Well Raise My Rent

What’s triggering massive increases in rents across the country?

Wealthy workers fleeing expensive tech and finance centers, leveraging work-from-home arrangements and moving to cheaper areas but driving up home prices and apartment prices?

Lower and middle income workers benefiting from higher wages and bidding up apartment rents with their new found cashflow?

Or maybe some of the biggest real estate management firms controlling lopsided shares of all apartment units in an area have started using a single software product that leverages big data to optimize rent adjustments, essentially automating the type of pricing described in Econ 101 as inefficient monopolistic behavior.

ProPublica posted a story at https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent describing how software from the firm REalPage called YieldStar promises 4-7 percent higher “yield” for landlords. Using the software, landlords can alter rents on open units in real time while waiting to land the next tenant. In economics pricing theory terms, doing so essentially allows the landlord to sent the rent on the next apartment unit at exactly the marginal value of the next most likely buyer, as predicted from data reflecting recent rentals to other tenants.

How pervasive and influential is this approach? Per ProPublica, in one area of Seattle, seventy percent of apartment units are controlled by ten real estate management firms and ALL of those firms use YieldStar. That essentially means those ten firms have perfect information about the willingness to pay of every tenant who moved in or renewed in those units and could adjust individual rents conceptually just up to each tenant’s – ahem – walkaway point where if it went any higher, the tenant might not rent or renew.

There are federal and state laws that literally prevent per-consumer pricing based on anti-discrimination laws but this software allows landlords to get this ---->||<---- close by pricing all available units at a given point in time at a price that can be optimized daily, which is almost the same thing unless a complex has multiple open units and multiple potential tenants pondering a lease.

In a information-driven economy, beware of parties leaping to old conclusions about the causes of economic issues – unproductive workers, printing money, deficit spending, entitlement programs, etc. The causes may very well stem from new exploitive “efficiencies” that are further squeezing supply chains and shifting “economic rents” to the alpha players in the economy. In this case, literally.


WTH

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My favorite part of the ProPublica report is the quote from a former FTC member:

** But Maureen K. Ohlhausen, who was then the acting chair of the Federal Trade Commission, said in a 2017 talk that it could be problematic if a group of competitors all used the same outside firm’s algorithm to maximize prices across a market.

She suggested substituting “a guy named Bob” everywhere the word algorithm appears.

“Is it OK for a guy named Bob to collect confidential price strategy information from all the participants in a market and then tell everybody how they should price?” she said. “If it isn’t OK for a guy named Bob to do it, then it probably isn’t OK for an algorithm to do it either.”

When I ran stations in Chicago and Pittsburgh there were sales comparator reports done by an independent accounting firm which took your information, took the additive of all the others and then told you what share of business you were getting. I can’t imagine that going into more granular detail (such as telling you what rates to set) would be legal, but apparently that’s what this “guy named Bob” does for landlords.

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One more comment: Ric Campo, CEO of one of the apartment companies who was an early and enthusiastic user of the software says:

Would you rather do your work today on a typewriter or a computer?” he asked. “That’s what revenue management is.”

This is nonsense. Offering “price coordination” among competitors is entirely different, in fact the statement is so devoid of logic he should be ashamed, or at least embarrassed to have offered it.

To be clear: a typewriter and a word processor do the same thing, one more efficiently than the other. Taking competitors pricing - **especially in a market where you have “monopoly” information on over 70% of the inventory ** and feeding it back to all those participants is categorically cartel pricing, and should be per se illegal. IO hope the Pro Publication story gets some traction and an investigation is started.

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I am good old friends with a property manager in Greater Hartford who manages over 6000 units of rental property.

His costs have soared. He has to go up on his rents. It is not unfounded as if the landlords simply are upping rents for their jollies.

There is a cost to being working poor. Everything the person renting an apartment before you destroys the property it costs you.

There is a cost to being in the Ghetto. Every time someone commits a crime there is more prejudice heaped on top when you seek a job. That includes not getting paid as much.

There is pay in bad behavior for those who are wealthy. And a possible cost later.