Actually, many apartments near prestigious UC schools (Berkeley, UCLA) are priced to be affordable for two students per bedroom. This is how some undergraduate students have been renting for decades, from my own personal observations. A $7200/month 3 bedroom can house 6 students in bunk beds. So at $1200/month per student, this is more than affordable for their upper middle class parents.
Again, these prices have quadrupled in real dollars in only 25 years. Any notion that this is normal for a college town is incorrect.
The solution should be for the UC Regents to build more on-campus dormitories, reduce enrollment at overcrowded campuses, and build or expand campuses in areas with fewer geographical constraints and lower housing costs. Costs are much lower around UC Riverside and UC Merced. There ought to be another campus in Fresno or Bakersfield.
But a substantial percentage of the population seems to think they could charge $10m a month and everyone would just have to take it.
The modern chunky 5+1 is only really affordable to build for big landlords. Smaller landlord apartments are much smaller, often the size of a subdivided house.
Why? What is the logic behind this statement?
> In one downtown Seattle ZIP code, 70% of more than 9,000 apartments were controlled by just 10 property managers — every one of which used RealPage’s pricing software in at least some of its buildings.
This seems true in a lot of hot rental markets - there actually aren't that many landlords. In my midsized city only 4-5 institutional landlords control most of the available units in the median price bracket (and that's for residential, commercial is even worse with just two large landlords controlling a majority of lower end small units). And then when they use Realpage they are all effectively pricing together, so it creates a near-monopoly that greatly curtails downward pressure on prices.
The point of a monopoly is to manipulate the price by increasing or decreasing production, and this is why you need a produced good. Actual prices are set by whatever the market can bear.
But there is no such thing -- even conceptually -- in a market for non-produced goods such as land. Now that doesn't mean they can't be in violation of some law -- maybe they were coordinating to exclude bad tenants based on a protected category or something like that.
But then you will first object, "The land isn't produced, but the structure on the land is produced" and then I'll say that if there was an accusation of collusion among homebuilders, then you would have a point. But not landlords (there are many examples of monopolistic practices in housing, but in the form of zoning regulations).
And then a second objection is "Renting also requires property management services to owners. Maybe there is a collusion among those providing property management to charge more" -- but they are charging the property owner, and it's a field with such relative low entrance bars that it's hard to imagine owners getting screwed by some collusion among property managers.
"Supply skepticism and shortage denialism are pushing against the actual solution to the housing crisis: building enough homes."
https://www.theatlantic.com/ideas/archive/2022/11/us-housing...
I think your posts are great, to the point, a no-nonsense economics approach to the question, and I largely agree with them.
However, I'm wondering in this beautiful free-market world ---
What value is being provided by RealPage?
The costs to the landlords I could find online seem low, but with startups it's hard to tell what the "profitable equilibrium price" of the service would be. For only $10/month it would seem to be nothing more than saving a few hours of labor for each property. (Which might be better seen as ~$100+/rental event or something, since the leases are probably lasting at least a year, but still...)
at a high level, yes, there is a "market rate" for apartments that is driven by supply and demand. you won't have a lot of luck trying to let a 1 BR for double the median 1 BR rent in that neighborhood. but individual units are not fungible either; landlords can definitely charge more for units that have been more recently renovated, better layouts, nicer views, etc. plus or minus $50 on rent might not make much difference to a tenant, but having the data to make those little adjustments could matter a lot to a landlord with hundreds of units. this isn't something you can get just by scraping zillow.
Efficient way how to find market rate?
According to their website, the issue in question is "price discovery" -- e.g. let's say the market price is $1000 a month for your unit, but you don't know the market price because, for example, a long term rent controlled tenant just left, and they were paying $400 or something. Or maybe you had a tenant that was paying $1200 and he left because he found a better place for less.
So what do you charge?
You can try to charge $2000, wait four months, get no takers, then lower to $1800, wait four months, etc. Or you look at realpage, which says similarly priced units sold for $1000 in your area, so you advertise for $1000 and get a tenant. For the individual small time landlord, price discovery is not easy and it can be very costly. Realpage provides it to you for a small fee. Larger corporate landlords probably have their own people dedicated to price discovery and so they may not benefit as much, but even then, you are centralizing the data collection process so not every landlord needs to do their own legwork. Why not just look at some of the websites that do statistics of craigslist asking prices? Well, in some sense that's all that's going on here, except with clean data and hopefully adjusting for biases -- e.g. if you look at averages of asking rents, you will get an over-estimate of rents because those who don't find buyers keep their advertisement up longer than those who find a buyer, so there is some adjustment that needs to be performed on an average of craigslist asking prices. Also that data tends to be dirty and doesn't have good coverage. I wouldn't be surprised if all that realpage is doing is massaging this data and fixing it up, plus adding in other data sources to get a propriety estimate.
That's the value of this one feature.
Of course, real page also handles online billing and a lot of the standard services you would expect from a property management app, but those services aren't at issue here. Point is, having realtime data about what people are paying is useful. That's why Zillow has estimates, and we don't look at that as a pricing cartel. Kelly Blue Book also has price estimates, etc. Even stock exchanges sell price data -- it's just a useful, valuable commodity.
Or you can go to Craigslist, look for similar properties in your area, factor in quality of renovation, furniture, views etc, and have quite informed guess in a matter of hour tops. For a yearly procedure it is adequate.
Small landlords often don’t want to deal with annoying their tenant so they don’t raise rent unless they feel they “need” to - and appreciation makes them feel they don’t need to.
Middling landlords (owning one or two 20 or so unit buildings) often are aiming more for cash flow and minimum vacancy, so they often have pricing out of date. (Ask people in your are who rent which apartments never have vacancies - you’ve found the underpriced one).
Large landlords (many thousands of units) have vacancy targets and formulas and comps to determine rent as best they can - not because it makes them money per se but that it raises the value of the property (which for large complexes is a simple formula based on rents) allowing more loans for more properties.
RealPage is trying to provide that “large landlord” stuff to the other two.
Market forces are not magic pixie dust. The actions of market participants are what create the market in the first place. Colluding to fix prices, assuming the collusion is widespread enough absolutely impacts prices. That the buyers ability/willingless to pay limits the maximum amount of rent extraction (har har) doesn't change this fact: the equilibrium in the presence of competitive pricing is still different than in its absence.
Even partial collusion can still have an effect similar to removing the units from the market, and this effect is outsized when the market's supply is already very limited. Say a collusion only controls 400 units in a market of 20,000 (like, say, mountain view)-- you wouldn't argue that demolishing those units would have no substantial impact on prices, so you shouldn't argue that removing price competition among them wouldn't either.
Why cartels can't work in industries with numerous competitors is literally an Econ 101 topic. Historic cartels only succeed with majority market share and high concentration among a few players. We don't see anything like that in real estate. Not even remotely close.
Your example also doesn't make sense to me. A cartel controlling 2% of the inventory of apartments in a city holds a few apartments off the market. This would indeed raise the equilibrium price, but doesn't benefit the cartel participants. All the excess profits in that scenario are flowing to non-participants. It's the perfect backwards cartel!
Landlords are price takers. If their financing costs are higher than market rent, then they have to live with it. Plenty of landlords are negative monthly cash flow.
Rent in SF dropped by 20% during Covid. They had no choice and it didn’t matter if it didn’t cover their holding costs.