I think RealPage is right. The issue isn't that landlords are using software to help them price homes. The actual issue is the lack of housing. San Francisco banning the use of software to help landlords figure out the market value of their rentals is a bit crazy. Most landlords don't use RealPage. Therefore, if RealPage sets the price too high, it's the landlord who will lose money by having a vacant apartment. The basic money formula for a rental unit is occupancy * rental price. Both matter.
Now, if all the landlords in an entire city or community is using RealPage, then it should be illegal. That's a different story.
That is a really incomplete analysis. Part of the complaint is that housing is available, but the cartel withholds rental units from the market in order to maximize profits.
Like, if 10,000 new residences have been built then the most profitable thing might be to buy them all up and keep them empty.
> if RealPage sets the price too high
By definition, 'too high' is when there's a problem.
> The basic money formula for a rental unit is occupancy * rental price.
That is too basic. You omitted elasticity. Rental price is a function of overall demand, which in turn is based on regional occupancy. Collusion to reduce regional occupancy can artificially increase demand, and therefore the rental price, giving an overall higher profit than true competition.
> if all the landlords
100% is a pointless number. There will always be someone who, for example, rents out a place to a relative at below market rates, so 100% will never be met.
The lysine cartel did not control 100% of the lysine market.
> Now, if all the landlords in an entire city or community is using RealPage, then it should be illegal.
Waiting for a cartel to be established _before_ acting against the cartel does not seem like a particularly good idea. Like, it’s not hard to see the argument that this is, essentially, price fixing, with some element of indirection.
Do we have data on what % of rental units in San Francisco uses RealPage?
I'm a landlord myself and have never used RealPage or any software to help me price. I simply look at a few comparables, gauge the quality of my apartment vs theirs, and set a price. I can understand if some landlords don't have this skill or time and would rather let a 3rd party help them set a price.
As far as I know, RealPage is more for very large landlords that own many units. Most San Francisco landlords are mom and pop.
Most landlords only own one or two properties, but most properties are owned by people with more than 3. Both these things can be true.
And it can also be true that though most properties are not run through such a system, only a very small number of properties are available at a particular time. And if such a system encourages more churn, then a much greater percentage of such properties would be available at any time, than the average.
An effective monopoly could conceivably be maintained even if they only represented a fraction of the total market.
So you only collude tacitly instead of trying to compete.
It makes no difference. If 1 in 5 landlords use this software and 4 in 5 look at their prices, the situation is identical to one where all of them would use this software.
And here we find the true issue: free markets are a lie and collusion is a fact of life in capitalism.
For the actual competition to work, the prices would have to be quite secret yet consistent and independent of the buyer. Quite tricky combination to pull off.
There is a huge difference between 1/5 and 4/5 using RealPage.
If RealPage sets your price at $1,000 but 4/5 sets it at $950. Your apartment is at a disadvantage. One extra month of vacancy will make any higher rental price you set evaporate. Renters will have plenty of options. 1/5 won't make much of a difference, if any.
But if 4/5, that's a huge impact. Now suddenly, 4/5 apartments are $1,000. The lone $950 apartment will get rented out fast but everyone else will have to pay $1,000.
If RealPage is used by 1/5 and sets a price at $1,000 then there's a new higher anchor price that the other 4/5 not using it will look at and think "I could make it this high", the first few apartments at $1,000 will have a disadvantage but by creating a higher anchoring point the prices will gravitate towards that. The more people setting it at $1,000 because they see a few listings at that price will move the price point towards it.
The impact will exist nonetheless, the only thing that a higher proportion using RealPage will do is to move the price point faster towards that price.
New construction can tame prices but apart from huge financial crises I've never seen housing prices be steady or fall, those moments are fleeting. Unless construction outpaces demand for a long while the prices won't budge, developers want to sell it for as high as possible, they won't build if prices are constantly falling.
If RealPage is used by 1/5 and sets a price at $1,000 then there's a new higher anchor price that the other 4/5 not using it will look at and think "I could make it this high", the first few apartments at $1,000 will have a disadvantage but by creating a higher anchoring point the prices will gravitate towards that. The more people setting it at $1,000 because they see a few listings at that price will move the price point towards it.
Why would the anchor be $1,000? It's supply and demand after all. The $1,000 apartment would just sit there and miss out on a month of rent or not get rented at all.
But if enough of the market (4/5) uses RealPage and refuses to lower the price, then it is collusion.
1/5 is hardly a problem. The 4/5 will get rented first. The 1/5 might lower the price eventually or risk not getting rented at all.
Yeah but you are forgetting about the elasticity of the housing market.
Simplistic supply and demand doesn't capture that, if 1/5 is putting houses out for $1,000 and it will take years to build new supply then the $1,000 becomes a new target, the other 4/5 won't be sitting on their hands and renting out at $950 if they think they could get $1,000 (or more) if they wait.
Some more desperate ones not wanting to lose money right now might but slowly the prices will increase, and there are tons of big landlords that don't care about losing a few months rent if it means they might earn more in the end of a >48 months period, so the $1000 unit can stay out in the market for 2-3 months longer than the $950 and still make up the difference after >60 months.
The cities where this happen are usually more attractive so the difference is never just $50, it will be $100, $200, the larger the difference between current price vs asking price the less time it takes for this to pay off (e.g.: a unit is on the market for $1,500 while another is out for $1,200, the one at $1,500 can stay a full 8 months unoccupied and still make more money than renting it out for $1,200 over the same 48 months [40 months * 1500 - 48 * 1200]).
Due to the inelasticity some of those waiting while asking for higher rent will drive the supply down and push others to increase their prices, until it reaches a new price point where the ones waiting consider worth to rent out.
The 4/5 getting rented first is never a given, they will adapt to what the market is offering, if they see houses set at $1,000 being rented out they will increase their prices because the market is accepting that price, why would they rent for lower and lose on money?
If supply tries to catch up with demand by building more units why would they rent it for lower than what the market is currently paying? Why would they build enough new units that would push the prices down if they can sit for a little longer and drip feed units in the market at current prices? It's inelastic, you can't ship some 1000 new housing units onto a place like mass produced goods.
Supply and demand can be helpful to think about it but it's not simple supply and demand.
> 1/5 is hardly a problem. The 4/5 will get rented first. The 1/5 might lower the price eventually or risk not getting rented at all.
This would only happen if there's enough housing units to accommodate a growing population, which in attractive cities is almost never the case. Building more can help but again, developers also don't want to push the prices of new units down so they won't sell as many units as they can and lower prices. It's what happens in London, for example.
Additionally the banks do not want to use negative credit rates ever, or any effectively close to zero.
Therefore if prices for building the houses are too high, they cannot bring them down. What they can only do is repossess, and that cannot bring the price down by much either.
The situation is further complicated for the costs incurred for the maintenance of the buildings and general land tax - but that should theoretically push developers to make condos. But even those are getting too expensive.
Non-market housing (called council housing in the UK I think) for at least 30% of the renting demand is probably the best way to keep renting prices sane. If renting prices go down, so will the buying prices.
Collusion isn't legal even if you're using "AI" to do it. However, it only works in a shortage market. If these cities really want to protect renters, they'd permit a lot more housing.
I think RealPage is right. The issue isn't that landlords are using software to help them price homes. The actual issue is the lack of housing. San Francisco banning the use of software to help landlords figure out the market value of their rentals is a bit crazy. Most landlords don't use RealPage. Therefore, if RealPage sets the price too high, it's the landlord who will lose money by having a vacant apartment. The basic money formula for a rental unit is occupancy * rental price. Both matter.
Now, if all the landlords in an entire city or community is using RealPage, then it should be illegal. That's a different story.