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?
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.
[1] https://www.propublica.org/article/yieldstar-rent-increase-r...