Illegal collusion and price fixing happens when owners of competing companies communicate to set prices.
Apartments prices were historically a highly volatile compared to their lease lengths. One would have to own a majority of the apartments in a market to gain the data necessary to know things like upcoming tenant renewals, apartment renter influx/outflow, etc to combat things like mass-tenant exodus to a nearby apartment complex offering $100 less rent per month. This industry has been historically very competitive.
Realpage does the colluding for them inside a database and whispers back "here's our number".
How are non-participating properties punished? Debt Servicing. Try getting business loans for these properties without running Realpage's tools.
Look at the investors and board members of RealPage, InvesTran, etc. and those in the property management companies. They are a very small circle hiding normally illegal activity behind algorithms.
Encrypting or obfuscating illegal communications doesn't suddenly make them legal. Neither does charging money for the privilege.
I got to talk to one of the wealthiest apartment owners in my state a few years back. He gave me a lot of details of his financial formula, which was really interesting.
But one thing is found critical is that he always made sure his apartments were priced at the low end. He’d rather make sure they were all full all the time instead of dealing with volatility.
The man is hugely successful and they just named one of the colleges after him at my University.
RealPage's formula is largely the opposite of that.
Before RealPage, most large landlords would aim for 97-98% occupancy and set their rents accordingly.
RealPage would encourage landlords to instead aim for 90-95% occupancy by setting higher rents. Most of the time, this turned out to be a more profitable strategy, even though it makes property managers nervous because they feel like empty apartments = lost money.
It is very basic maths as well (that evades most small time landlords).
100% occupancy at 90% of the market price with high quality tenants makes you more money than 80% occupancy + agent advertising / finding fees at full market price with bad tenants.
While this makes sense, I also see how RealPage likely got caught up and thought this was business insights they were selling as a data aggregator. (Being devil's advocate, I don't know much about their knowledge or ignorance.) Something that is all to common of a business practice these days. If the "here's our number" was whispered back as a "score" instead of a price and the cost was denominated in interest rates instead of dollars, wouldn't it be similar to the credit scores we all have? Is that a form of collusion as you define it?
> I also see how RealPage likely got caught up and thought this was business insights they were selling as a data aggregator
Almost everyone I've met who has ended up in trouble with the law in business got where they are by this exact pattern. When they get caught, it's usually just naked, obvious crime. I've seen:
* Trading fake invoices between subsidiaries to increase top-line revenue leading to fraud charges.
* Fake billing between companies to paper over private use of a business jet.
* Medical billing software where diagnostic codes were optimized by matching the procedure to the highest paying service scenario. i.e. making applying a bandage be a emergency surgery bandage application which would be billed at 9x the price of a normal office visit.
* Lots of startups that started with a forward looking "were' going to build invention x" only to discover two years in that invention x is not possible. Instead of pivoting, the founders double down on invention x to raise more money with a "we're close" or "we are commercializing as we speak" pitch.
* Taking loans against customer owned securities. Behold infinite non-diluting cash, and infinite jail time when caught.
In every case, the pattern was completely ok from the founder's point of view, but when you look at the practice in total it was pretty easy to see crime.
Well, RealPage had a "policing agent" that made sure that RealPage customers were using the RealPage rate, and if not they were kicked out of the cartel.
Businesses doesn't get kicked out by Experian if they grant a loan to someone with a low Experian credit score.
Is it strange to be glad that, in that scenario, that those were the consequences for being a data aggregator? I have a deep cynicism about the work of data brokers and the large flows of data that, in the wrong hands, end up being used for surveillance.
I think it's under-studied how information and markets interact. There was the great "markets are efficient if and only if P=NP" paper. Basically the insight was that prices are information and a market is (supposed to be) a computing mechanism for finding "optimal" transactions. Price discovery is often difficult. It is natural for participants to outsource it to computers. But if all those computer services are run by the same company .. suddenly you have a single agent setting prices, not a market.
> wouldn't it be similar to the credit scores we all have
Wow, have never thought about this. Yes, yes they are similar... That's why I get basically the same interest rates across all financial institutions. There's no competition, basically they're communicating to "price fix" a rate.
Though I doubt America would raid the holy grail of capitalism, financial institutions
Credit scores don’t discourage competition. Competition can still exist within brackets.
The reason rates don’t differ much is because most of the rate is determined by factors outside of the lenders control. There’s a pretty small margin for them to compete on price with each other with. That’s why rates on stuff like mortgages are basically commoditized.
Insurance companies have been doing this for years. Feed data into an algorithm controlled by third parties (and what’s more, share data about people who’ve been terminated, coordinate benefits, etc).
* If this software system managed to add, say, 1% to hundreds or thousands of people's rents... that's a lot of money and the company probably deserves what's coming to them, civil or criminal.
* Housing prices are still set by supply and demand. You can't charge LA prices in Atlanta no matter what kind of fancy scheme you run.
People want a bogeyman so bad for the housing crisis, but it's mostly stuff like this, where local NIMBYs stop homes from being built:
> Housing prices are still set by supply and demand
The "market" is not real and hasn't been in years, and tech has 100% helped destroy it.
Cartelization used to be difficult because it was tough getting all market participants on the supply side on the same page. Tech makes it way easier.
Before things like RealPage and social media, if you wanted to collude with 100 other landlords in the area, you'd have to somehow set up meetings with all of them.
Now that's just a small slack group. Or software like RealPage
> Housing prices are still set by supply and demand
If the government's allegations are true, in markets where RealPage landlords control most of the rental supply, prices are not set by supply demand due to market failure.
Given how expensive many cities make being a landlord, it makes sense there will be some where commercial landlords control most of the rental supply.
The supply and demand of housing would be very different if a YIMBY policy agenda was in place.
Right now, it may be possible a rental company could own a large amount of apartments without fear of new units being added.
If YIMBY policies were in place, new apartments could be added within a year or two and in the long-term this would mean housing prices are met by supply and demand. The landlords only have power when supply is artificially capped.
>The supply and demand of housing would be very different if a YIMBY policy agenda was in place
What about the investment in the house and the quality of life of those having the BY? Wouldn't that be very different also, if a serene place with fewer houses becomes a mass housing jungle?
Maybe cities could extend outwards instead of making existing BY hellishly dense?
> Maybe cities could extend outwards instead of making existing BY hellishly dense?
This is what we have been doing. It's not working
> What about the investment in the house and the quality of life of those having the BY?
As the neighborhood gets more dense you'll probably hit a point where the value of your land gets to a point where you can move somewhere slightly out of the city and have a chunk of money in your pocket.
> hellishly dense?
I dont see why you equate density with hellishness, with density comes more services, entertainment options, (ideally transit options) and unless you sell your land is still your land. And generally we're not talking about turning your suburban neighborhood into Manhattan usually more something akin to a european neighborhood.
On the density point - the natural observation is that most people tend to live in high density areas, because that is where most of the housing is. It is possible to have "hellish" density (the worst of a slum somewhere like Hong Kong), but most of the time dense living is simply the standard human option.
The most "hellishly dense" places in the US aren't even as dense as the city of Paris, half of which is parkland, and the other half mostly ordinary six-story apartment buildings.
I don't think hellishly dense cities even exist. There's only hellishly dense neighborhoods and slums. The stereotype some people have is the densest 12 square blocks of Hong Kong extrapolated to the overall size of Hong Kong. Yet if you visit Hong Kong you will find yourself taking a pleasant walk from your hotel, through a park, to a restaurant.
Click any link on the list of densest cities[1] and you will see a lot of low-rises and parks in every one. The ones that are actually hellish are the ones that are car-centric. Dense cities are quite pleasant when you're walking.
So why don't they use RealPage to jack up Atlanta rents to Los Angeles rent levels if they've cornered the market so much? They're leaving money on the table!
> why don't they use RealPage to jack up Atlanta rents to Los Angeles rent levels if they've cornered the market so much?
They'd make less money [1]. Demand for shelter is close to inelastic, but demand for shelter in Atlanta is not.
Consider the extreme: they mandate rents of $1mm a month. Assuming no government interference, they might land a couple tenants at that price. But the vast majority would balk, thereby leaving them with less profit.
So, you're saying that supply and demand are indeed real with housing.
You can realistically use something like this to maybe bump rents a bit, but you cannot use it to radically alter markets, because it is supply and demand that set market prices.
> you're saying that supply and demand are indeed real with housing
You're correct in one technical sense and wrong in another. (Either way, a good discussion.)
In a competitive market, price and quantity are set by the marginal incremental cost (MIC) and average total cost (components of the supply curve) and the demand curve.
Monopolists, however, ignore the demand curve. Their quantity produced is entirely set by MIC and marginal incremental revenue (MIR) [1]. In a very real sense, the market is no longer about supply and demand--it's about the producer's costs and revenue. (Your technical win is in the MIR being related to the demand curve.)
That doesn't make sense, to obtain the MIR monopolists have to have an implicit consideration of the demand curve. Monopolists can't push the price off the demand curve without pointlessly leaving arbitrage opportunities (or burning money, I suppose) and their revenue depends on price and quantity.
There is a fun thought experiment too if we consider a silly degenerate case, imagine the demand curve has a practically impossible shape and spikes to infinite price at 10 widgets. Any logically sound strategy will tell the monopolist to produce 10 widgets because profit would be infinite. So they can't ignore a demand curve in theory because at a minimum they have to care that it is not a degenerate case.
Monopolists base production on their costs and revenue, not supply and demand. Both "supply" and "demand" are real things—that monopolists ignore if it profits them.
I’m really skeptic of the over simplistic approach of “supply and demand”, as if a wildly inelastic market such as housing has much similarities as a different more elastic one. To use the point on GP, if suddenly a huge landlord decided to jack prices to 1mm a month, I would expect prices to reach a more adequate equilibrium, but not because market mechanisms, but because a lot of things are going to burn, at least politically speaking.
And I that’s also a possible answer your question, on why they are leaving money on the table. To avoid inviting political action.
The thing about monopolies is that the monopolist still has to deal with the demand curve, but they get to set the supply curve. As price goes up, demand goes down; they can't change this. In healthy markets, when supply goes up, prices go down because of competition. Then the price ends up at the intersection of the two curves.
The monopolist doesn't have to follow this rule: they set the price to whatever makes the most profits and leave the price there regardless of fluctuations in housing supply.
I think it's highly unlikely that they're a true monopoly. Housing is just too fragmented a market. There are too many people willing to defect, too many mom and pop shops, and of course you have other cities that people can move to if they just can't handle the prices.
Housing is inelastic enough that they don't need a 100% monopoly to engage in highly monopolistic practices. The article mentions that about 80% of rentals in Atlanta are using algorithmic pricing, and 80-90% of landlords are following their recommendations as is. If the algorithm is laundering their collusion onto 64-72% of the housing market, that's larger than plenty of monopolies that have been broken up in the past.
No. When people say “the price is set by supply and demand,” they mean that the price and quantity of produced goods are set at the intersection of the supply and demand curves. As the linked article in the parent comment shows, a firm with market power will maximize profit by producing goods with a different price and quantity, but they will still use the supply and demand curves to calculate how to maximize profit.
price and quantity are always at the intersection of supply and demand, by definition.
no doubt you can find things to quibble with this too, but it's more accurate to say "price is set by supply and demand" means that the quantity sold is at the "market clearing price". Any other price will leave unsold inventory or unmet demand.
the point being that market manipulations will shift the supply or perhaps the demand curves.
They are using an uneven playing field to find the local profit maxima in rents and vacancies. They have insight into number of vacancies, time-on-market, etc. that individual renters and even landlords/property owners (absent collusion) do not have. They are coordinating this and providing collusion-as-a-service.
Supply and demand still applies even when competition is minimal. It just means the force that’s supposed to keep the price from being set to extract maximum profit isn’t working.
Because even if big, demand is limited by what people can actually pay.
You can price-fix and collude with other big home-owning landlords to milk your buyers, but to a point. Beyond that people just wont rent and move away, downscale as much as they can to smaller appartment, find roomates, or try to move back to their parents.
There's a different limited supply: the paychecks of the potential renters. Can't extract blood from a stone, but they can try to squeeze it right up to the limit. People can only live so far from their jobs before it's no longer worth any savings in rent.
In microeconomic theory, it is still set by demand, except that they are capturing some of the rents, causing “dead weight loss” in the market as a whole (eg higher profits but less overall money changes hands). So there are still limits on the monopolistic behavior, but it is still bad for the buyer
> So there are still limits on the monopolistic behavior, but it is still bad for the buyer
That's basically what I wrote in my original comment. They're far from a real monopoly, but they can probably gouge people a few % points, which isn't great.
>Housing prices are still set by supply and demand. You can't charge LA prices in Atlanta no matter what kind of fancy scheme you run.
What you describe is the "price bracket" (say Atlanta vs LA, or good neighborhood in Atlanta vs bad neighborhood in Atlanta). Sure, you can't do that.
But the actual price has a lot of wiggle room inside that bracket, and apparently the final price is not (always) set by supply and demand, but (in cases such as this) by big landlords doing colluding price-fixing instead of competition. The demand not being very elastic, many will pay a little more, but only because unhealthy collusion has made options for less dissapear.
Supply and demand don't exactly work on an inelastic market like rent. You can't wait until find an acceptable price, you need a roof today.
You can't accumulate, so you only look for rent when you don't have one and NEED one.
Landlords, on the other hand, can accumulate, and leave properties empty, sometimes for years, until someone desperate enough arrives.
Rent is not grain where they must sell it by a deadline or it goes bad.
It's a market disproportionately skewed in favor of the landlords.
> Supply and demand don't exactly work on an inelastic market like rent.
I used to set my properties rent to be competitive with the other rentals in the area. In would vary a lot - sometimes more sometimes less. At this point there are so many companies setting price with subscription services that prices always go up.
> Landlords, on the other hand, can accumulate, and leave properties empty,
In a healthy market this strategy will leave small landlords bankrupt. The problem right now is that the small landlords can play along with big property management companies on price collusion.
I agree with some of what you say, but to a lesser degree. However, we like to see garbage companies acting like this to be taken down and destroyed with extreme prejudice as a warning to others. Monopolies and cartels that abuse customers and raise prices should have the corporate veil pulled back and put on life support, if not get the chair. I don't really have any sympathy at all for these predatory tactics if what they say is true. I personally feel it should be criminal as well as civil.
I'm not sure I agree. If one company is setting all the prices then you're forced to pay that price since there is no supply at a lower price. In a normal situation, landlords don't have perfect info and so will set prices differently. But if one company controls most of the market they do have perfect information and can raise all prices together.
LA is out of control. Average price on the west side is $3800 (vs SF which is $3200). I don't know how anyone affords that except a few lawyers and FAANG employees.
It's so bad, landlords are able to rent out bedrooms in shared apartments for $2500-$3500 a month.
Also, while NIMBYs might be part of the problem there is no room on LA's roads for more cars for more people. They'd need Tokyo level of trains to make it work and at the pace they're building it will be 200yrs before they get there, if ever.
I wonder what fraction of the population actually pays those rents. It seems unbelievable. That's more than the average income in most Western countries.
and also, how much do companies there actually pay people? If you pay that much for rent, and still decide to stay there, are the wages so high, that it's worth it? An average couple would have to earn at least a few $k more per month there, than in other places with more reasonable rent prices.
From the supply side NIMBY attitude is clearly a major problem. However that's looking at it in complete isolation, vast majority of population growth has come from Immigration, so it would be just as one sided to say
"The bogeyman is mostly immigrants"
Just to be super clear I'm arguing against one sided statements and not (legal) immigration which I don't have a problem with. However our politicians cannot allow population growth without also providing housing and infrastructure growth otherwise we end up here.
One interesting cultural thing at a company I worked for was to not say "no", and instead say"yes, but have you considered..." Restricting immigration and reproductive rights is not going to go well, politically, but pointing out that it is seems there's a need to be some sort of overarching plan to actually absorb X number of people into a system with a carrying capacity of Y number of people, especially because it seems "the market" hasn't been able to solve that, given how widespread the housing crisis seems to be (though I'm biased because I live in one such region). Cities do have urban planners drafting capital improvement plans(CIP) (usually), but I don't know how much top down directives are involved to say the plan must include plans to increase housing by X%, especially when X can't actually be planned for.
Completely agree; it's great to allow it but we need to grow housing and infrastructure to match it - right now we also need to 'catch-up' for the years we failed to. By the way reproduction is not driving growth in most of the US or Western Europe, immigration is and that is fine but politicians plan, quota and set criteria for legal immigration, they've not really got the same control of reproduction rates.
They know what housing demand will be, since they set and control it, so why do they restrict and frustrate supply (house building)? It's like they've either a vested interest, or building supply is more unpopular than house price increases and eventually homelessness.
Another thing that can be true is that a company can be engaged in an illegal attempt to fix prices and still fail to raise prices, e.g. because they stupidly got half the landlords together to withhold units which only caused those landlords to have a higher vacancy rate while the other half got to enjoy a lower vacancy rate, leaving the average the same but costing the conspirators money because they had disproportionately more empty units.
Attempting to fix prices is still illegal even if your attempt blows up in your face and costs you money instead.
> Housing prices are still set by supply and demand. You can't charge LA prices in Atlanta no matter what kind of fancy scheme you run.
That’s missing the point of collusion. The point of collusion and price fixing is to break the market and prevent supply and demand from getting to natural equilibrium.
This type of collusion is real. Years ago several big tech companies were caught colluding to keep wages down. The demand for engineering talent was there, the supply was limited, but they agreed to not poach each other’s employees. After that was broken up, wages went up.
Supply and demand only works when the market isn’t under substantial collusion.
What's unfair about the market is that it's mostly local "I've got mine" people shutting out the people who teach their kids, attend to them at the hospital, police their streets and so on, via things like zoning laws.
It feels good to blame some big, far-off company but it's not where the bulk of the problem lies. That doesn't mean the company isn't gouging a bit though and if they are, fine, nail them.
We would like to share with you our concern over recent structural developments
that the Blackstone Group L.P. (Blackstone) helped to instigate whereby unprecedented amounts of global capital are being invested in housing as security for financial instruments and traded on global markets, which is having devastating consequences for people.
As one of the largest real estate private equity firms in the world, with $136 billion of assets undermanagement...
That was in 2019 when this report was written. It's now over a trillion.
In neighbourhoods heavily invested by private equity firms including Invitation Homes, more than 7,400 families and individuals are evicted every day. In Charlotte, North Carolina, for example, it was found that in 2013 Invitation Homes filed eviction proceedings against 10 percent of its renters.
Invitation Homes is part of Blackstone.
Blackstone is by no means the only financial actor adopting the business model mentioned above. However, because Blackstone is a leader in implementing the new residential real estate business model and one of the largest global actors in residential real estate...
Most of Canada is being actively price fixed by a handful of large real state companies that have purchased huge patches of housing and tend to do the minimum to maintain or improve and act more like litigious predators who price fix and remove all ownership from the experience
> But compared to the housing stock as a whole, it’s less than half a percent. Even looking at just single-family rentals, the vast majority of which are owned by small and medium-sized landlords, the Urban Institute’s “large institutional” share makes up around 3%.
3% amongst a single demographic, across the entire expansive geographic region of the USA, is in fact a shitton. Have you ever flown around taxiing above a place in a plane and fallen into awe at just how large the Earth is, even from only a mile above? In this case it equates to Yikes.
I'm sure the PE folks are just doing their best move but eek.. the net effects..
Average landlord in the US owns like two properties. This is not happening.
There is a conspiracy theory it's happening though - a funny thing is that the people repeating it can't decide if it's caused by "Blackstone" or "BlackRock", which are two different companies that sound the same.
More importantly you can't enforce a cartel in housing without legal force, because every participant is motivated to defect. So the way landowners enforce one is through zoning laws. Just get rid of those!
There’s nothing wrong with, say, buying a two family home, living in one unit, and renting out the other to help pay the mortgage. But corporate landlording, where an organization owns multiple buildings and runs it as a profit-maximizing enterprise, is a cancer on modern society and needs to be phased out.
In my view, corporate landlording is a relic of the past and really has no place in a progressive society. The financialization of housing stock in the USA where I live has been a disaster.
was living in a building owned by a corporate landlord until late last year. they took two years to fix a major roof leak and in the end only fixed it because i hired a lawyer.
on paper, corporate landlords should have better-maintained housing stock. in practice, i've never personally experienced it.
> You're just trying to ban apartments here. Corporate SFH housing basically doesn't exist but mom and pop large apartments don't either.
This definitely isn't true - there are markets where apartments aren't allowed/desirable, and in which corporate actors 'build to rent' entire subdivisions.s
That's rare though. Build to rent an entire subdivision is a risky business because there are so many unpredictable costs involved with owning that many houses, and you have to maintain them even if they're not being rented out. It's much more common to build them and then sell them off so the family owning it has to deal with it. As I said, that's why the average landlord in the US owns two properties.
Apartments have the opposite situation for weird legal reasons; there are almost no condos built in California anymore because the laws allow the original developer to get sued over quality issues, whereas for apartments the landlord has to deal with it.
It is rare in my part of the world, but it isn't (currently) rare in places where roofs don't have to withstand snow. No comment on the historical trend.
> Apartments have the opposite situation for weird legal reasons; there are almost no condos built in California anymore because the laws allow the original developer to get sued over quality issues, whereas for apartments the landlord has to deal with it.
This feels like it confuses a couple of issues - one really needs to know the recourse a homeowner has against a home builder and how long this lasts (and to compare that recourse to what is available to condo owners)
I mean, is banning property rental so absurd? Drastic sure, but what about apartments couldn't be filled either by co-ops or condos with some choice carveouts for short term rentals and the like.
"A month's rent less HOA fees may not translate to not less than 1/360th of an ownership share of the rented space" would be the 1 liner policy statement.
What if you want to live somewhere for less than 7 years / can't afford a mortgage and maintenance costs / the coop board doesn't personally like you / the coop board is racist and you're a minority?
Prices are set by supply and demand, not by whether the seller has decided to be evil or not that day. They cannot collude without assistance from governments restricting new construction.
> Prices are set by supply and demand, not by whether the seller has decided to be evil or not that day.
Whether and to what extent the sellers in the market have decided to be evil is, in fact, an aspect of "supply", which is simply the function mapping the terms of sale (in simplest terms, price) to the number of units sellers are willing to sell on those terms.
This is true even under perfect rationality, since deciding to be evil is just a way of describing someone whose utility function gives high positive value to something that the person making the description sees as a source of strongly negative value.
I think the "build more" stuff rings very hollow. I live in the sun belt where no politician has ever said no to a developer, and I assure you that rents and home prices are broadly unaffordable here too, though perhaps less so than elsewhere.
It's definitely less than elsewhere - housing is only really bad in coastal blue states esp. CA/NY.
You have single family zoning and height limits like everywhere else in the US. Allowing sprawl development works for a while but eventually you just run out of sprawl.
Rents are down in Austin, Berkeley and LA lately because of construction though. Funny enough, the LA one was an accident and they're trying to undo it.
> It's definitely less than elsewhere - housing is only really bad in coastal blue states esp. CA/NY.
Rents in my politically purple region 900+ miles from any coast have increased 100% over the past decade. What I pay now for a 1bd exceeds what I paid for a 2bd in a nicer part of the city when I originally moved here. Rental applications no longer require 3x income, only 2x now; it's just expected that people devote half their gross income on housing.
How anyone not making six digits lives in NYC is beyond me.
Check the median personal and household incomes over the last decade; both have increased, while household sizes have gotten smaller.
As people get richer, they have smaller households - ie, they stop living with their parents. If you don't allow smaller housing units to be built to match this, they will compete for existing ones and drive prices up.
REITs started booming after 1992, which probably dramatically increased the scale of corporate landlording, along with the improving rental management tooling/software that is making it increasingly easier to manipulate the rental prices and push it upwards.
What did you select 1992? What is particular about that year. And do you really think property managers had sophisticated software to adjust rents in 1992? Computers in 1992 were pathetic. I guess you could use Lotus 1-2-3 from DOS.
"corporate landlording" -- I like this term. I haven't heard it before. It sounds like it will go well on a rag newspaper for a front page headline.
Question about this so-called "corporate landlording": Tall apartment blocks in urban centers are exclusively build by corporations, as they require many millions in financing to build. What is your proposal for these urban centers?
You are confusing the initial construction with the long-term ownership. Most of the time, the corporation that builds the apartment block will sell the apartments, not continue to own them and rent them out.
The developer and property owner are (usually) still different people in this case. Owning and constructing a rental property have very different risk profiles so the same people don't want to be in that business.
> The developer and property owner are (usually) still different people in this case.
I would say the general contractor might be different, but the developer and property owner and always the same where I live for tall apartment blocks with 100% rentals.
Even if this is true, this is a distinction without a difference. If a developer can't sell their property to someone else, there's a good chance they wouldn't build it in the first place. If they do decide to never sell their apartment complex, they won't have the liquidity required to build another.
High-rises aren't generally more efficient in terms of space than low-rises. Urban centers should be primarily large numbers of low-rise multi-housing complexes, which don't necessarily need to be owned by corporations. Ideally they'd be co-ops, and those co-ops would allow subletting.
That doesn't make sense to me. If you stack 30 floors of apartments or offices, surely that takes roughly 10x less land (except extra space for elevators) than stacking them to 3 floors.
Obviously any form of multi-tenant space is more efficient than single-family housing, but there's a sweet spot somewhere between single-family and high rise that's the most space efficient.
Having lived in like 9 different places now, I completely keep flip flopping on them. It only takes one neighbor burning tires while doing burnouts, drag racing, and shooting rifles at all hours of the day to seek sane people to live around (true story). Or a lady who refuses to cut her yard, so you get mice and snakes everywhere in your yard. In the nonHOA places I lived, 3 were awful, and three were mostly fine.
On the other hand with HOA, having another entity to tell you what to do with your large purchase doesn't sit right with me. On paper they're not so bad. My experiences with them(three times) have been completely incident free, plus got access to a nice pool and garbage collection. But you'll read a lot of no doubt true horror stories that show how things can go awry.
Functional municipal governments handle garbage collection, building recreation centers with pools, cleaning up green spaces when people dump tires, mowing overgrown sidewalks and controlling vermin.
I've personally had my city pick up tires from a green space (also recorded the company that dumped 'em), cut overgrown yards and sidewalks, and they consistently collect my trash.
Why would someone with a functional local government ever entertain the straightjacket that an HOA enforces on its residents? It's not their business what color I paint my house, where I put my basketball hoop, or what size and style hedge I grow around my front yard.
The simple answer to your question I think is that the vast, vast majority of the US does not have a functional local government that does any of those things.
I remember calling the police about the rifle firing(this was not on acreage), and they acted like I was annoying them!
From what one developer in Florida told me, the local government doesn't want to pay for roads, services, or amenities for any new developments, so requires they set up an HOA to cover it. Seeing as over 80% of new build homes are in an HOA, I tend to believe that.
> the vast, vast majority of the US does not have a functional local government that does any of those things.
Not very true for municipalities with above minimal population. It is true that some local govs are less funded, ergo less effective. But the trend is to do well with the resources available.
> I remember calling the police
Police are not code enforcement.
> Florida told me, the local government doesn't want to pay for roads, services, or amenities for any new developments,
I'm FL for 30 years. Local govs don't tax for neighborhood road improvements. They do tax for code enforcement. Residents get what they pay for and code enforcement is pretty good - responsive but not onerous.
source: volunteered for code enforcement for 4 years
> Functional municipal governments handle garbage collection, building recreation centers with pools, cleaning up green spaces when people dump tires, mowing overgrown sidewalks and controlling vermin.
They don't generally do any of those but the first on private property, except maybe (for the cleanup tasks) after citing and fining the property owner for failing to do it in addition to charging them the cost of having it done, and they often do the first only under a contract with the property owner, so that with a shared structure with a common set of bins, the contract would need to be with an association responsible for the shared bins.
An HOA is just another form of government more local to your house. There can indeed be very specific covenants but most of what you mentioned a city will not do until very far down the path of misery. Joining the board or participating in the HOA is a great way to get your voice heard.
While cities may do the things you describe, its usually going to long after the problem emerged.
They are absolutely against the law. The problem is that none of it is enforced in any manor. Try calling the police in most places for something that isn't an emergency. They'll tell you to file a report, and they'll look into it at some point(hint: they won't).
At least with HOAs, they will fine you and possibly take your house. For these extreme cases it's a great way to keep people in shape. I guess the problem is when they get abusive and try to do the above for yard weed, paint, or other benign violations.
I am in the same boat. I am sure the horror story HOAs exist but I have never experienced them. I don't like the idea of them but I think they are necessary in most communities unless you are living on large acre sized lots.
Having served on an HOA board for years, I can mostly verify this. There isn't a lot of overlap between wise, community minded people and the people who strongly desire to be on a board.
The boards that have lost their way are dominated by people who really want to be there.
HOA's that exist for the management of the common areas of a shared development and, when the development involves one or more multi-unit structures, for managing issues that relate to the shared structure are not an awful concept.
HOA's whose charters allow them to, and who actually do, act to regulate things like the aesthetics or worse specifically negating functional utility of non-shared parts of the property when there are no structural or safety impacts to the share infrastructure are awful.
No they aren't. Some are awful, because awful people get on the boards. But an HOA is just a management organization for all the shared property and amenities in a neigborhood or condominium development. Some people like living with well defined rules, mandatory property and exterior appearance standards, some people don't. If you don't like the idea of an HOA then don't buy property that's subject to one.
HOAs for neighborhoods consisting of single-family housing are a nightmare. HOAs for co-ops are a necessity as you need to maintain the building, elevators, entryways, shared-spaces, etc.
> There’s nothing wrong with, say, buying a two family home, living in one unit, and renting out the other to help pay the mortgage.
There's obviously something wrong with that.
> But corporate landlording, where an organization owns multiple buildings and runs it as a profit-maximizing enterprise, is a cancer on modern society and needs to be phased out.
It's literally the same but on a larger scale?
And actually I found little landlords to be the most "profit maximizing", petty, cruel and stupid. At least big organizations have some sort of reputation to protect, unlike anonymous landlords.
to be honest as a renter I've had way more annoying experiences with individual landlords than with corporate landlords.
My sort of conspiracy theory is that it's individuals expecting big returns driving up a lot of rent prices, rather than big rental corps that understand the value of slow consistent returns and don't feel the need to drive people out to resell. I have no proof of this though.
"Average landlord in the US owns like two properties" factoid actualy just statistical error. average landlord owns one property. PE Georg, who lives in on a yacht & owns over 10000 homes, is an outlier adn should not have been counted
1) It's not a conspiracy theory that during the biggest housing crunch in modern history, PE firms were gobbling up the majority of all SFH sales in many markets.
2) While true, BlackRock was essentially founded by Blackstone. Their naming is no coincidence.
3) Both were involved in said practice to an extent, with Blackrock having a share in American Homes for Rent, and Blackstone Invitation Homes.
1) Depends on year and zip code. While I don't have specific numbers for these two companies, there are numerous reports for 'investor' purchases. In some zip codes, 90%. Nationwide, 24% of all SFH sales in 2021, for example.
3) 10% for Blackrock. Blackstone is a little trickier as they sold off IH in 2019, only to buy Tricon in 2021.
> It's not a conspiracy theory that during the biggest housing crunch in modern history, PE firms were gobbling up the majority of all SFH sales in many markets.
No, they had a majority of SFH /rental/ housing, which is by far not the majority of SFH housing.
They also say in their investor releases that the strategy only works because restrictive zoning prevents building any new housing to compete.
High housing costs in the UK are not caused by the royal family. They're caused by the UK (and Ireland) having the worst planning system in the world which makes it illegal to ever build any new housing. It's actually even worse than the US - at least zoning implies you're allowed to do something by right.
The US also has a better tax system since it uses property taxes more often, which reduces land values.
That "lord" in "landlord" ain't there for no reason. Are people finally prepared to understand that landlords are just the modern incarnation of parasitic aristocracy?
One might think. But common and even corporate landlords are not that powerful.
See the fact that the FBI is raiding them for price fixing. Which they should, as rent prices are a major political instability pressure point and a major factor in the unspoken social contract. Private landlords exploiting tech to destabilize housing needs to be checked without quarter.
Federal Police virtually never raid actual aristocrats in such a public manner, and especially not with a focus in their livelihood. Remember that the aristocracy was traditionally a powerful position: collectively challenging the King and often winning.
The aristocracy actually morphed into parliamentary government, which is the dominant government throughout the West. That's where you find the legacy that you thought resided with modern landlords. While some might still earn a living in that manner: making and wielding the law long ago became more attractive.
I think this has led to parliaments being confused with legislatures;
a similarly sublte distinction exists between prime ministers and presidents.
I worry this kinds of apparent loses sublte distinction will be politically abused in the coming election under the scenario were the direct vote count and the electoral college suggest different winners
I think that you are unnecessarily getting lost in semantics. Regardless, I'll clear up my meaning.
By "parliament" I'm indeed referring to a legislature or a body of lawmakers that passes law.
Often, that body is named "Parliament". In the US, it's Congress. My meaning would exclude any body with the name of Parliament that does not make laws. Though, I'd acknowledge that such a system would likely be a proto legislature and carry lawmaking influence.
Prime Minster and President are just titles. Their function in any one government would reveal their role, from diplomat to commander to figurehead.
The "direct vote count" does not suggest a winner because it isn't a thing in the US except at the State level and in the minds of wishful thinkers. I have no idea what you mean by the relevance of a "subtle distinction" in that context.
35% of landlords were between the age of 55 to 64 years
there is no such claim that all were merely renting out an extra room.
It's more fruitful to look at the landlord power distribution of number of properties per landlord and cast those renting two or more houses toward the "(small a) aristocrat" category .. with those renting out multiple million dollar plus houses in dense inner city upscale suburbs likely being very well heeled.
Are you suggesting the FBI should raid Canada? Because I’m increasingly convinced they would do it if you asked, if for nothing more than just a change of scenery.
The big problem is we've financialized housing, a basic human necessity. This is wealth extraction and, really, state violence. People buy into this model because they think they're building wealth. For the vast majority of people they own only their own home so they're not really growing wealth at all. After all, they can't just sell their house. They have to live somewhere.
And no, this isn't a supply issue. We have enough housing.
Second, landlords can form an effective cartel by all using the same tool that spits out the same numbers to all of them. If a company bought up 80-90% of the housing supply and jacked up the prices we'd all recognize the anticompetitive behavior. There's simply one level of indirection here. It's naive to think that cartel-like behavior is an unintended consequence.
But taking out this one player won't fix the underlying problem.
All these schemes can only really be effective if housing supply is insufficient to meet demand. If there is plenty of supply it’s very hard to price fix a market.
The cartels and PE investors are investing in NIMBYism. It’s a bet that resistance to construction will continue to keep supply artificially constrained, forcing prices up.
If that resistance is removed these investments will underperform.
I think the cartel protects itself from an abundance of supply, that's part of the problem. If supply is high it should naturally translate to landlords cutting prices to compete. Instead, a cartel can coordinate to keep prices high or withhold listings to artificially constraint supply. That should keep rents high even during an abundance of supply. I read somewhere they're accused of doing exactly that.
Yes but at some point the fixed costs of a vacant property are going to outweigh the extra income earned from higher rents on occupied properties.
A vacant property still has to be insured, maintained, heated/cooled, taxes paid, mortgage or commercial loans paid.
So if the supply is high enough that landlords can't afford to hold enough of them vacant to maintain high rents, they will eventually have to rent more of them.
Empirically, a cartel of 2 can be quite stable With 3 or 4 members it gets harder, and with 5 or more someone will soon undercut the others. In secret or publicly.
The landlord cartel theory requires landlords both to have unselfish solidarity with other landlords, and be selfishly greedy against renters.
More broadly, the only reason housing is an attractive investment (rather than just the required capital for the day-to-day business of being a landlord) is that, because there's not enough housing, prices keep going up year-by-year fast enough to outpace any and all expenses.
That's the case when there is a market where demand is dynamic and a person can simply refuse to buy (decreasing demand) if the prices are too high. Milk is like this.
But in rental market, the demand is not dynamic. You HAVE to get an apartment to live in once your lease is up. If 80% of the complexes around you are on this and on top of that the independents also set their pricing based on the market controlled by the majority, then they can charge you whatever they want. You HAVE to buy and you HAVE to get it with the price dictated by them. There is absolutely no supply and demand in this at play.
Again people seem to not be exposed to wtf is going on in the rental market. In my building I have seen prices of the same unit move by 10% within a few days. According to my management this is due to the “software” they are using.
A perfect cartel does indeed increase prices to the level of the cartel's minimum. But the greater the price difference is between the natural price and the cartel minimum price, the greater the incentive is to break the cartel.
People who buy property want to protect it and increase its value, so they have every incentive to vote for and support zoning and construction regulations. This is similar to immigration. People who immigrated earlier are the most vocal supporters of stricter immigration rules for future immigrants because they are afraid that a fresh influx of immigrants will reduce their competitiveness.
> People who buy property want to protect it and increase its value
They do this because they need investments, and all other forms of investment are less appealing due to regulation/risk. They need investments due to the misguided economic cargo culting that inflation is necessary, to promote investment. So the people invest. In property.
You can see this magnified in China where traditional types of investments are unavailable, so the property bubble is constantly growing as it is constantly bursting.
People follow the incentives, and not just the incentives set by the government, but the incentives of reality. If you drop a boulder, the river doesn't just stop; the river flows around it.
The rules are meant to prevent or make it more difficult for people to immigrate legally. Every additional rule only complicates legal immigration. How did people immigrate in 1900? They simply showed up at the border and signed in, and that was it. It was simple and legal, and there was no illegal immigration. And those first immigrants started adding rule by rule to prevent other people from coming. With each new rule, it has become increasingly challenging for people to immigrate legally, leading them to find alternative ways.
Obviously, we should talk about the period after 1875 when the Supreme Court declared regulation of immigration a federal responsibility. There is little point to talking about a time when the known population of the U.S. was less than 5 million. Lets talk about the 20-21rst century.
Social Security Program was created in 1935. Medicaid was established in 1965. Non-citizens became eligible for social security in 1996. Why talk about ancient history when there was little to no burden in citizenship ?
Something like 1/3 of immigrants to the USA in the first part of the 1900s ended up returning to their home countries. It was a much different landscape and situation back then.
immigration rules only apply to legal immigrants. So stricter immigration rules is more of a "screw you got mine" kind of thing, illegal immigrants would only be affected by border enforcement and job availability once they got in (which is crazily easy in the USA vs. a country like Canada).
I believe now there are rules on when undocumented immigrants are allowed to apply for amnesty: when the number of illegal immigrants encountered at the border are less than 1500 / day for a week. so now the definition of illegal is directly linked to how many do the activity on a weekly basis.
> immigration rules only apply to legal immigrants.
No, this is clearly false. Rules apply to illegal immigrants too - those who just crossed the border without approval or prior paperwork. Those rules are rather lax and are not enforced as can be seen in the current administration and "sanctuary" states - who simply ignore the rules.
It is sad, because the rules that would really stop illegal immigration, heavy penalties on people who employ them (like Mitt Romney and Donald Trump) are heavily opposed by Republicans. This basically stops the problem completely in Canada, since even if you show up, you can't get any work/money.
I get the feeling that no one is really serious about stopping this problem, since even the rules they propose are obviously ineffective (and probably meant to be).
Funny, the rules that would stop illegal immigration aren't enforced (sever punishment for those providing the job that are encouraging it), but the laws that create a perpetual underclass/powerless class are enforced just enough to keep that class in check (but not enforced enough to prevent the existence of a major source of exploitable labour).
If people are still renting the apartments, and the vacancy rates aren’t going up, (which in the United States, they’re not), then no, one company isn’t driving rents up.
If vendors collude with each other (meaning there is no competition), which is obviously the case, no matter how many apartments are available for rent, then yes, one company IS driving rents up.
The article mentions Atlanta right at the beginning, saying vacancies are rising.
> RealPage's effects can be seen most noticeably in Atlanta, where software-based pricing affects more than 80% of rentals. Since 2016, rents in the city have grown by 80% — and higher vacancy rates have not driven prices down.
It's possible that rents would be dropping more if this platform were not used by landlords. That isn't to say it should be illegal or is unethical, just to say that the fact that rents are dropping doesn't mean this platform isn't having an effect everywhere it's used.
I think it's entirely possible that it does have a small effect. A percentage point or two.
And a percentage point or two across thousands of people renting adds up to real money they are helping to skim. I don't see any downside to going after them.
That said, no, one company is not to blame for soaring rental prices across the US. It's mostly supply and demand.
Higher vacancies increase the utility of housing by reducing noise and crowding (quite a valuable quality for some), which counterintuitively may push back some against drops.
Contrary to popular belief, if you try to rob a bank but end up not having a net profit due to a low score and high costs, like if your getaway car breaks down, it’s still illegal. Also if you rob a bank but it ends up having less than average robbery losses for the year, the robbery is still illegal.
Collusion is criminal, it does not matter if you make money on it or not, or if “the market could bear the costs of our collusion” or “the collusion was only possible because of other market inefficiencies”
The problem with the "supply and demand" argument in this case is that the demand for apartments is essentially infinite. People absolutely NEED a place live, so it's not just a normal, rational transaction. Companies know that people will pay whatever they have to for a roof over their head, even though it means sacrificing their quality of life in other aspects (vacations, shows, etc).
Demand isn't just about need, it's also about quantity. If there are a million households who need a housing unit, need it so they're not on the street, but there are five million housing units in the area, housing will still be very cheap. Because 80% of the units will be empty even after everybody has one, and people are not going to pay anywhere near as much for a second one because they don't need it as much.
Whereas if there are a million households who need a housing unit and there are only 750,000 housing units, you've got a big problem. For which the solution is to build more units.
> If there are a million households who need a housing unit, need it so they're not on the street, but there are five million housing units in the area, housing will still be very cheap
This is only true if enough of those five million housing units are competing to get filled
If a single person or company owns all five million housing units, they can set the exact same, arbitrarily high price for all of those houses. Then it's a problem for the people who need houses: take it or leave it
But your scenario is rarely if ever the case. Especially when referring to new housing, because landlords and construction companies are typically different entities, so when the new construction is complete it goes for sale into the market and anybody has the opportunity to buy it.
Meanwhile buying up an unbounded amount of newly constructed housing only to leave it idle would be extremely unprofitable, because they would have to be paying the construction companies the existing market rate (i.e. the monopoly price) to keep someone else from getting it, but then couldn't rent it out and recover any of the money because that would increase supply and lower prices (or, to put it another way, no further renters can afford the monopoly price so their choice is a lower price or an empty unit).
Or, you know, if the latter isn't happening, you find some way of allocating them that isn't an absolute utter unproductive drain on the economy. There are lots of finite things in life for which there exist many different allocation strategies that have nothing to do with people with a GED screaming "supply and demand" and "socialism".
It’s basic economics that a monopoly can charge more than firms in a competitive market. In the presence of competition, prices will be closer to cost. For a monopoly, demand still slopes downward as they raise the price, but they can set the price higher.
Collusion allows firms to get somewhat closer to the monopoly price.
I don’t how much this software really does to enable collusion, though? It seems like some landlords might defect if they have too many vacancies?
It gives the property management insight into rates charged for similarly sized and accommodated properties within their area. It starts as a means to compete in a market where rates aren't posted on the walls. Very quickly as the software becomes industry standard the dynamic reverses, and multi-property owners use it as a form of data-washing, knowing their competitors use the same software, as a means of price fixing without "speaking" to one another.
This part of RealPage's offerings is a commercial price fixing collusion tool, plain and simple.
- Disclosure: I formerly wrote software for and was employed by RealPage, though not on this specific product.
the collier company owns many college apartments and bought pretty much every single one around the university of Florida. I'm almost 90% certain they've raised prices higher and higher because they are the only game in town. I don't have the investigative chops to do a takedown, but if someone is reading this and wants a lead for a story, well here it is.
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 hereby declared to be illegal.
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor [. . . ]
This is a classic Sherman Act violation - multiple companies explicitly colluding to raise prices.
Lina Khan seems to have had a lot of preliminary simmering in the background when we weren’t looking - the FTC is on a roll revealing its investigations, and perhaps just in the nick of time.
People don't have to live in the same place. We are seeing this in California now, which is losing population for the first time in 100 years because rent is too expensive for many people.
Collusion can raise rents instead. If all the landlords were conspiring to set a floor on rents that would maximize rents and rent utilization, for example, which would be illegal.
I'd love to see the economy working on sound (non-inflatable) money, as I assume this would reduce people going in to real estate just to keep their money from losing value.
This sounds less dramatic than the headline. They executed a search warrant for some information. Doesn't sound like they're close to charging anything.
FBI raids are dramatic. They show up unannounced and the warrants are worded broadly enough that they can basically take everything that could predictably contain evidence.
Sounds like RealPage makes it easy for landlords to identify market prices so they can charge as much as the market will bear. That's arguably scummy, but I don't see any evidence that RealPage is somehow affecting the market price itself.
The market price is as high as it is because we have a housing shortage. RealPage just helps landlords take advantage of an underserved market.
If anything, shouldn’t that drive prices down, as landlords now know exactly how much to undercut their competitors to still make a profit but also get more rapid turnover? I thought microeconomic competitive market theory assumes that more information is always a positive influence on markets, at least for the simplified models. Is RealPage a counter example?
Is there? Every time I've looked into this the numbers don't tell that story.
What we do see is landlords (corporate and private) taking things off the market on purpose to keep prices up, in addition to the collusion this thread is actively talking about.
By every conceivable metric housing has kept up with population.
Shortage? No.
Constructed scenarios that force people to lower their standard of living so landlords can make more money? Yes.
It is not a real supply shortage: number of families has not gone up and number of homes has not decreased. It is just increase of demand side, probably due to the printed new money and income increase. People could just live as before but their appetite has grown and it pushes demand up.
I’m actually a landlord and my management company literally just has a list of all the rents being paid in my condo complex. Once I saw that I basically gave on my job as a SWE. We are just working for our landlords, you can’t win.
In some markets, there’s plenty of supply - for rent - that no one can afford. Half my building is empty. Yet they charge “luxury” prices for a very much “unluxury” place. I’m one of a small handful of owners that bought before the “management company” came in. They had no choice but to accept us into their system. I’ve seen rent go from $700/1bdr to $2100/1bdr in 4 years.
So you don't think that landlords should be regulated because the solution is more supply, but also think that landlords should be allowed to intentionally restrict supply?
Just off the top of my head: 1) there could be legal issues with it 2) the logistics of organizing such an operation at a scale that would impact price enough to offset the risk would be…extraordinary 3) wheat isn’t an inelastic good, people will find substitutes. There is a reason that when things become commodities, there is downward pressure on price…the thing that becomes a commodity just isn’t that novel anymore. The wheat farmers would essentially need to corner the market.
The latest New York City Housing and Vacancy survey estimates that last year 26,310 rent-stabilized apartments were “vacant but unavailable for rent,” down from about 43,000 in the same survey two years ago.
I think OP meant how much people were paying in rent. "We're working for our landlords"- bulk of people's salary is spent on rent, so it's more profitable to become a landlord rather than grinding and paying rent.
In high COL cities like SF, rent doesn’t even cover the carrying costs of a mortgage.
And if they paid the place off, say a $1.2M home, they might $5,000/month in rent. That’s a screaming 4.2% return on their money (ignoring property taxes, insurance, maintenance). Including those it 2-3%.
If you think of it in share market terms, it's a 4.2% dividend from a stock with a long-term price growth rate of ~7%. Not only that but you can use leverage (e.g. like a margin trader) in the form of a mortgage. In the USA, you can even lock your interest rate for 30 years, and only re-fix the rate when it drops!
Have you tried being a landlord, if it is very profitable? If not why not?
The best way to be profitable as a landlord is to inherit a paid-off property and rent that out.
But if you aren't that lucky and have to actually pay for the property you rent out, it is very difficult to make a profit, let alone one that beats just putting the money into an index fund.
I lean towards renting out housing at market rent in my city to be unethical, so I refuse on ethical grounds to become a landlord. In the long term if the opportunity (e.g. money) arises I would like to build housing charging at-cost rent, but that'd be a charitable activity rather than a profit-seeking one.
I live in New Zealand, which is quite addicted as a country to profiting from real estate. The ability to leverage your money into an asset that provides both enough cashflow to cover costs and interest servicing as well as appreciates in value ~7% annually means that for most people, becoming a landlord is the most reliable path to easy wealth.
Yes, you can become a margin trader, but the cashflow management is much harder, the margin interest rate is higher (here at least), and it is much more difficult compared to buying an existing house and renting it out.
> becoming a landlord is the most reliable path to easy wealth
I think anyone who thinks that, has not actually tried buying a house to rent it out (or thoroughly done the numbers at least).
> provides both enough cashflow to cover costs and interest servicing
Here's the problem, it does not. Try finding a property that you can buy and then rent for more than your total costs. I've been looking for more than 10 years and have yet to find such a thing. Maybe price/rent ratios are different in New Zealand.
I can't speak for everywhere in the world, but in New Zealand it has usually been possible to cover total costs with rent. It's not possible right now due to higher interest rates. I believe this is common in many other countries (e.g. Australia, Canada, UK etc.).
My neighborhood has several hundred pretty cookie-cutter houses so not a lot of variation.
Except for the few largest models, rents are right around $4000/month +/- a few hundred depending on amenities and lot size.
To buy one of the average neighborhood houses you're looking at tying up ~$240,000 in a downpayment and then you'll have an ~$8000/month expense. That's just mortgage + insurance + taxes. If you wanted to rent it out you should also allocate some extra each month for a maintenance fund. And if you need help managing the renters, a property management firm will take ~10%.
If you were thinking of buying this for an investment for that sweet profit landlords supposedly make, you also need to consider the opportunity cost of that 240K downpayment. It could've been earning a safe ~$1K/month or so.
So... I need to be able to rent out this property for about $10K/mo just to barely break even. But I can only rent it for $4K/mo, maybe $4.5K/mo tops. There's no profit to be made here.
This is just one example but I have hundreds of these over the last >10 years from my county. I grew up hearing how owning rental properties was the road to riches so I always wanted to get in on that. But as I keep looking at the numbers for years and years, the reality is that it is exceedingly difficult to find any property where you can make money by buying it and renting it out.
The people I know who are actually making profit from renting properties are either because they inherited a free house, or older folks who lived their house for 30+ years and paid it off, moved to a small apartment and rent out their old home.
I think that's where the "Nvidia money" comes into play. I live in a VHCOL area and according to redfin/Zillow data, almost every house recently sold near me were paid for with between 40-60% down payment. If that's the case, mortgage starts to become manageable if you rent the property out.
Edit: for context, it is the orange county area where average home price is $1.4m afaik.
> If that's the case, mortgage starts to become manageable if you rent the property out.
Sure, with a large enough down payment you can make the mortgage low enough to be cash flow positive if you rent it out.
This does not make it profitable though! You'd have to consider the opportunity cost of putting that huge amount of money into a down payment instead of into some ETF.
Rent (or mortgage) is typically the single highest expense for most people, always has been. If your are paying more than a third of your income in rent, you need to downsize or get a better job.
Agreed, 1/3 rule definitely does not work in VHCOL areas. I pay 28% in rent, that cuts down the commute and allows us to live at a stone's throw from good schools, grocery stores and small airports.
If you monitor the public for rent posts you could mine that data over time. Most units turn over every couple years it wouldn’t take long to get a complete picture. You just wouldn’t know the incremental adjustment though you might be able to buy that from a broker
In markets it helps greatly to have prices published publicly. Perhaps private rental transactions in apartment buildings should be required to be posted publicly?
Illegal collusion and price fixing happens when owners of competing companies communicate to set prices.
Apartments prices were historically a highly volatile compared to their lease lengths. One would have to own a majority of the apartments in a market to gain the data necessary to know things like upcoming tenant renewals, apartment renter influx/outflow, etc to combat things like mass-tenant exodus to a nearby apartment complex offering $100 less rent per month. This industry has been historically very competitive.
Realpage does the colluding for them inside a database and whispers back "here's our number".
How are non-participating properties punished? Debt Servicing. Try getting business loans for these properties without running Realpage's tools.
Look at the investors and board members of RealPage, InvesTran, etc. and those in the property management companies. They are a very small circle hiding normally illegal activity behind algorithms.
Encrypting or obfuscating illegal communications doesn't suddenly make them legal. Neither does charging money for the privilege.