It is completely anecdotal but in my local experience I've seen the following pattern happen: rent is increased substantially, present tenants move out, no one new applies, unit becomes empty, rent is decreased until someone new finally moves in. I'm not a landlord but I don't think there is a rational basis for kicking all of your rent paying tenants out and then having half a dozen units go empty in the hope that you can squeeze an extra 100 every month out of someone, maybe, in the future.
Until then, sub-95% occupancy was a sign of property failure. Now, rents and rental properties have been so thoroughly captured and coordinated that large property management companies are able to profit at occupancy rates below even 80%. It was organized, aggressive, large-scale exploitation of historical "rules of thumb" of property pricing (not just rentals), laundered through software.
The problem is circular. Artificially high rental prices drove many to buy houses, and median home price and availability in a given area generally determine rental prices. By using profits to capture multifamily dwellings and raising their prices to control their occupancy, valuations on surrounding residential properties (many owned by the same large, PE-backed commercial hard asset investors) could be raised beyond the traditional limits that a local market would bear. Like Broadcom, they raised rates to "fire" their least profitable customers.
Property management companies that used rental price-fixing software flourished, and both existing home owners [1], and cities were loathe to complain. For home owners, this has been the closest they've ever gotten to a bailout in their lifetimes. For cities, tax revenues are higher than ever.
Who amongst them would dare call it all a sham?
[1] I originally wrote "who at worst were unaffected", but that's demonstrably untrue. We normally criticize it as "gentrification", but at least as far back as 2012, I noted investors in my area were buying up minority communities, flipping the houses into rentals to raise property values, buying the properties people could no longer afford the taxes on, and then renting them back to them at more than the cost of their original mortgages.
So many times that I've talked about the fact that this is happening, someone has come out of the woodwork to deny that rental units get warehoused at all (usually within the context of an, "To solve this crisis, we must build more, by subsidizing builders!" argument). And no one ever mentions where this extra value and money is coming from: off the backs of the ever-more economically-precarious workers who can't afford to buy and hold these assets.
My understanding was that debt servicing drives some of the rental price, which is why they can seem irrational in the short term and are not discounted in order to protect the debt coverage ratio of the building. A low ratio can trigger a technical default on the loan by the bank.
This is exactly why. Also why most commercial real estate sits empty forever. To lower the rent would effect the loan and estimated (bullshit) value of the building.
This is only irrational for the landlords, not the software suggesting prices to them. If you churn 10% of your units, but prices go up by 20%, then you're making more money as a rental management company.
Another point is how rents affect real estate prices, even if an apartment stays empty for a year if that makes the value go up of said apartment by $20k then that was still worth it.
A single apartment wont have that effect, but when most landlords does that then the value of their assets will go up, and that value increase will probably outpace any lost rent income.
That is a perspective I had not thought of. I also suppose that if every rental management company starts behaving like this then it can be difficult for a landlord to find an alternative.
My experience is that the estate agents in the UK (south east) put the rent up ridiculously compared to previous then slowly knock off money the closer it gets to the previous tenants moving out and it is empty.
Then, other properties also go on the market much higher as they see this is now 'the market rate'.
The higher quality properties go early. The poor quality ones stay - with the higher pricing.
In the UK, it is an absolute racket without any protection for the tenant. Including ANY annual increase in rent - and people can be kicked out with just 2 months notice (including where I rent, as a family of 3).
>[...] in the hope that you can squeeze an extra 100 every month [...]
Which one is it? Was the increase "substantial" or was it only 100 bucks?
> I'm not a landlord but I don't think there is a rational basis for kicking all of your rent paying tenants out and then having half a dozen units go empty in the hope that you can squeeze an extra 100 every month out of someone, maybe, in the future.
Hindsight is 20/20. My guess is that the landlord thought the market was going to bear the price increase, and went all-in on it rather than only doing it on a portion of his tenants.
> Which one is it? Was the increase "substantial" or was it only 100 bucks?
A 100 increase over 800 is a 12.5% increase, which is substantial relatively speaking. In my case they wanted 150 over 800 which is an 18.75% increase. After I said no (as well as everyone else in the complex) they wanted 1000 which is a 20% increase. I have to say your comment comes off as condescending to me. For many people $100 may be the difference between being able to afford a home and being homeless. Now everyone has left, the units are all empty, and they are asking for 800 (after asking 950, then 900, then 850).
> Hindsight is 20/20. My guess is that the landlord thought the market was going to bear the price increase, and went all-in on it rather than only doing it on a portion of his tenants.
That is one way to describe it. Or, to describe what you said in other words, trying to squeeze every penny out of tenants, creating an inconvenience for five people (who would have probably rather stayed and put up with a modest 2-5% increase), then losing money after all because all of the properties are now vacant.
> I have to say your comment comes off as condescending to me. For many people $100 may be the difference between being able to afford a home and being homeless.
The implication that $100 isn't a lot of money comes from your original comment, not me. After all, the thesis in your original comment was that the landlord risked a bunch of reliable tenants for a small rent increase. It wouldn't have made sense otherwise (eg. the landlord risking the current tenants for a chance of $500 rent increase).
Now I see the source of confusion. I think $100 from the perspective of a tenant may be quite a lot (as mentioned a 12.5% increase). However as you said my thesis is from a landlord's perspective $100 is insignificant with all things considered. If even one unit were empty for two months, that would be an annual loss greater than the extra money they would make from the previous tenants. Also in our case they already have had a unit empty for over six months now which further baffles me.
> However as you said my thesis is from a landlord's perspective $100 is insignificant with all things considered
$100 is often way more significant for the landlord than for you, for you it is a $12.5% increase, for the landlord after his expenses it could easily be 100% increase in their profits. The landlord could have a massive loan, and with increasing interest they needs higher rent to pay that, then there isn't much else they can do than increase rent.
This is why it is important to draw a box around capital interests and analyze them together when considering policy, otherwise the landlord, bank, and previous owner just point at each other and say "the real problem is over there." Or they raise the possibility as a hypothetical, if they know it isn't true in their case.
Why do you expect the landlords to be smarter than anyone else? When things are bad for the landlord things become bad for the tenants, it is only natural, look up the situation of the landlord before you rent if you want to avoid this.
> Which one is it? Was the increase "substantial" or was it only 100 bucks?
Not OP, but here is how I interpreted this.
Increase rents substantially -> no one takes it -> decrease rents over time until it hits a rate the market can bare -> people move in when rents are 100 dollars above what the previous tenets were paying.
Anecdata of 1 but. In July 2021 got place for too much $$$. In July 2022 they said the rent was going up $400 a month. I moved out. In July 2023 they were asking $100 less than I was paying in July 2021
I have no idea if that was this software or market change or what. It was huge complex. 700-800 units. At the time I just guessed that they raise the rent for everyone when their lease is up because most people don't want to move and will put up with the rent increase even if they hate it.
For me, the place had issues. If the rent had stayed the same I'd have put up with them just because it's easier to put off finding a new place, but $400 a month was enough for me to just move.
I find it crazy when rent goes up but they're still offering new renters a month+ off and then when you talk to the front office they're like "we don't negotiate". Well, one of us tried.
It isn't crazy, the value of the apartment is related to how high the rent is.
Think like this, if their asset is worth 400x the rent they would rather increase rent and give you temporary rebates than to ever reduce rent. Reducing rent by 100$ would cost them $40k, not something they would wanna do.
Is this really true? Any sane person buying a business or evaluating creditworthiness looks at revenue and expenses, not just "mmm ok 400x rent" and call it a day.
Yeah, that's weirdly inefficient and annoying for everyone. What would be great would be if there was some algorithmic way to determine the market value for an apartment to minimize vacancy and be fair to both the current tenants and those that want to move in
I guess the simple way (hoping I don't put evil ideas into the heads of landlords) would be an auction before the existing contract is up. For example, you can bid on an apartment to be available from October.
At the end of the auction the existing tenants are offered to renew at the winning price first (maybe with some discount to cover the cost of switching tenants). If they don't want to pay that, then it is offered to the auction winner.
I don't think it would work if the auction itself binds you into the rental contract, as you probably want to bid on multiple properties so you have another option if you don't win.
Does anyone know in general why rental properties aren't negotiated further in advance? When I was renting this was actually the biggest issue - when you are struggling to find a place and you have 2 weeks to do it.
> Does anyone know in general why rental properties aren't negotiated further in advance?
Because it’s a game of chicken between the landlord and the tenant. The landlord usually has some rules for notification (e.g., 30-60 days before expiration) and the tenant usually has something similar for notice to leave.
Nothing stops either from notifying or agreeing to a longer agreement before the old one expires. Though with larger buildings (vs individual owners) it’s less likely they’d be willing to diverge from their standard operating procedures and timelines.
>Does anyone know in general why rental properties aren't negotiated further in advance?
Define "in general". All big landlords (Greystar and such) want you to sign lease extension 3-4 months before the current term ends where such thing is legal. There are states that don't allow long term leases past the first term though. For example, in California all leases go month-to-month after the first lease term but they put required notice periods on rent increases (30 days and 90 days if more than 10%).
In my anecdotal experience, an auction won't work because people aren't looking more than 4 weeks ahead.
The exception is if you are in a college town, when many apartments/houses are pre-leased starting before spring break for the fall. I see that all the time in my current college town.
We need a massive effort to enforce the Sherman Act against landlords.
Both breakups and criminal penalties need to be applied. Send some big landlords to prison for 10 years and this problem will stop.[1]
What is happening in the Bay Area is large corporations are using 3rd party exchanges that make following the price guidelines a requirement to participate. The 3rd party is paid to set the regional prices. And they all win through fee's and higher rent prices.
Its old fashion collusion. Using the word algorithm obfuscates the simplicity in the criminal activity.
I think the problem is worse than just algorithms. If something is around long enough, it'll naturally evolve an implicit coordination, as those who don't coordinate die out.
Its not hard for a landlord to open zillow and see what the comps are going for... that's what I've been thinking the whole time that there is already enough market information to coordinate.
There must be some difference between zillow rents (open units) and the rents being paid by existing tenants or tenants who renew leases, right? You'd expect zillow prices to be a little higher at least, and it could have a huge distortion.
In the article, one of the lawyers quoted states that "enforced compliance is the hallmark feature of any cartel."
Is that part of the legal requirements for a guilty judgement or breaking up a cartel? In the US at least? Would RealPage be fine if they treat their recommended prices as mere suggestions?
There is also a difference between suggesting a price to an uninformed, individual participant vs. highly informed participants that control large segments of the market.
These algorithms have an economic incentive to suggest higher rents, because that's what the customer (landlords) want to hear. If the algorithm calculates a rent 30% lower than the previous tenant was paying, landlords will either ignore the recommendation or shop around for another startup with an algorithm that tells them what they want to hear.
I own a rental property. This is how it works for me:
Tenants move out.
I look at how much similar property is renting for in the area.
I advertise at about that rent. Usually a bit lower.
Prospective tenants agree to to rent at that price.
I don't control prices. That is supply and demand.
Software that looks at rents in area and suggests a price just sounds like automation of what I do manually.
But what real page is doing is not what you described.
If you looked at the rents, put yours at slightly higher than average and then strong armed the owners of the majority of similar units to do the same even if your vacancy rate goes up so that now yours is right at the new average, then it would be similar to real page.
there needs to be adequate public housing for people that can't afford this bs. then landlords can do what they want, let the market decide, but basic housing for people should be a priority.
