against future judgements you’re paying against the future insurance company’s lawyers defending the case.
Labor market as well. Many large companies shell out for a salary survey of what other peer companies are paying for similar roles, and then set their wages based on that. That's price fixing. If it were a person calling around to all your competitors and saying "Hey, what are you paying for a senior SWE, we'll pay that too", it'd be illegal.
You know how big-box retail stores will price match products? That's in order to keep tabs on competitors' prices, and to pose a credible threat of starting a price war. Keeping the peace means keeping prices elevated above marginal cost.
Insurance companies rolling out online rate comparison tools has a similar effect.
It sounds like you're ignoring quite a few things. First and foremost that car insurance covers a heck of a lot more than the cost of your car. It can also cover
- the cost of the other person's car
- your healthcare
- the other person's healthcare, including passengers in each car
- damage to other property like buildings and equipment that people drive into
- lost wages if you're too injured to work
- and a lot more.
The cost of a crash can be many times higher than the cost of your car. Of course maybe you only have liability insurance, which frankly is not a great idea and I would recommend getting comprehensive coverage if you can.
Hate to say it, but 1) if your car is involved in just about any kind of accident, it will be considered completely totaled and 2) most cars will be in some kind of accident.
I think the numbers accurately reflect what insurance companies will expect to pay out for claims. It’s partly due to the nature of vehicle design now and partly due to the cost of repair.
I wonder if they actually have that much margin to give discounts... Or are the prices already at or near lowest possible level... After all outgoings must be lower than incoming in on sufficiently long term. Has something pushed the pay outs too high, compared to what is being paid.
Not quite right. Auto insurance is a commodity. They don’t have price fixing per the same way housing does. Also they are heavily regulated and their prices probably have to be approved by your state.
> Rent is up nearly 20% since 2020, with the largest increases concentrated on lower- and middle-tier apartments rented by lower-income consumers. About half of renters now pay more than 30% of their income in rent and utilities, and rising shelter costs were responsible for over two-thirds of January inflation.
We need better rent stabilization laws. Not the ones we have in many big cities that result in perpetually skewed markets and $200/mo rents. But a more comprehensive approach including requiring multi-year lease options, 12-month or greater rent increase notice requirements, and rent increase caps that prevent catastrophic rent hikes but still allow units to align with market rates over longer timeframes.
Unfortunately, people prefer to strawman the entire concept by pretending that the only "rent control" laws that can exist are like those in NY or SF.
The only fix for high housing costs is to build more housing or make your area shitty (so people want to leave). The latter isn't popular so that leaves only one option.
You cannot legislate away costs for an in demand product. It can't be done. Put strict rent increase laws in place and all you do is make it so people sit in their apartment for years to lock in that low rent.
There is a third way. You can reduce demand in other ways, like steep taxes on second and third homes. This releases pressure on the rental market by enabling some renters to afford to buy rather than rent.
> You can reduce demand in other ways, like steep taxes on second and third homes.
The properties people purchase as second and third homes aren't going to make a difference to the people struggling to afford 1 bedroom apartments.
Focusing on second and third homes is just a way to punish people wealthy enough to afford multiple homes. While punitive taxes against other classes are attractive to certain parts of the voter base, it doesn't actually improve the situation for people looking for cheap apartments at all.
I don't think this is entirely true. If people who are currently renting move into homes then their apartments will be rented to people who are looking for housing.
It seems like if you add supply to one area of the housing market like the one above, there is a group of people ready to take advantage of that supply.
3bdroom apartment renters buy a home, then 2bdroom apartment renters get a bigger place that's affordable and meets their needs.
Assuming this works exactly like intended, that 1 family with two or three houses now only owns one and 2 other families get a house, then you're freeing up supply across the whole range of properties.
As someone who lives in a ski town, they are far too expensive for normal people to live there. Local businesses can't find employees, and homelessness has risen dramatically. A huge number of units in the town sit empty most of the year. Some of this is due to vacation homes, I think a lot is also due to speculators and mortgage rate fluctuation causing inefficiencies in the market.
> The properties people purchase as second and third homes aren't going to make a difference to the people struggling to afford 1 bedroom apartments.
They will. As fewer homes are allocated to current homeowners, they will be instead available to renters. With fewer renters on the market, the cost of renting will decrease.
Put strict rent increase laws in place and all you do is make it so people sit in their apartment for years to _live their lives in their homes_.
Not that I disagree with building more housing, or being more creative with rent control, but the fact that people in rent conrolled areas can afford to stay in one location isn't a bug. There may be other bugs, but that ain't one.
> The only fix for high housing costs is to build more housing
That won't fix anything. People with capital compete with people who have housing needs for the available houses. Increasing number of houses doesn't change this dynamics.
The people in need of housing will get priced out of available houses eventually.
What should be done is taxing housing heavily and progressively so that houses become a shitty asset that costs you more the more you have of it.
People with capital will drop it like hot potato and finally people who just want to live will be able to afford it again.
> You cannot legislate away costs for an in demand product. It can't be done.
It's done, and in many places around the world. In NY and SF; in Vienna, the government owns a large proportion of the housing and keeps it affordable (iirc).
They keep it affordable for the family dynasties that rent them. There are like 3rd generation rented apartments in NYC. People death grip those places. Even more than death grip because they are legally entitled to pass it on to their family.
So yeah, if you were lucky enough to have a grandparent get one of those apartments, yes, it will be affordable.
Well, if the supply is going to be limited forever the way it's looking, the least we can do is make it cheap and stop any more economic activity going exclusively to ultimately unproductive rent seekers. It's option three to your "make the area shitty".
I mean, it does accomplish the goal of prioritizing the welfare of existing residents over the welfare of future residents and non-residents.
Most societies do that sort of thing on the regular, but people pushing back against rent control rarely want open borders and welfare for non-citizens.
I understand the general economics behind it, but I don’t think you can free market the problem away when the market is very obviously not free. Just off the top of my head - incentives for over complicating the zoning laws in big cities, extreme push from the locals to stop the new constructions, owners not wanting their investments to go down.
I live in a rental building in Vancouver, and without rent control it would be awful for everyone, as the demand has been insane in the past decade. Sure, for people like us who can pay 2x the rent wouldn’t exactly be a problem, but I have friends, and a lot of elderly in my neighbourhood who would have to move out right away. I can’t imagine a possible way for supply to catch up with the actual demand just because how the municipal governments function. And well, construction business isn’t known to be efficient here in North America.
Your component proposed a set of rent controls (12 month notices, limited yearly raises) that are basically equivalent to rent control in many locations.
Rent control has been repeatedly demonstrated to increase prices and lower the quality of the units under control. The solution to high housing prices is reducing zoning restrictions, not increasing government intervention.
You can always look at countries/cities where your "solution" has been tried and see if rents shifted.
Certainly in my city there are many more houses (infill and suburbs) and rents are not dropping - however we also have high immigration so demand is rising.
Then again, popular cities have huge demand. Increasing supply seems unlikely to fix the underlying issue.
> Increasing supply seems unlikely to fix the underlying issue.
The underlying issue is that the law of supply and demand applies to housing just as to any other market. Increasing the supply is the only way to lower prices.
Ya, most rent control just rewards those that are there when it happens, if it applies to new renters, supply eventually seizes up.
I’m not sure what model parent thinks will work. Maybe rent control light where price increases are limited but the limit is highish? I can see that working out, limiting increases to 1.5-2X inflation might keep the market fluid and provide some stability to renters without locking new tenants out.
The secret is for the government to make up for the decrease in private supply. Vienna showed how it's done - see this article for example: https://citymonitor.ai/environment/housing/red-vienna-how-au... There's a reason it's been #1 most livable city in the world on several rankings for years in a row now.
You need to have some residency control for that to work. Otherwise, everyone would just flock to the most popular cities for their discounted apartment. This also works in Singapore, but only for qualified residents.
Yes! Buying your own home is the ultimate form of rent control, even though property taxes increase over time (and its even worse in CA with prop 13). Very unfair.
If we wanted to make the market fair, we would disallow home owners all together. This effectively happens for most people in some places in Europe. Also, I heard of some places in Europe where if you own your own home, you have to pay some extra tax vs. what you would have paid in rent. I think Switzerland? They also had some form of rent price control, although this just made it really hard to rent an apartment even if you were willing to pay more. These are fairly complex systems that all give advantages to existing residents (so moving to Europe for two years to do a post doc is much harder than it would be if you did that in the USA).
12 months or more to increase rent seems counter-productive. As it would mean that what makes most sense for landlord is to just increase by maximum each and every time as they cannot forecast changes over such long period.
Still, capping increases to something like inflation+2%, and making leases continuous with long termination periods would be entirely sensible fixes.
Giving multi-month notice that rent is going up means that the tenant has X months to shop around.
If the increase is too high, the tenant can push back by moving, or negotiating.
This only works, of course, if you actually have a supply of vacant housing. If there's a housing shortage, no amount of notice is going to fix the rental situation.
If inflation+2% is an acceptable rent change, I don't understand how needing 12 months or more to increase rent is a problem. The only thing a shorter time period allows is a landlord to say "well, over this past 3 months we saw inflation change by +-0% but 0+2 is still 2%, so we're increase rent 2% in the next 3 months period".
12 months seems rather extreme range to me. So what would happen is that you rent a place, day after you move in you get notice that yes we are going to increase rent by maximum in a year. After all this is the most logical and effective time to do it. Now cost might not increase as much in year from that date, but landlord does not know. Come next year, they again also don't know, so again max allowed at time.
But instead, if you can notice rent increase let's say 1 month before year is full, they might look at what are current cost and think oh, I could do with lower increase.
One option is to require multi-year lease options. Most commercial leases work that way. That creates a lot of stability and predictability for the family, just as it does for businesses.
My basis is continuous contract with let's say 3 or 6 month clause of termination under limited reasons. Like purchase or taking unit to use by family. Or something like large renovation...
Yes, give families the choice. Some will choose a lower price with less stability (like me, a single dude). Others will choose a higher price for long-term stability (such as a family of 5).
As a landlord, if you want to forecast over long periods you don't raise rent. Everything else is rolling the dice. Someone who increases rent by the maximum each time owns multiple units they can afford to leave vacant for indeterminate periods, and is gambling with their money.
To allow some leeway for increase in property value and demand, in general lot of money looks that level of returns. Also inflation does not always full reflect the costs.
Also something like 2% above inflation does not lead to unreasonable increases. Until market rates are reached.
> But a more comprehensive approach including requiring multi-year lease options, 12-month or greater rent increase notice requirements, and rent increase caps that prevent catastrophic rent hikes but still allow units to align with market rates over longer timeframes.
If you require landlords to give 12 months notice of rent increase and cap the year-over-year increase, the outcome is entirely predictable:
Every 12 months, tenants will receive a notice of pending rent increase, and that rent increase will be the maximum allowed by law.
This game has already been tried before. Once you start tying people's hands, the optimal strategy is to become as aggressive with rent increases as the law will allow. The only time you back off is if you have a vacancy you can't fill, but that's unlikely because once a city starts controlling rents heavily (even with your proposed laws) it discourages more construction.
There's basically no difference between strict rent control and a rent control that limits rent increases to X% per year with 12-month notice period. They're the same thing because once you cap something, people feel compelled to chase the cap for fear of getting left behind.
> Every 12 months, tenants will receive a notice of pending rent increase, and that rent increase will be the maximum allowed by law.
I'd suggest having no maximum increase, and having the landlord be liable for moving costs if the tenant chooses to move and the landlord is not able to re-rent the unit within a short time period at the increased rent price.
So, instead of an algorithm that purely benefits landlords, you just want the opposite algorithm that purely benefits tenets?
In either case we're throwing the whole pricing part of the market away while still pretending we're engaged in capitalism. Unless you dedicate huge amount of resources to the problem you will likely harm more people than you help.
You could compete with the market through publicly owned housing that people of low income can apply for.
You could upset the market by vastly overhauling zoning laws to make them more open and less bureaucratic.
You could increase access to the market by introducing property tax brackets that are based on total property ownership in a county.
You could increase access to housing options by drastically improving high speed transport to new areas that are currently underdeveloped.
If people are being priced out of the market it's because not enough options exist, which in NYC and SFO is a real physical issue, but in most other places it seems like an entirely artificial issue.
I'm staunchly against "rent control" in the form of capped pricing, and feel like I've been shouting into the wind for years describing rent stabilization measures like you're describing. It seems like something that nobody is discussing or has any interest in.
There are costs to both moving and to a lack of home stability that are ultimately born by society at large, but that are effectively negative externalities to the actions of landlords.
> Such software can allow landlords to collude on pricing by using an algorithm—something the law doesn’t allow IRL. When you replace once-independent pricing decisions with a shared algorithm, expect trouble.
There are probably other things I should comment on first instead, but this usage of “IRL” made me laugh. I grew up with the initialism IRL while chatting online as a small kid so when I emailed a teacher where I accidentally wrote “IRL”, he quipped, “What? As opposed to us meeting ‘in fake life’?”
Now I feel jokingly vindicated against Mr. Teacher as this is the first time I read a government website use IRL. It would seem that algorithms and cyberspace aren’t part of real life to the government, even when it’s about housing price collusion, one of the realest real-life things I can imagine!
Language evolution is honestly great. There's a lot of pearl clutching that happens about it, and policing around what's "ok" English or whatever. But yeah, evolution of language is beautiful IMHO.
I'm sad that you took offense and downvoted. I guess you didn't read the first comment? It was meant as a joke on the absurdity of asking what it's opposed to.
>I accidentally wrote “IRL”, he quipped, “What? As opposed to us meeting ‘in fake life’?”
Wait. If landlords gather information about all other rents in the country, and then use that to set a price for their rents, that, cannot surely, be price fixing.
So is the problem the “RENTmaximizer” software and other services that basically gather price information ?
Because if perfect price information is available, and yet there is no competition in the market driving prices down, well, that’s rentier markets for you.
From the blog post: Algorithms that recommend prices to numerous competing landlords threaten to remove renters’ ability to vote with their feet and comparison-shop for the best apartment deal around.
From the brief: To participate in the service, landlords must share in “real-time” their “non-public,” “competitively sensitive” data, including actual rents paid, occupancy rates, and records of lease transactions. [Multifamily Compl. ¶¶ 227, 380.] RealPage then feeds “this data into a common algorithm.” [Student Compl. ¶ 5;] [Multifamily Compl. ¶ 380.] The common algorithm uses these common data for a single, common purpose: to generate “forward-looking, unit-specific pricing and supply recommendations” for all participating landlords. [Student Compl. ¶ 5.] To ensure that the landlords abide by these “recommendations,” RealPage puts significant “pressure” on them “to implement RealPage’s prices,” including by requiring clients to submit requests to deviate to the “corporate office” and tracking the “identity of the client’s staff that requested a deviation.” [Multifamily Compl. ¶¶ 17-20, 261-86.] As a result, landlords using RealPage adopt RealPage’s recommendations 80-90% of the time. [Id. ¶ 15.] The complaints allege that RealPage was clear about the purpose of its common pricing scheme: to increase prices above competitive levels through collaboration.
Doesn't sound like the natural ebb and flow of the market to me.
It does come across as a bit glib, but I empathize with the author.
I worked in legal higher-ed for a long time; I have absolutely no legal education, but my job involved reading lots of writing about the law, both for expert and non-expert audiences. Accurately conveying the importance of a topic without getting into the nitty gritty or running into collisions with colloquial and legal word usage is tough. Even that one paragraph I quoted had like 6 citations or something, and that's not just to satisfy technical requirements. There's just so much subtlety behind even very common words like may, must, shall, and will when used in a legal context that it seems like context switching is tough. The word count seems to grow logarithmically with the factual and conceptual detail, and even then you're leaving out a lot of padding beneficial to laypeople. We ran an open database of caselaw and we regularly got questions from well-meaning folks trying to inform themselves about some legal predicament by reading the cases, but it's just not feasible. Lots of folks argue that the whole thing is just based on shitty writing practices and gatekeeping legal knowledge, which might be true, but the difference is still consequential now. I actually think this is one area generative AI will be a huge boon, though I was skeptical until pretty recently.
Also, accessibility is a concern. Lawyers doing this sort of work are often very concerned with making their work useful to general audiences. Since subpar access to educational resources and cognitive disabilities are over-represented among low-income people, they're the most heavily affected by this. I wouldn't be surprised if they avoided a lot of nuance assuming curious people would just read the brief. I imagine they'd have written it differently specifically for a largely college-educated professional crowd, but I can definitely see why they didn't.
The rental market analogue of a dark pool is the rental market. All transactions are secret by default, allowing higher-information parties (landlords) to set prices that are advantageous to them, and prevent transactions from moving the market.
These algorithmic pricing systems extend that information advantage by pooling information across landlords (maybe not illegal by itself) and leveraging their position as market-wide price-setter to push rents higher, with the promise that so many units are following their recommendations that renters have ~no alternative (very illegal price fixing)
The rental market is a decentralized network, with companies like these the network gets routed through a central node and the operator of that node has pefect visibility while the connections being routed have no idea what every other connection is doing like a dark pool, it's the centrality that makes it an analogue.
I could think of several advantageous moves like artificially inflating rents then favoring a well paying client by keeping their rents lower than the market. Investing in property spread out across shell companies and then have the algo favor them in a non-intuitive way.
Dark pools don't provide sellers or buyers an asymmetrical advantage[1] and prices are still set by participants and cleared at market, not set by the operator of the exchange (i.e. dark pool).
[1] if they're both participating in the pool, clearly an institution seeing pricing signal from an alternative trading system (even if it's only their own cleared trades) has more information than someone observing only public market transactions.
Yeah I see the app just as a "public stock market" of real estate. If information is free, this is what it'll look like. We don't call stock market a price fixing scheme aren't we?
But the other comment says something about coercion. Now that's what price fixing is.
But there's a meaningful distinction between posting transactions, and recommending prices for new transactions. A public market does the former, but relies on participants to ultimately set prices. The latter is probably fine too, iff the prices represent some good-faith estimate of a 'fair' market price. However, recommending systematically inflated prices with the intention of raising the price level globally is probably price-fixing on its own, even if there's no coercive element.
As a non-landlord, it seems quite odd that landlords and property managers can’t “collude” on rent pricing.
If I were to have a rental property and a management company for it to be hands off, I’d probably want to defer rent setting to the people that understand that local rental market. Both parties have aligned incentives - they want to maximize rent. I guess the government just wants the low-information party to set the pricing? Are there any near-monopoly property management companies in any major metro in the US? Seems like they’re a dime a dozen with lots of competition — doesn’t seems very anti-trust-worthy to me, but what do I know?
It's not understanding the local rental market that's the problem. It's controlling enough of it that you can influence prices globally upwards outside of economic competition.
If 60% of a city's major property companies sign on with RealPage and *also* agree that they will not undercut the prices RealPage chooses (eliminating economic competition between the property companies), that's not just being a high information party, it's collusion.
The problem is that housing in major cities has a relatively fixed supply, so the colluding landlords know that even if a competitor undercuts them eventually they will simply fill their units and cease to be competition for new renters.
Yes, the companies targeted here aren't property managers themselves, they sell software to property managers, and have ended up providing services to many ostensibly-competing managers and building owners in some metro areas, who collectively control enough of the rental market in those areas that they can "maximize rent" by moving the whole market up in concert rather than having any of the owners actually compete with one another.
From a ProPublica piece [1] about it, for example:
> In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.
The collusion is the agreement to adhere to the pricing set by a central pricing authority, not basing your prices off shared information or recommendations. This makes a lot of sense now.
Edit: Well maybe it wasn't missing, but I missed it in any case. Cheers.
If you are an individual landlord, yes, as you are cash-flow sensitive.
However, a lot of these "landlords" are private equity companies and the complexes have financing agreements.
The issue is that "lower rent" can trigger a "recapitalization" clause on the financing agreement. When that happens, the PE company will have to cough up cash. "Missing" rent, however, is generally allowed to be tacked onto the end of the financing agreement. That creates a perverse incentive if the system is highly leveraged--nobody wants to cough up cash and everybody is willing to kick the can down the road. And the PE companies have enough cash flow from other properties that they can ride this out (until, obviously, they can't and everybody fails simultaneously--but then they'll whine to the government for a bailout ... that's a different rant).
The "solution" is occupancy taxes. An unoccupied residence or commercial spot should have to pay a significant amount of cash if it remains unoccupied for longer than 6 months to a year.
That is my understanding as well - but that is a completely different cause than what is being claimed.
Notably, while individual landlords are much more cash flow sensitive (as in per-unit issues), even big companies will have issues if these problems happen 'at scale'. And those problems will be monstrously large when they happen.
Occupancy taxes will just make the bubble pop that no ones wants to pop, since the issue is dropping rents will trigger defaults due to financing issues because financing is still more expensive than it was, and that isn't going to change anytime soon. And said taxes would trigger high cashflow costs, which would just force companies into bankruptcy ASAP.
Same with the bond issues that took out a bunch of banks last year, and still are causing structural bad debt issues everyone is trying to ignore right now.
> And said taxes would trigger high cashflow costs, which would just force companies into bankruptcy ASAP.
And that's fine.
Those who didn't stick their necks out should be able to buy the distressed assets at discount and force the financing agreements to unwind. Real estate doesn't go away. People still want houses. Businesses making products don't go away. Places to work--maybe not so much.
Unless you allow bad businesses to go bankrupt, you'll wind up like China.
Vacancy taxes force that decision much sooner--before everything goes belly up at scale. The landlord has to decide to rent lower or sell the property.
That seems like a super obvious conclusion, the fact that it isn't what is actually happening is a good indication that it isn't as straightforward as you'd think.
This might be true for an individual that only owns one or two properties, but for a company that owns tens or hundreds of properties they can let stuff set empty to drive up prices on all of their other properties.
My understanding is the issue is a different one - these big corporate places can't reduce their rents because if they do, their 'stats' (claimed value due to stated rental prices x units) get bad, and they're all so highly leveraged they potentially lose their financing and their house of cards will implode.
In some cases, they'll literally default if the number goes below a certain value. They already are in deep trouble with the cost of financing going up (3x in many cases) due to fed rate increases, as commercial loans aren't 30 year fixed like typical residential ones are. Think 5-7 year variable rate, or weirder, and often 3-5% higher than the nominal mortgage rate as commercial loans are riskier (not gov't backed).
Nobody (except individuals, maybe) wants the system to implode right now, including lenders, as everyone is hoping for a post-covid boom that will get everyone out of trouble.
It's also why they give so many 'incentives' in the form of free months rent on signing. They still get to claim the higher rent on their stats (keeping the overall nominal value of the complex high), put the incentive under a marketing cost, and voila.
Normally, these financing deals do 'gimmes' for high vacancy rates/ignore them because typically that is temporary - it impacts cash flow, but not 'value'. Everyone has gotten used to ignoring cash flow (to their detriment IMO) over the the last many years, and has been basing their portfolio on 'value'.
The units sitting empty thing 'works' until the cashflow becomes an actual problem, at which point they are bankrupt and the whole house of cards implodes anyway. But wil-e-coyote wise, that may never actually happen, which is why they keep doing it.
Personally, I'd be shorting all these ETFs if I was bored and had enough cash sitting around.
It takes a LOT of rent increase (in a short period of time) to make up for even a month or two of lost rent. Literally one month of rent lost (due to vacancy) would require all the following months rent to be 8.5%ish higher to make up for it if you wanted to recoup within the next year.
Vacancies kill returns, because you aren't actually getting paid - at all - for the thing that you make money off of.
Long term (very long term) more modest improvements could of course pay off - BUT, that shortly would require you be way outside the market rates if you had many vacancies, or doing completely impossible things like 100%+ increases in rent y/y to not lose money.
Now if you're able to corner the market, maybe. But good luck actually successfully doing that, since people are generally able to move, live with relatives, live in RVs, live in tent encampments, etc. if you try.
The problem here is they apparently DID corner the market in some area's. With apparently nearly 70% of some area's Realtors using the software. Given rents went up 18% across the US between 2017 to 2022 (and I believe it's continued as such but I didn't find good numbers quickly) it's entirely possible to reach your 8.5% increase in tightly controled areas.
That is ~ 3.6% a year, mostly during COVID and massive currency creation by the fed? And if you look at the chart, notice how the rent trendline almost exactly follows the inflation trendline?
Near as I can tell, it was inflation being exported from the cities into the rest of the country as remote work let people leave the highly congested area with their bigger city salaries. So what would have been higher than that rent in the cities became higher rent EVERYWHERE.
Which in some areas may indeed have also allowed realtors to do some of the pricing tricks, but none of the actual data seems to indicate it was anything but business as usual?
This seems like more 'make an article to draw clicks' than anything real?
Well.. if you agree to do something illegal in secret then this is "collusion."
Price fixing is a defined crime. So if your agreement is to fix prices between competitors in secret then you are "colluding."
The extension here is that if your agreement is to use similar pricing information sources, property availability lists, or algorithmic components, that this is a form of price fixing, and is thus also illegal, and so you "colluded" by forming this agreement.
The FTC's position is that the agreement itself is illegal. They additionally suggest that even if some of the competitors sometimes "cheat" on the agreement, that doesn't prevent the formation of the agreement itself from being a crime.
This all seems pretty straight forward. They committed a crime. There was no reason to form an agreement. Had they not done that, there would be no case, and no obvious intent. As it is, their intent was clear, to break the law at the public's expense.
This, by the way, is why we have ANSI and IEEE and ITU and all kinds of other "open" standards groups. If you don't do it in secret then much legal burden is immediately lifted from you.
As a renter myself, I have tremendous sympathy for the tenants affected by this. But there is a way to frame this whole saga that makes it much more innocuous:
By maximizing individual profit, the software rapidly finds the real fair market value of rentals. It turns out that the fair market value for rentals is much higher than people thought! This should make sense: housing supply is low, housing demand is high, and housing demand is extremely inelastic. It is a situation where egregious profits should be expected! Landlords simply hadn't realized that they could charge more.
There is one seemingly illogical result, which is that some units go vacant despite the huge demand. But unsold goods are a normal part price discovery, and we are not talking about a huge change: occupancy rates only drop a few percent.
It's a brutal result for tenants, but the alternative is incorrect pricing, which has its own negative implications for the whole market.
With price fixing, would-be competitors cooperate and function as a monopoly. That’s not a functioning market. These services act as a centralization point to accomplish the price fixing without colluding directly with each other. It’s actually much more efficient than traditional price fixing!
Out of curiosity, where do you draw the line? Say there was some open-source pricing tool that runs completely locally, operating only on public data and not sharing information with others. Would you consider it price fixing if it became standard practice to use it?
> Would you consider it price fixing if it became standard practice to use it?
If competing businesses agreed to use the tool and not deviate (or not deviate more than a set amount) from its suggested price, then yes, that's totally price fixing.
I believe that it's price fixing even if they merely agree to use it to inform their starting offering price.
In some other comment thread, folks mentioned that if a landlord outsources rent price investigation to a third party, that third party has to be __very__ careful about working with other landlords, so as to not even accidentally engage in price fixing by recommending prices to multiple competing landlords.
"To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.
For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing."