Any individual can go out there and build a model for the rent price, the issue comes in when that model is able to coordinate everyone to keep the prices high and discourage competition/undercutting.
Showing that the average rent is this, the min and max are that, and the percentiles look like this is probably legal. Showing historical trends is also legal. Recommending a certain rent based on a single shared algorithm used by all the players begins to cross that line.
Colluding with other sellers to fix prices is illegal. That is the issue here.
Is it based on intent (you literally are training your model to be cooperative), or is it based on effect (your company is having this effect regardless of their intent -- e.g. Zillow might also be offending). Both of these will be hard to show in practice.
At least where I live, there are landlords who operate reasonably (reasonable rents, with safe and maintained properties, that respond quickly to issues), but there's so much demand relative to supply that it doesn't really affect the ones who are just trying to extract maximum profit.
Should have been obvious...
As long as there are financial speculators, price bubbles will happen. A massive recession can clear out speculators and burst price bubbles, whom will have in the meantime, fleeced the public for billions, as will as made many be homeless.
In commodities markets, the CFTC has different rules about what speculators can do vs real market participants (real producers and consumers). There are very few rules/laws that disincentivize real estate speculation and many forces that incentivize it. These algorithms are additional tools that help speculators maximize profit.
Housing has very limited supply and very inelastic demand. Prices will not come down unless there is another 2008 style recession. Speculators will continue to pile in and fleece renters maximally.
You might say well that’s just business, but the algorithmic price collusion is really not my biggest issue. I think there’s a different moral question we should ask. What is the number of single family properties a single company should own in a given market. Should they be allowed to own 100%? My silly libertarian friend would say why not? The market will correct. A stronger thinker would probably see that a legal limit probably makes sense.
If you want to know where bubbles came from, you should have just asked, its called monetary policy and is set by the federal reserve; sure, there was the great tulip mania of - no one gives a fuck it was a short lived commodity bubble that would look miniscule accounting for any amount of inflation you are willing to admit; today, the "bubble" is called debt, the purchasing power of your dollar must decrease, because the very existence of dollars necessarily implies there is a corresponding debt with interest, it turns out to that a pretty significant amount of the money being printed is being injected intravenously into the housing sector unlike the median wage, and you guys are always mystified that housing costs so much money, incentives matter.
If you want to regard this in a moral context, name your world religion and I will agree this second to obey their economic practices. There are many immoral philosphical ideas regarding economics that many regard as moral; religion is no exception, but I find that conceptually grounded in principles that have worked for thousands of years to keep people ethically bound despite ethnic differences and geographical seperation. There is far less to fear from islamic lending practices than whatever people "feel is right" in the heat of the moment.
I think there has to be some intentional and provable link that you and I agreed (colluded) to use a particular value and set a floor below which we wouldn't sell.
That book doesn't price individual cars, only types and the price of the actual car is open to interpretation and usually negotiation.
It has to be that there's some threat of punishment from the cartel against those who would lower their price from the agreed one. For example, the explicit agreement by the landlord to keep the price at the algorithmicaly calculated one, even so far as to leave vacancy (where as there wouldn't have been a vacancy if the price was lowered).
> RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
This is the key to why it's price fixing. Everyone playing ball and means that the raising rent rates increases everyone's take home even if a few operate with lower occupancy.
The software calculates rent rates that make sure occupancy isn't too low to keep everyone in line. It removes bargaining with the promise that "if you play ball, you'll be rich".
Tenants can negotiate prices just like you can theoretically haggle with amazon.
Of course they would discourage them from deviating from Realpage's recommendation. Why are you paying for a software that recommends the most profitable rent if you aren't going to follow it? Realpage doesn't want property managers to complain that the software isn't working when they're ignoring the software's recommendations.
I have yet to see any evidence that there are any actual consequences of ignoring the recommendations. I'm assuming that Realpage will always accept payment for their services. This suggests that price fixing is unlikely. In the case of a cartel, members are incentivized to sell more than their quota allows, and you need active enforcement to maintain compliance. See the history of OPEC.
It's the same thing as if I were to call for a meeting of all landlords in my area to discuss rents. Anyone who owns property in the area is invited. At the meeting, I would propose that we all keep rents above 1000$ per room. People would argue and finally there'd be some broad agreement that 900-1100$ dollars per room is a better idea. We don't sign anything and don't imply any repercussions for those who ignore it. Then, 90% of those present would undercut the agreed numbers and offer their rooms for 800$. The end result is that rooms in the area go for 750-900$, so we utterly failed.
What everyone present at that meeting did, even those who undercut the agreed prices, is illegal price fixing. Competitors are simply not allowed to discuss and agree on prices in any way.
If we replace the meeting with a third party offering a recommendation algorithm that everyone independently follows, knowing that others do the same, nothing materially changes. The algorithm need not be binding, and need not be adopted fully, for this to be illegal to do.
Monopolies can extract massive wealth from a market, they perfectly optimize profit as long as they are not exceedingly incompetent. Price fixing is just a less organized monopoly.
The problem is that they do this at the cost of all other market participants. But markets can't correct for powerful enough monopolies or cartels. Only outside intervention (riots, government intervention, disruption of the whole sector) can dissolve a monopoly. There is no example in history of a monopoly losing its position in a market without this, since they can always just buy out incumbent competitors.
Price fixing in the market doesnt work, because rival landlords cant call the government to airstrike their competitors when they get undercut.
And again, we don't have to guess. Cartels need to be broken up from the outside, they just don't dissolve naturally. This is basic economics, and a well understood weakness of markets. The idea that monopolies and cartels are too weak to resist in a market is not born out by either economic theory nor history.
These two are completely contradictory statements. "Regular market actors" are the same as "defectors." Fracking companies, for example would not be able to exist without OPEC driving up the price of oil because it would be too expensive.
iraq invasion has nothing to do with opec. And no opec country has made military moves to enforce the cartel.
And in fact, a lot of opec countries tries to skirt the quotas for personal gain!
If RealPage had the effect that all advertised rents in some area were 1000$ but 90% of renters actually negotiated that down to 800$, it would still be price fixing.
Conversely, if landlords in some area all independently decide not to budge from advertised prices and as a result occupancy rates are 10%, that would not be illegal price fixing. Most markets for consumers don't allow any kind of price negotiation, and yet they are not guilty of price fixing.
The key problem is that RealPage facilitates and even encourages explicit collusion between competitors, by showing the same non-public price recommendations to competing lamdlords. Whether that's successful or not and whether they try to make it contractually binding or not is ultimately irrelevant. As the FTC says, unsuccessfully trying to do price fixing is still illegal price fixing.
The software isn't really doing anything. It's simply the means of communication by which the prices are fixed amongst the suppliers.
The software literally includes the algorithm that says "this week, you will set the rate for this apartment at $X" based on its data. And if you want to deviate from that, without being kicked off, and losing your substantial fee payment, you will do that rate (and they will check), or you can "request an override" from RealPage, that they may allow or deny at their discretion (and RP agents are formally trained that override approvals may not exceed 5% of requests).
It also implies that all of the landlords using it are idiots. Not only is price fixing illegal, joining the cartel is optional and costs you money for no personal advantage because you'd have to leave your units vacant instead of immediately renting them out at the higher price induced by the "selfless" idiots in the cartel.
This really is collusion as a service.
If everything here is true [price fixing] but the number of units is small 20%, it still won't work. Consumers will go to the 80% where the actual market lives.
Now maybe someone better at economics can tell me how many units does it take to shift the market? 50%?
Individually, without speaking, every landlord decides that it's in their best interest to charge the highest (per square foot) price that a nearby property is charging. They also all individually understand that if they leave units vacant instead of undercutting eachother, the market impact in favor of their interests will be sufficiently positive to justify the lost immediate revenue, and they trust (blindly) that no landlords will defect from this prisoner's dilemma. There's no communication at all; they all just understand game theory and have blind trust in their fellow landlords.
This would have the exact same material impact on renters. The only difference is that it's slightly harder to pull off. Is it illegal, and should it be illegal?
All it takes is one landlord to have a slightly different concern to change their strategy. They need money fast, so they drop the price to get a tenant, boom competition.
So naturally there's a market for a product that helps landlords make data-driven pricing decisions. I'm sure the big landlords know exactly what they're doing, but I suspect that the smaller landlords don't even realize they are participating in a price-fixing cartel.
As an interesting point of comparison, consider that the Zillow "zestimate" is also an algorithmic price recommendation, shared by all market participants. What's the difference there? Is it that buyers and sellers can both use the same algorithm freely?
I want to make very clear that I think price-fixing is bad and that I believe extremely high real estate prices are at the root of a large and growing amount of misery in Western economies and societies. But I'm also cautious of pursuing thoughtless regulation that hurts small businesses, to the advantage of the big businesses that are causing all the problems in the first place.
Why not? It's what they did just fine for thousands of years. What fundamentally changed in the last 20 years that makes it impossible for landlords to determine their own price?
Yes indeed setting prices is difficult. If you use a service to do it for you, it should be quite illegal, and arguably already is.
Also the “big” businesses clearly outsource this too, having lived in many large apartment complexes where it was obvious a third party algorithm was doing it.
The only way this could work is if you give individualized pricing recommendations based solely on public information + the information of the specific landlord, and if your marketing and contractual agreements and so on make it very clear that different landlords will see completely unrelated prices.
Otherwise, even agreeing on the same pricing formula is an illegal form of price fixing (say, if everyone agrees to sell at public average price + 10%, dropping down to public average price + 5% if unoccupied for one month), per the FTC briefs.
And it’s not reasonable for every business to succeed. Good businesses get good at being a business and learn skills necessary to succeed. I had a corporate landlord where the leasing agents would go on tours of neighboring buildings in their spare time to build comps. You don’t need a price fixing algorithm or a pay-rolled data analyst.
I think Americans have a soft spot for landlords because it’s a common business for the middle class to use to move up in the world. Which is nice, but most Americans also have stories of parasitic landlords that left them in terribly unmaintained homes with big rent increases. Regulation will absolutely hurt middle-class landlords but will increase the average sophistication of the industry.
Would it be illegal to hire a human "price consultant" who was very popular among your landlord friends? Does it matter if the price consultant only serves 5% of the landlords in an area? What if they serve 20%? 50%? Where does the line get drawn between "seeking advice from an expert" and "engaging in price-fixing"?
I wouldn't be surprised if that was tried at some point in the past, so there might already be legal precedent for the non-algorithmic variant of this.
> Regulation will absolutely hurt middle-class landlords but will increase the average sophistication of the industry.
Sophistication is a tool used deliberately and maliciously by large incumbents to suppress competition and to crush smaller firms. And I'm not convinced that middle-class landlords who own a handful of units are the big bad guy we should be going after here. I can only hope that the FTC agrees and is willing to focus their attention to where it will actually help people.
The answer is most likely that it would be illegal, yes, at least if your friends are offering properties in the same area. Even discussing pricing decisions with your friends is likely illegal.
Imagine it like this: Coca Cola and Pepsi executives are not going to meet for brunch and casually start discussing what margins they think are reasonable and how they set pricing in different markets and how low they are willing to go with their price. These are some of the most closely guarded secrets of a company. Decision makers who are aware of these aren't even easily allowed to leave one company and join the other, because of the risks of leaking this information. And if they do discuss this things, they would easily be seen as guilty of collusion to fix prices.
The fact that two landlords who happen to be friends are not the CEOs of multi-billion dollar companies doesn't fundamentally change the law. You are not allowed to discuss pricing decisions with your competitors. If you want to collobrate, you need to incorporate and pool your resources into a common enterprise.
And you can hire a price consultant, but that price consultant can't be working for other landlords in the same area. You could hire different consultants from the same firm, but the firm would have to be very careful to ensure that the consultants don't discuss their clients with each other in any way.
This seems like a weird argument.
For some companies their pricing is super secret because it's often negotiated and they don't want Customer A to know that Customer B is getting a bigger discount, and if a competitor knew Customer A was overpaying they'd send them an offer.
But for others the price is just the price. Nobody is going to Walmart to haggle. All of Walmart's competitors know exactly what Walmart's customers are paying because it's written right there on the sign. So how could it be illegal to tell them?
And this information is important, because if Whole Foods knew it, they could either (a) try to undercut Walmart to steal their customers, but also could (b) safely increase their price knowing that Walmart plans to do the same, and so not fear losing tomato customers to Walmart.
In contrast, landlords working with RealPage know that at least a large percentage of other landlords follow the exact same pricing strategy, and thus be secure that, if they also refuse to lower prices as the algorithm is recommending, they won't lose tenants to other landlords. Of course, some of them might chose option (a), undercutting all the others, but that's not a real problem in a cartel with so many small members (one cheating member won't significantly affect prices).
So, it's not illegal to say "you know, Walmart charges 2$ for a tomato". But it is illegal to say "you know, I'm in talks with Walmart to convince them to charge 2.5$ per tomato starting tomorrow".
This is often not that much of a secret either. In many cases it's as simple as: Look at what competitors are charging, set your price the same or slightly lower, and if that price isn't profitable then don't carry it.
Which is why concentrated markets are basically as bad as a monopoly. If all you have is Walmart and Whole Foods then Walmart can raise prices, Whole Foods sees this and raises theirs too, and then they both leave it there because that's better for both of them than the lower price. Doubling their margins is more profitable than increasing their market share from 50% to 75%. Tripling their sales isn't on the table because they each started with 50% and you can't have 150% of the market.
Whereas if there are a hundred stores, even if 80 of them try to match Walmart's price increase, 20 of them notice that they now can triple their sales or more by keeping the lower price, and that's more profitable than doubling their margins. At which point others get tired of losing most of their sales and lower their prices again.
And the latter is the kind of market Walmart actually operates in, which is why their marketing slogan is "low prices" and not "it's for your own good".
> Of course, some of them might chose option (a), undercutting all the others, but that's not a real problem in a cartel with so many small members (one cheating member won't significantly affect prices).
That's exactly when it's a problem, because they all have the same incentive: Let the members of the cartel increase the market price by withholding their units, while renting out all of yours. And then it's not just one landlord doing it because the only ones not doing it are "selfless" idiots who could be making more money by defecting against the cartel.