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Why the Rent is So High -- A Pricing and Apartment Warehousing Algorithm? [1]

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Date: 2023-02-14  

Source: www.bls.gov. If you've noticed a "pattern" in the seasonally adjusted (blue bars) vs. the non-seasonally adjusted data (red bars), you have a keen eye! That's how seasonal adjustment works!

This morning’s CPI report for January actually kind of sucks. Reporters will mostly miss the story, because they focus on year-over-year numbers, which are still trending down. But the CPI for rent jumped in January 2023, even accounting for seasonal factors. So why is rent increasing so fast? Curbed and Pro-Publica have new investigative reports suggesting that collusion via a pricing algorithm sold by a company called RealPage might be the answer. Last October, Pro-Publica put out a report called Rent Going Up? One Company’s Algorithm Could Be Why. It argues that: “Texas-based RealPage’s YieldStar software helps landlords set prices for apartments across the U.S. With rents soaring, critics are concerned that the company’s proprietary algorithm is hurting competition.”

Adding statistical and anecdotal context about population and migration trends in NYC, Lane Brown writing for New York/Curbed, broke a fascinating story, but totally buried the lede. It’s called: New Yorkers Never Came ‘Flooding Back.’ Why Did Rents Go Up So Much? It’s a phenomenal investigative report, but the key paragraphs are toward the end: Brown uncovers the possibility that landlords are systematically “warehousing” unoccupied apartments — taking them off the market — and raising prices on the remaining units, likely using RealPage’s third-party algorithm to unofficially coordinate with other landlords doing the same thing. I hope the Antitrust Division is watching!

Here’s a quote from Pro-Publica report, which you should read in full and to which you should donate if you can:

RealPage became the nation’s dominant provider of such rent-setting software after federal regulators approved a controversial merger in 2017, a ProPublica investigation found, greatly expanding the company’s influence over apartment prices. The move helped the Texas-based company push the client base for its array of real estate tech services past 31,700 customers. ... In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage. To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge. For tenants, the system upends the practice of negotiating with apartment building staff. 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.

That’s all I have time for today.

Today’s CPI report doesn’t change the basic story that U.S. inflation has moderated substantially since the price spikes when the economy first recovered from Covid in 2021, and again in the first six months of 2022 due to the Russian invasion of Ukraine. But on-going price increases in housing are an area of extreme concern. Competition must be restored to housing markets. If RealPage’s algorithm is thwarting competition, the company needs to be broken up.

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[1] Url: https://www.dailykos.com/stories/2023/2/14/2152898/-Why-the-Rent-is-So-High-A-Pricing-and-Apartment-Warehousing-Algorithm

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