San Francisco to Ban Rent-Setting Software Amid Gouging Worry | Hacker News Reader

San Francisco to Ban Rent-Setting Software Amid Gouging Worry

bloomberg.com

32 pointsmschnell48 comments

Ignoring the elephant in the room which is that by their own doing the housing supply is woefully inadequate.

Sure, but if you have this kind of underlying issue any extra supply will be eaten up. And that’s after spending a long time and a lot of money to build new housing.

Places that use RealPage saw big increases in rent even if their supply wasn’t as constrained as SF.

Unless you have people willing to sit with unrented houses, no it won't. Some big rental owners might be able to afford that but the guy with one or two rentals he manages himself cannot afford to let them sit empty.

RealPage may maximize rents but the maximums will be lower if there is more supply.

Over half of the for-profit rental stock in the US is owned by people or companies with over 25 units. And they are more than happy to let empty units stay empty if it will keep the value of their other units high.

It's not the "1-2 house landlords" driving prices up.

https://www.pewresearch.org/short-reads/2021/08/02/as-nation...

"Individual investors owned nearly 14.3 million of those properties (71.6%), comprising almost 19.9 million units (41.2%). For-profit businesses of various sorts owned 3.7 million properties, or 18.8%, but their holdings totaled 21.7 million units, or 45% of the total. Entities such as housing cooperative organizations and nonprofits owned smaller shares of the total."

If true I guess one way to address that is to tax vacant rental units so there's a penalty for leaving them vacant. That seems to me to be hard to administer though.

The YieldStar algorithm doesn’t try to minimize vacancy rate, it tries to maximize income for the landlord. So yes, it can be optimal to have a seemingly high vacancy rate if your tenants are paying more.

Someday, someone is going to do research into the psychology of all this. People will turn to anything besides looking at the lack of housing supply and the local politics that cause that shortage. RealPage! Blackrock! Foreign buyers!

Meanwhile, those of us who are involved and actually go to hearings in our cities see the same thing over and over again. Our 'neighbors' fighting to stop housing: https://bendyimby.com/2024/04/16/the-hearing-and-the-housing...

I mean, 1 in 4 family homes in America is owned by a private equity firm now. That's certainly not helping.

It begs the question of how many "neighbors" are actually being neighborly. I'd be surprised if industry groups weren't paying people to attend local-city meetings on their behalf.

See, this is what I mean. These people are doing it all on their own, of their own volition. There is no big bad bogeyman behind them. They're just NIMBYs. They are that way for a variety of reasons, which is an interesting topic on its own, but I've met and talked with them and they have arrived where they're at without some Shadowy Corporation paying them off.

I mean, it's pretty easy to understand if you just look at motivations. For most people who own a house, it's a pretty big part of their net worth. Nobody wants the value of their house to go down, and if you allow construction of more housing that is what will happen.

Local council members fear geting voted out if they make constituents unhappy.

We need both sides to think of the good of the community as greater than their own financial/power interests. But that's very hard to actually do.

Yes, that's part of it, but I think it goes beyond that, having observed these people close up for several years. I think for some, it's a real fear of change. Others are closet classists/racists who do not want 'those people' in their 'nice' neighborhood. Some on the left are more upset about a developer making some money than about people not having housing. It's a complex subject.

Source? That seems like the laughable lie that originated from a certain TikToker.

GP has confused percentage of purchases in some recent year(s) with percentage of ownership. Also conflated "private equity" with all investor-owned homes (which includes a huge chunk of publicly traded REIT stuff too).

Investor-owned in some recent year(s) exceeded 25% of purchases. Private equity was a subset of that.

Overall private equity owns like... 1-1.5% of housing units (which includes a ton of apartments).

"Investor owned homes" also includes an absolute ton of housing where someone owns a second house and rents it out.

Yup that's a good point too. Of the ~25% purchased by investors, like 80%+ of those are individuals with a portfolio of <10. Big funds are like <5% of the 25%.

Yes, 25% of current ownership seems high to me. Most homes have been owned for decades. But percent of new purchases is a leading indicator of where the market is heading.

It's a trend because housing is scarce. Some of these companies come right out and say this stuff in their SEC filings. They're telling you that they will lose money if more housing comes online.

Where are you getting that statistic? I have seen considerably lower numbers.

For example, [1] indicates only 1 in 60 rental homes are owned by private equity. That doesn't even include owner-occupied homes.

[1]: https://ourfinancialsecurity.org/2022/06/letters-to-congress...

Regardless it's a growing and worrying trend. Especially as they target and exploit the most vulnerable like mobile home parks and nursing homes.

No one would mind if they were building new homes or significantly improving the facilities in proportion of their rent increases.

> No one would mind if they were building new homes

I get what you're saying - producing new homes is actually what we need and would be more beneficial compared to just buying up existing housing stock - but the same NIMBYs who I mentioned further up would actually be upset about people building new homes.

It is, by the most recent data I can find, short by between 4 and 7 million homes. But other reports state that there are in excess of 10 million homes sitting vacant. No, the two numbers are not interchangeable due to location of the homes, but they're both pretty low.

That means that the shortage is between 3% and 5% of the total homes available in the US (around 140M). And given there are under 700k homeless in the US (I wish it were lower, but it is lower than I was expecting before looking it up), most people are finding homes to live in.

By most measures, and given how new homes are being built every single day (and are very, very likely being sold as soon as they're up), it's not even remotely close to "woefully inadequate".

And for a moment, let's just say we agree and the supply is woefully inadequate. Two things can be true at the same time. A shortage of housing supply dovetails nicely with landlords colluding to identify the highest possible price point for their housing.

There absolutely is a housing shortage in the places people want to live. That's why prices are high. The economics here are pretty basic ones of supply and demand.

> And for a moment, let's just say we agree and the supply is woefully inadequate. Two things can be true at the same time. A shortage of housing supply dovetails nicely with landlords colluding to identify the highest possible price point for their housing.

And yes, they do dovetail. The best way to cut landlord profits is to give tenants a lot of options. RealPage is not a good actor - there's no real upside to it from what I can tell. I'd be fine if they just went away. However, broadly speaking, given more supply, rents fall. There is just tons of empirical evidence for that at this point.

> However, broadly speaking, given more supply, rents fall. There is just tons of empirical evidence for that at this point.

That will depend, honestly. The popular narrative that backs this is the 1-2 property landlord who can't afford to leave their units vacant.

The problem is that this type of landlord owns fewer total units than those who own 25 or 50+ units. And those kinds of landlords are both becoming a larger majority (their share of ownership is constantly growing) *and* they have the ability to let units sit fallow to keep the prices on the remaining stock high.

That is to say, empirical evidence is not the final authority in a market that doesn't resemble what it did even 10 years ago.

The claim that "supply and demand" somehow do not apply to housing as they do most goods is an extraordinary one, and extraordinary claims require extraordinary evidence.

Once again, yes, RealPage might be able to push things a few percentage points up and that's bad, but it is simply not capable of turning Houston prices into Los Angeles prices.

> The claim that "supply and demand" somehow do not apply to housing as they do most goods is an extraordinary one, and extraordinary claims require extraordinary evidence.

The extraordinary evidence is the proof of collusion - which we have. That's all that it takes to corrode away the basic tenants of a free market, and it's why collusion is policed the way it is. It is, frankly, a mistake to play down the impact that collusion between landlords has on the rental market.

"When competitors agree to fix prices, limit production, or engage in other forms of collusion, the natural balance of supply and demand is disrupted. This disruption typically results in higher prices for consumers, as the competitive pressure that usually drives prices down is absent."

"Collusive practices can also lead to a misallocation of resources, as they distort market signals that guide investment decisions. In a competitive market, prices signal where resources should be allocated to meet consumer demand most efficiently. When prices are artificially set through collusion, these signals are corrupted, leading to resources being channeled into less productive or less needed areas."

https://accountinginsights.org/collusion-in-markets-detectio...

> Once again, yes, RealPage might be able to push things a few percentage points up and that's bad, but it is simply not capable of turning Houston prices into Los Angeles prices.

You didn’t address the point though. If the issue is collusion, why haven’t landlords hiked mid-tier city rents to San Francisco levels?

Or maybe it’s simply supply and demand.

Or maybe people living in mid-tier cities can't afford San Francisco grade rents? If we need to pull out a catchy (if overly simplified) Econ 101 principle, we could use "What the market can bear," and Houston jobs don't pay as much as jobs in San Francisco.

Relevant: in 1959 the Army Corps of Engineers predicted SF's 2020 population to be 1,018,000 while the actual 2020 census SF population was 873,965 https://archive.org/details/futuredevelopmen00unit/page/n31/...

The Bay Area as a whole is an even more striking difference — 1959's estimate for 2020 was 14.4 million (same link above), and the actual 2020 population of the nine counties was almost exactly half that at 7.7 million https://vitalsigns.mtc.ca.gov/indicators/population

SF is still a desirable place to live. That doesn't mean residents are willing to make it undesirable by changing the character of the city and make it unlivable. Building housing is like building roads: it doesn't fix the problem. The problem simply expands to fill available supply. People reproduce to fill all available housing, and prices stay sky high again, only now the city is shittier. Habitat control is the only option to preserve livable cities.

How is this enforced? Honor system? I feel like this is unenforceable.

People don't like taking responsibility, so they'll blame an external source instead of tackling the underlying issue—the lack of new housing supply.

The same story applies to most booming cities, both in the first world and third world. They'll always blame "greedy landlords," expats, private equity, tourists, and whatever the latest boogeyman is.

Usually any trend is the result of a confluence of factors. There are probably a dozen reasons why rents are up in any particular city.

It seems that constrained supply and consolidation in real estate companies are two causes. Both cause upward pressure individually, but together have an even more powerful effect.

[dupe] https://news.ycombinator.com/item?id=41133143

Here is the law: https://sfgov.legistar.com/View.ashx?M=F&ID=13157163&GUID=BC...

This only bans software that uses "Non-public competitor data" to set rents. You could still sell a product that just scrapes apartment websites to find the average rent in a neighborhood, for example, you just can't blatantly collude with other landlords anymore.

Doing anything that actually solves the problem is too hard, so let's do something that sounds good but does nothing.

California politicians make a big show of sounding progressive, when the outcomes they generate worsen inequality. Ibram X Kendi writes about this - policy that results in racist outcomes is racist, regardless of the tone its creators take.

I wonder if they could get around the non-public part if they themselves made the data freely available. If for example, they collected the data from the apartments they manage but the data was available on their site. I don't see anything here (but I only skimmed quickly) that specifically states the source of the data.

So basically realizing that it is better that they exist and have this data than to try to spite their competitors. Since I imagine without this data their value goes down.

So while they may be helping their competitors get data, their competitors are also helping them and then each company survive on their algorithm and contracts.

Sure, I think that would be great for everyone. As a renter I would love to have access to more public data to help me negotiate against my landlord's greed.

Another one to look into banning is appraisal/assessment software. Municipalities pay third parties to get new values for homes, often doubling/tripling residents annual property taxes.

The 3rd parties don't control the inputs.

If you publicly decide on your assessment criteria (sqft, pools, #bedrooms, garage size, etc. etc.), and then use software to help you assign the fair assessed value to each property, how is this a problem? Were some homeowners able to use inefficiencies in how assessments are done to fly under the radar with much lower assessments than their property warrants, and then cry foul when their assessments (and property taxes) double or triple in order to make them fair and consistent? If so, that's a tax loophole closed, not an injustice.

Assessments should be done when a home is sold, not based off speculative real estate market. This hurts everyone, esp those on fixed incomes.

Okay, maybe I'm making unwarranted assumptions that assessments are done the same everywhere, and property taxes are decided on the same way everywhere.

Here's how it's done in Ontario where I live:

1. Assessed value ≠ market value. Assessed value is determined by some criteria such that sqft, #rooms, desirability of neighbourhood, pools, etc correlate with the final value.

2. Actual value doesn't matter at all. If everyone's assessed values go up 10% in the municipality, property tax bills change by $0. What matters is the relative assessed values. They determine how much of a city's tax bill the household pays.

3. The actual process for determining the tax bill: city comes up with a total figure to be collected. City sums all assessed values of all properties. Divide former by latter to get a multiplier (e.g. 1.355%). That multiplier times assessed value is your property tax. (It's a bit more complicated because they collect slightly different amounts from different property types).

Is it different in California?

In California Prop 13 makes it so people who bought their properties decades ago essentially have their assessments frozen whereas people who bought more recently get assessed closer to market value.

This means that two side by side buildings can have assessed values differing by orders of magnitude. This has all the inequitable downstream consequences you would expect.

Yep, and that's one of many parts of the supply issues in California. We bought our house 25 years ago. The house right next door is half the size of ours and just sold. Their property tax will be ~3x what ours is.

We might consider moving to a looser market, and therefore opening up one more house in a tight market, but we're retired and a large increase in property tax (plus potentially larger increases every year if it's outside California) is a serious disincentive for us.

Prop 13 is friction that resists the smoothing out of conditions across regions. It reduces market efficiency.

p.s. - It doesn't help the housing situation that we have access to incredible natural features all around us, but that's more about California's demand side.

> Is it different in California?

It is different in California on all three points listed.

In California the assessed value is the purchase price (thus, market value) on year zero (when you buy it). From there on assessed value goes up 2% every year.

The base tax is 1% of the assessed value. (Actual property tax is higher because they can tack on all kinds of fees).

So if you buy a $1M home, your taxes this year are $10K (plus other local fees). Next year it will be $10.2K and so on.

we already know what happens when assessed values are artificially capped, prop 13 has torpedoed funding for californian schools, among other catastrophic effects.

There are problems with prop 13 (being a bandaid solution to appease the senior/older tax base) but schools in the US are very well funded, when you look at per year/per student in k-12, usually up there with countries like Switzerland and Norway. Its how the money is used that is the problem.

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