It is becoming increasingly obvious that mega landlords across the country are (allegedly) colluding to jack up rents using centralized algorithms.
Last month, the Arizona attorney general joined the District of Columbia AG in filing a lawsuit against RealPage, which is accused of acting as an information-sharing middleman for real estate rental giants through its price-setting software. The North Carolina AG is also investigating RealPage, and the Colorado House of Representatives recently passed a bill targeting RealPage’s business model.
RealPage is facing several lawsuits contending that the property managers agreed to set prices through RealPage’s software, which also allowed the companies to share data on vacancy rates and prices in many of the US’ most expensive markets. Reporting, the lawsuits, and RealPage’s own statements showed that the company’s software said that it was often more profitable for mega landlords to have higher vacancy rates and keep rents elevated, which contradicted the old landlord practice of getting heads in beds even if that meant lowering rents.
The lawsuits against RealPage and the rental management companies contend that RealPage’s software covers at least 16 million units across the US, and private equity-owned property management companies are the most enthusiastic adopters of the RealPage technology. [1] RealPage itself is a private equity-owned venture. Many of the rental markets dominated by large landlords have seen astronomical growth in rental prices in recent years (even before the pandemic), as well as a rising number of evictions and spikes in homelessness.
Aside from the users of RealPage’s software, there was still a question of just how widespread the use of such tech was across the country. Another lawsuit against a similar company, Yardi Systems, and property managers using its software helps answer that question.
Included in the lawsuit against Yardi are the following property management companies (I’ve tried to track down just how many rental units these companies control, listed here):
- Alco Management Inc. Based in Memphis, Tenn. Manages more than 6,000 apartment homes in 9 states.
- Bridge Property Management. Manages more than 50,000 multifamily units across the country. Headquartered in Salt Lake City with affiliated offices in New York, San Francisco, and Orlando.
- Calibrate Property Management. “Based in Seattle, Washington, Calibrate is expanding its market reach. Now managing properties in Washington, Illinois, Arizona and Minnesota, Calibrate Property Management oversees approximately 1900 units and is rapidly growing.”
- Clear Property Management. Manages apartment communities across Texas. Total number unclear.
- Creekwood Property Corp. (Tonti Properties). Headquartered in Dallas and manages properties across Arizona, Colorado, Florida, Louisiana, North Carolina, and Texas. Total number unclear.
- Dalton Management. Manages more than 1,500 apartment units across California, Oregon, and Washington.
- HNN Associates. Manages roughly 7,000 units in the Seattle area, as well as others across Washington and Montana.
- Jones Lang Lasalle (JLL). A Fortune 500 company with annual revenue of $19.4 billion, operations in over 80 countries. Launched commercial real estate’s first AI-driven GPT model last year. JLL provides comprehensive real estate services in more than 4,000 buildings across the US and Canada.
- KRE Group. Founded by Jared Kushner’s uncle, it managed more than 20,000 multifamily apartments throughout thirteen states.
- LeFever Matson. Manages more than 3,000 units across California.
- Legacy Partners. Manages a portfolio of over 50 multifamily communities with more than 12,000 apartment homes
- Manco Abbott. As of 2005 (the most recent I could find), manages about 5,000 units in Central California.
- McWhinney Property Management. Based in Colorado with more than 4,000 apartment units completed or under construction.
- Morguard Corp. Manages nearly 18,000 units in the US and Canada, as well as 33.8 million square feet of commercial real estate.
- Pillar Properties. More than 2,000 units under management.
- Summit Management Services. More than 4,000 units across the country.
- Towne Properties. More than 15,000 units under management.
- Tribridge Residential. 6,000-plus units across Florida, Georgia, North Carolina, South Carolina, and Tennessee.
RealPage, Yardi, and the real estate management firms are currently attempting to have the lawsuits dismissed primarily based on two arguments:
- The defendants claim that the complaints must be dismissed because RealPage recommends, rather than mandates, certain prices.
- The defendants also argue that their conduct is not price fixing because “[c]ourts have little to no experience evaluating whether use of revenue management software is unlawful…”
The DOJ’s response: a defendant cannot “shield it[self] from the consequences” of organizing a price-fixing cartel merely because it organizes the cartel through disseminating a software program.
The Federal Trade Commission and DOJ just released a joint legal brief in a case involving Yardi Systems, in which they argue that price-fixing law applies even if an algorithm (or AI) told you to do it.:
Competitors’ jointly delegating key aspects of their decisionmaking to a common algorithm, because doing so “joins together separate decisionmakers” and thus “deprives the marketplace of independent centers of decisionmaking.”
….Under longstanding Supreme Court precedent, price-fixing agreements among actual or potential competitors are “all banned” whatever their form…unlawful price fixing includes not only competitors’ acting in concert to set the same price at which a product is bought or sold, but also competitors’ acting in concert to “rais[e], depress[], . . . peg[], or stabiliz[e] the price of a commodity.” This prohibition includes agreements to use the same pricing formula—analogous to agreements to use the same pricing algorithm.
The legal argument prohibiting such formations of cartels through algorithms seems pretty straightforward, as detailed by the SMU Science and Technology Law Review, which notes that the antitrust laws that govern this type of behavior have been around for more than 140 years, and while algorithms might increase the speed of price-fixing based on up-to-the-second data, they’re otherwise nothing new:
Let’s just change the terms of the hypothetical slightly to understand why. Everywhere the word “algorithm” appears, please just insert the words “a guy named Bob.” Is it ok for a guy named Bob to collect confidential price strategy information from all the participants in a market, and then tell everybody how they should price? If it isn’t ok for a guy named Bob to do it, then it probably isn’t ok for an algorithm to do it either.
This straightforward reading of the law was complicated, however, by a Clinton-era loophole that allowed information sharing in the healthcare industry (purportedly to help lower prices, although the opposite of course happened).
The current DOJ made clear its stance on these questions last year when it closed those Clinton-era information-sharing loopholes. Principal Deputy Attorney General Doha Mekki explained the rationale behind the decision, saying that the development of technological tools such as data aggregation, machine learning, and pricing algorithms have increased the competitive value of historic information. In other words, it’s now (and has been for a number of years) way too easy for companies to use these safety zones to fix wages and prices. Here’s Mekki at an antitrust conference in Miami:
An overly formalistic approach to information exchange risks permitting – or even endorsing – frameworks that may lead to higher prices, suppressed wages, or stifled innovation. A softening of competition through tacit coordination, facilitated by information sharing, distorts free market competition in the process.
Notwithstanding the serious risks that are associated with unlawful information exchanges, some of the Division’s older guidance documents set out so-called “safety zones” for information exchanges – i.e. circumstances under which the Division would exercise its prosecutorial discretion not to challenge companies that exchanged competitively-sensitive information. The safety zones were written at a time when information was shared in manila envelopes and through fax machines. Today, data is shared, analyzed, and used in ways that would be unrecognizable decades ago. We must account for these changes as we consider how best to enforce the antitrust laws.
The FTC also just came out with a set of general guidance around algorithmic price setting. It’s titled “Price fixing by algorithm is still price fixing.” (Is there someway we could get the FTC to run Biden’s foreign policy too? And pandemic policy? And pretty much everything else.)
There could apparently be more legal questions/difficulty should AI be deployed in the place of simple algorithms (this is above my pay grade, but maybe some informed readers can comment), as detailed by VoxEU:
From the antitrust standpoint, the concern is that these autonomous pricing algorithms may independently discover that if they are to make the highest possible profit, they should avoid price wars. That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another. This is a problem. First, ‘good performance’ from the sellers’ standpoint, i.e. high prices, is bad for consumers and for economic efficiency. Second, in most countries (including Europe and the US) such ‘tacit’ collusion, not relying on explicit intent and communication, is not currently treated as illegal, on the grounds that it is unlikely to occur among human agents and that, even if it did occur, it would be next to impossible to detect.
***
Should the DOJ and FTC position on information-sharing software companies like RealPage and Yardi be confirmed by the courts, it would likely have an enormous impact across the country – and not only in the housing rental market. The use of such information-sharing algorithms have been detected across the economy, and there’s a decent chance it’s played a role in firms’ calculations to jack up prices. (As the Kansas City Fed noted, “markups could account for more than half of 2021 inflation.”)
Sticking to rental prices, the national average rent-to-income ratio reached 30 percent in the last year, according to Moody’s Analytics – the highest it’s been in the more than 20 years Moody’s has been tracking it.
The practices programmed into the renting algorithms also encourage more vacancies, more turnover, and more evictions.
How it’s supposed to work, or used to anyways, is that when occupancy dropped, rents would also drop so that properties would be full. Companies would compete for more “heads in beds” through lower rental prices and typically aim for occupancy rates around 97-98 percent. But the algorithm software allows property owners to keep prices high even during periods of high vacancy. The software required users (landlords) to maintain pricing at levels its algorithm set, which often meant higher vacancy, but landlords found that they were still making more money.
If we look at the explosion of homelessness alongside the widespread adoption of rent price-setting software, we begin to notice some similar trends beginning in 2016.
A 2022 study from The Guardian and the University of Washington found that across 73 US cities and counties there were at least 18,000 deaths of people experiencing homelessness over the 2016 to 2020 time period with the number increasing 77 percent over that five-year period. (The federal government makes no effort to count the number of homeless deaths, and many believe the number to be much higher.)
What was happening with rental pricing software over that time? From one of the lawsuits:
Beginning in approximately 2016, and potentially earlier, Lessors replaced their independent pricing and supply decisions with collusion. Lessors agreed to use a common third party that collected real-time pricing and supply levels, and then used that data to make unit-specific pricing and supply recommendations. Lessors also agreed to follow these recommendations, on the expectation that competing Lessors would do the same.
And more from ProPublica:
RealPage’s influence was burgeoning. [In 2017], the firm’s target market—multifamily buildings with five or more units—made up about 19 million of the nation’s 45 million rental units. A growing share of those buildings were owned by firms backed by Wall Street investors, who were among the most eager adopters of pricing software.
…Somewhere around 2016, according to one trade group, the industry’s use of the pricing software began to achieve “critical mass.”
It would appear backlash to these price-setting algorithms is now also achieving critical mass. .
Notes
[1] Here are some details I could track down of the real estate goliaths named in the lawsuits who were using RealPage software to allegedly collude and keep rents artificially high:
- Greystar: The nation’s largest property management firm with nearly 794,000 multifamily units, including roughly 100,000 student beds under management.
- Trammell Crow Company, headquartered in Dallas, is a subsidiary of CBRE Group, the world’s largest commercial real estate services and investment firm.
- Lincoln Property Co. Manages or leases over 403 million square feet across the US.
- FPI Management. Currently manages just over 155,000 units in 18 states.
- Avenue5 manages $22 billion in multifamily and single-family assets nationwide.
- Equity Residential, the 5th largest owner of apartments in the United States, primarily in Southern California, San Francisco, Washington, D.C., New York City, Boston, Seattle, Denver, Atlanta, Dallas/Ft. Worth, and Austin.
- Mid-America Apartment Communities, which as of June 30, 2022, owns or has ownership interest in 101,229 homes in 16 states throughout the Southeast, Southwest, and Mid-Atlantic regions.
- Essex Property Trust (62,000 units). This fully integrated real estate investment trust (REIT) acquires, develops, redevelops, and manages multifamily apartment communities located in supply-constrained markets on the west coast.
- Thrive Community Management (18,700 units in Washington and Oregon).
- AvalonBay Communities, Inc. As of September 30, 2022, the Company owned or held a direct or indirect ownership interest in 293 apartment communities containing 88,405 apartment homes in 12 states and DC.
- Cushman & Wakefield, with a portfolio of 172,000 units.
- Security Properties portfolio reflects interests in 113 assets encompassing nearly 22,354 multifamily housing units.
- Cardinal Group Holdings, LLC. 89,000 units managed with more than 100,000 beds and a heavy presence in student housing.
- CA Ventures Global Services LLC. Manages more than 60,000 beds in 69 university markets.
- DP Preiss Co. Specializes in student housing and has more than 30,000 beds in 12 states.
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This is a lesson they are unlikely to forget, even if the software is banned. States will need to seriously consider vacancy taxes or penalties to discourage house hoarding.
How about banning corporations/hedge funds/investors etc from buying housing unless said corporate person and investors intend to live there?
Since an increasing percentage of apartments is being concentrated into a smaller number of increasingly large firms, which helps these greedy creeps to collude, I hope that Jonathan Kantor or Lina Khan look into limiting and breaking up the largest owners.
Barbarians were only at the gate back in 1989. Now their
childrenhellspawn are at the front door.Shudder at the thought of AI-driven HAL dictating new terms, requirements, fees and myriad ways to immiserate
peoplerent stream donors.I’m afraid I can’t unlock either the refrigerator or the bathroom, Dave. Your lifescore isn’t high enough today.
“house hoarding” needs to become a household word. Unfortunately, Rich Dad Poor Dad type real estate investing has convinced people that rental housing is a private asset as much as your personal automobile.
1). “Last month, the Arizona attorney general joined the District of Columbia AG in filing a lawsuit against RealPage, which is accused of acting as an information-sharing middleman for real estate rental giants through its price-setting software.”
2). “The defendants claim that the complaints must be dismissed because RealPage recommends, rather than mandates, certain prices.”
Looks like RealPage has no legal representation or it they do, they don’t what they are doing, because it has with it’s own words admitted to breaking the law, if in fact the law prohibits sharing info is illegal. Obviously sharing “recommendations” is sharing info.
It depends on what that info is. If RealPage puts together a set of recommendations on its own and sells them to landlords – that would constitute sharing information and still be legal. Its only if RealPage makes its recommendations after receiving information from these companies that problems arise.
I think this would be a pretty straightforward case. Just follow the information flows.. is information being given from landlords to RealPage or not? TBH, this sounds like more of a monopoly problem rather then collusion. A single real estate consultation firm has saturated a market (assisted by consolidation of mega landlords) so its recommendations will appear everywhere, even if no collusion is going on
Anything similar in the retail office space side?
That one is crashing hard.
I have difficulty believing this.
We manage over 120 units in SoCal and I can tell you that the worst thing for your bottom line is a vacant unit.
Rents go up because people have money to pay them, it’s as simple as that.
They will come down when people start moving together or back to their parents house and vacancy will increase.
Thanks for the note of sanity. The housing market has hundreds of thousands of landlords. It’s not an industry where there are only a few vendors.
Greystar alone manages nearly a million units. Some cities will be largely unaffected by this practice, and the people living there probably won’t believe it’s happening or care even if they do. Others are living in downtown highrise hellscapes with 8-10% annual rent increases, 2-3 month notification requirements and crippling month to month rates, with the alternative being to move more than an hour away from work for only a little less rent.
If a small-time landlord is renting a couple of townhouses and they see that 98% of apartments in the area are going for 50% more than their units, they’ll increase prices. That’s the “critical mass” part of the problem: past a certain point, there is not enough capacity in competitive hands to absorb demand from the colluding vendors while holding prices stable.
I’m thinking of moving back to my parents’ house since my rent has become unaffordable. Their house is in heaven. It’s a mansion, so the Bible tells me. They have been dead for years.
There are many recent articles and studies on the large increase in homelessness among people over 50. You might be interested in reading a few of them. Or maybe not.
Oldtimer, it would appear that companies like RealPage and Yardi are advising property managers differently. Here’s what one of the lawsuits alleges:
“RealPage allows participating Lessors to coordinate supply levels to avoid price competition. In a competitive market, there are periods where supply exceeds demand, and that in turn puts downward pressure on market prices as firms compete to attract lessees. To avoid the consequences of lawful competition, RealPage provides Lessors with information sufficient to “stagger” lease renewals to avoid oversupply. Lessors thus held vacant rental units unoccupied for periods of time (rejecting the historical adage to keep the “heads in the beds”) to ensure that, collectively, there is not one period in which the market faces an oversupply of residential real estate properties for lease, keeping prices higher.” https://www.hausfeld.com/media/550bhzyp/realpage-complaint-filed.pdf
Here’s former RealPage CEO Steve Winn:
‘During an earnings call in 2017, Winn said one large property company, which managed more than 40,000 units, learned it could make more profit by operating at a lower occupancy level that “would have made management uncomfortable before,” he said.
The company had been seeking occupancy levels of 97% or 98% in markets where it was a leader, Winn said. But when it began using YieldStar, managers saw that raising rents and leaving some apartments vacant made more money.’
https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
I personally believe the main factors for the rent increases are :
1- Lots of apartment were used as airbnb / vacation rentals and withdrawn from the market. They might start to come back.
2- People got a lot of money during Covid and post Covid. As an anecdote, I still remember that we had to empty recycling garbage twice a week (vs once per week habitually) and the countless boxes of expensive champagne, blue label whiskey video games and electronics etc. Right there, I knew that the fiscal over reaction was insane.
3- The number of immigrants entering the country and the pressure on the rentals.
For your theory of price collusion to make sense, one would have to know what % of the supply those big guys control. I think most rentals out there are 4 to 20 units owned by small landlords that dread having an empty unit for too long.
Do the math, rental increase in California is limited by law to no more than 10% per year whereas a vacancy is a 100% loss. Plus, our experience is that when you have a good tenant that pays on time and takes care of the unit, its better not to increase the rent.
If those companies do it, its probably that they are playing with other people’s money and found a loop hole somewhere to show short term profit to pay themselves bonuses but I highly doubt that their shenanigans will survive in the long term.
You can’t extrapolate local trends to other localities. This is particularly true given what you stated about California having a 10% increase limit, but everything else you mention is also super local. I manage properties in the midwest – the tenants here were not basking with expensive champagne and whiskey during the Pandemic. Immigration is also hardly a factor at all
I should note, we dont have a problem where rents are getting too high in the first place. (they’re actually mostly down over the past year) Granted, the fact that you can buy SFH homes in decent areas for 100-200k caps how high rents can be pushed.. even if there was collusion. But as I noted, I dont think thats particularly relevent to other localities
Ah, that’s because you aren’t charging high enough rents. Raise all your rents 5% every three months for a couple of years. You’ll find that even if you have vacant units you’re collecting more than you’re getting now. A lot of people have enough money to pay the higher rents. Granted, a lot of people don’t, and become homeless, but if you’re collecting more money than you are now that shouldn’t bother you. The management corporations aren’t bothered by it. Your statement shows you don’t think like a Master of Business Administration.
Thanks, this is a very informative piece. Where I live there has been a lot of population growth and lots of new apartment construction. But all the new construction is pretty much of the high-end variety, and the units remain vacant, sometimes considerable so, for months and months. I’ve also noticed the prices never go down during these long periods either, and have been wondering why.
I had assumed it might be investors demanding the highest return, even if they have to wait longer to get it. It sounds like that is likely the case, but that algorithmic price fixing is the way they determine to keep prices high explains a lot about the housing market here.
They can only have high vacancy levels in the short term. The market can be deferred for only so long.
Mr. Market doesnt have an optimal vacancy level.
The 97% + occupancy rate of yore was a heuristic that worked well. That doesn’t make it optimal pricing.
If landlords (or rather a centralized optimizer algorithm) discover that it is more optimal to have an expected 90% occupancy rate but charge 20% more (for an expected lease term of a year or more)… well then that IS the new market. Indeed, they can and will defer occupancy for higher expected returns.
You’re assuming a landlord cartel. Unless most landlords are following the algorithm, market price discovery still works.
Yes, that is exactly what the lawsuits and above article alleges! If you read it you will see the centralization of the largest private equity players and their reliance on the same optimizing algorithms. Even for mom n’ pop, I now see ads about “getting the right price” for your SFH and subscribing to said algorithmic services.
Well let them prove it. I think it will be difficult to find evidence that this is the case. My own personal experience in our local rental market (college town) is that it is not.
It does not assume a cartel.
Picture a gym or sports arena. The market price is not the absolute cheapest price it takes to fill to capacity. Rather, it is where profit is maximized when quantity is multiplied by price (minus expenses of course). Collusion has nothing to do with market prices and is a separate issue entirely (where prices are actually fixed above market prices)
Yep. I was also thinking produce in a grocery store. They let a lot of it go to waste to sell at a higher price point.
Been in the apartment rental business for 25 yrs. The gross collusion and price fixing with RealPage is – very real. RealPage manages the pricing algorithm of up to 70% of apartments in some major cities. All on one data base. Do the math.
With the understanding that it has been a few years since I did some serious checking, in the Bay Area, all the major cities especially San Francisco keep approving and building luxury apartments and condos, not housing for anyone from the middle-middle class on down or for families.
I do not fully understand why all these empty units keep being built especially as we have employed people sleeping in their cars, in tents, or on the streets. Somehow, I don’t think it is Airbnb using them, but it might be wealthy people using them to store their wealth, or perhaps, the landlords of these units are keeping the rent to high for the same reasons as the landlords of business properties are keeping the rents high even when it keeps the storefront empty. Saying that you are charging so much on so many units keeps your funding from the banks all good, even if you are not actually making anything, which is insane, isn’t?
This is just speculation, but those two causes are the only things that make sense to me for why we keep having unneeded luxury housing built.
Adding this link from Harpers. Its focus is eviction court in Ohio; however, the author also considers the effect of apps developed to automate the job of a landlord.
NC readers may be interested in reading more about the field of “proptech” and its role in the tenant-landlord relationship.
Published in Harpers – https://harpers.org/archive/2024/04/the-eviction-experts/
A few lines from the Harpers’ piece:
– “proptech,” a booming sector which that year [2021] alone attracted $32 billion in venture-capital investments. Their maxims and marketing taglines circled a single objective: disrupting the traditional landlord-tenant relationship.
– “We can take as much or as little of your operation and automate it,” said a salesman at the booth for RealPage, a property-management platform owned by a private-equity firm and used by landlords across some nineteen million rental units. “It’s really great for scaling fast-growing portfolios,” he continued.
– “Automating Eviction—it has to be a thing”, reads the headline in a sly promotional article for Resident Interface, a spin-off from Hunter Warfield, one of the nation’s largest collection agencies for landlords…The article trumpets a brave new world for landlords ushered in by the automation of evictions, which “stops those uncomfortable conversations for onsite team members”
Most of the modern tech unicorns these days seem to be ways to engage in law breaking, whether Gypsy cabs (Uber, Lyft), anti-competitive collusion, (Realpage), aiding racial discrimination (AirBNB), etc.
It is not enough to file civil lawsuits against them, the senior executives need to be frog-marched out of their offices in handcuffs.
Thank you so much Conor for keeping on top on this. It use to be long ago, us tenant people and activists could lurk in local real estate blogs in San Francisco/Bay Area, ..and they were doing the same thing but on a short scale. Now this is amazingly bad. And thank you also for bringing up the deaths. Homeless deaths in the Bay Area are usually perceived as just the result of drug addiction etc. or that new Fent., and etc….when most people actually had a real living space previous. …and jobs. Becoming homeless and jobless, can just destroy you. All your pride. All your ambition to get in better shape. All this about California democrats providing housing, is a bunch of garbage. The vast majority of the budget is subsidies to landlords, or for shelters (landlords), which subsidizes the high rents. The actual ‘social housing’ owned by ‘us’ is so minuscule. Go deep in Newsom’s larger budget, in all the programs, and you can see that.
I want to give Conor a big thank you for this post as well. It is appreciated.
NC just keeps getting better. An Argentina break down last week? Before this I had to wait for magazines to arrive in the 90’s….counterpunch, NACLA, CAQ, etc…now I get this amazing variety, and well researched,,,daily…..
This is great work. Thanks for bringing this all to the forefront. I appreciate NC for deftly breaking down all the realities of neo-serfdom.
My former neighbor’s rent went up $400 per month when her lease ran out last September. Her apartment is still vacant. My lease ran out in January and that’s when my rent went up $400 per month. It hasn’t been rented yet either. I wasn’t able to understand why the landlord would let good tenants go only to have their apartments be vacant. It made no sense to me until I read Conor’s research.
A sad end: My former neighbor could not find another apartment, had to go into a nursing home instead and has since passed away. She was a lovely person. We had been neighbors for more than ten years. She loved her apartment. I think it broke her heart to leave it.
Sorry to hear that Lena. Hope you’re doing alright.
Robert Shiller compiled a national index of real home prices extending from 1890 to the present. The index roughly tracked inflation from 1890 through 1996, but since then real home prices have risen and are currently near record levels. I have mentioned this in lecture, but there has been no interest that I am aware of. Shiller expressed worry for a time, but no more. I am simply puzzled:
https://fred.stlouisfed.org/graph/?g=YcwR
January 30, 2018
Case-Shiller Real Home Price Index, 1992-2023
(Indexed to 1992)
Why should a real home price index that was roughly stable since 1890, have reached such an unprecedented level in 2023? I have no idea, nor even if the question is helpful:
https://fred.stlouisfed.org/graph/?g=QKnA
January 30, 2018
Case-Shiller National Home Price Index / Consumer Price Index, 1994-2023
(Indexed to 1994)
https://fred.stlouisfed.org/graph/?g=YthX
January 30, 2018
Case-Shiller Real Home Price Index, 1996-2023
(Indexed to 1996)
I think the answer is clearly Quantiative Easing. Its interesting that, despite the incredible rise in the monetary base (see https://fred.stlouisfed.org/series/BOGMBASE ) inflation has remained relatively tame. Upon further consideration, this isnt suprising given the Cantilion Effect. Most of the newly printed money goes to the richest 0.01 percent of the population. Those people simply dont spend much on the types of goods that make up the basket of goods inflation measures. What do they spend money on? The answer is hard assets/investments such as real estate. Especially when that QE included super low interest rates that ratcheted up the return on investments which were easy to leverage (such as RE when taking out a loan).
When individuals had to save up the entire price of a house to buy, as they did in the early 20th century it isnt surprisng the price of housing would track inflation in that envirnment. Even loans with interest rates above 10 percent capped how much homes could rise — not anymore though
You are directionally correct but don’t describe the mechanism accurately.
First, money supply growth has no relationship to deflation. That was decisively disproven by central bank experiments in the early 1980s in the US and UK, where changes in monetary aggregates were found to bear no relationship to any important economic variable, including inflation.
Second, we had a big housing bubble in the US before QE, as did many countries around the world. See ECONNED for details. CDOs drove demand to the worst mortgages.
Third, after the crisis, again in the US, the point of QE was to make mortgages cheaper and goose housing prices. Bernanke was explicit if you were paying attention. He was lowering both intermediate Treasury rates and even more important, mortgage spreads over Treasuries.
QE is an asset swap and NOT “printing money,” see here for details: https://www.cnbc.com/id/100760150
Fourth, after the crisis, private equity went aggressively into buying single family homes via buying defaulted properties in bulk (well it was originally intended to be bulk, there was so much interest it wound up being “mini bulk”) out of Fannie and Freddie portfolios, as well as subprime servicers.
Private equity also increased its participation in multi-family housing.
Fifth, AirBnB resulted in many houses, particularly of the smaller # of bedrooms/onetime starter house type, being turned into short-term rentals. Even in Birmingham, AL, hardly a tourist destination, there was way more than I would have thought reasonable, save in the really tony areas where rentals of under 30 days were prohibited by law. And of course really poor ‘hoods too.
Yves says : QE is an asset swap and NOT “printing money,”
Is this so if the Fed never unwinds her balance sheet?
Lena, cataclysmic events (loss of home) have catastrophic impacts on the elderly. The loss of a familiar space and friends drains the energy of many elderly. Assisted living arrangements are commonly group settings that are disorienting and damaging to the psyche. My mother lived in our large house till the end because of her memories and friends; she was fortunate to have children who could manage the setting for her.
I am sorry for your ordeal.
Such a rental increase sounds overly greedy and egregious. I guess then, that monthly rent income of $0 doesn’t matter as much to creepy corporate landlords.
Hoping that you find a path to land on both feet, for what it’s worth.
Thank you.
In January 2023, my rent went up $200 per month. Then in January 2024, it went up an additional $400 per month, making it unaffordable for me. That’s a $600 per month increase within two years. My income did not go up during this time. I am not a young person who can move home to live with her parents.
I live in the Midwest. Airbnb/vacation rentals, immigrant invasions and copious consumption of fine whiskey, champagne, and fancy toys did not happen here during the early years of the pandemic. They aren’t happening now. Landlord greed is what is happening.
From what I read about homelessness across the country, most people were previously living in apartments or houses but became homeless when they were unable to continue to afford their rent. Many people are just one large increase in rent or a job loss, health crisis, etc away from becoming homeless. It’s a ‘trend’ our government at the local, state and federal level seems comfortable with. Very comfortable.
P.S. I don’t enjoy discussing my situation. It’s really painful for me. I’m writing about it here because I think personal stories can often be more impactful than statistics. Thank you to NC for letting me tell my story.
Here in the Phoenix area, they are building developments of hundreds of small ‘houses’. They look to be about 1100-1200 square feet, no yards, all about 3 ft. apart, no common walls, so they aren’t apartments. All of them are ‘lease only’. Another hedge fund, ETF, banker scam. Just more never ending greed.
Tom in AZ
Let me be clear here. The apartment pricing “recommendations” by RealPage are printed out everyday and the lowly leasing agent is required by management to follow said “recommendations”. The property management company is in a contract to pay RealPage monthly for their “recommendations”. This means that they will follow it to a T. And also, there is a weekly call meeting with the RealPage representative for the apartment complex in which information is directly shared about the competitive pricing that the apartment complex has retrieved as they call each other up for this information if it is not published online. RealPage also knows what up to 70% of the complexes in your city charge as they are all using the same RealPage database. Do the math. This is a monopoly with aggressive price fixing. No doubt about it.
Twenty five years in apartment property management speaking here. There is indeed active collusion on a grand scale with apartment rentals and RealPage. You would have to see it to believe it. Within the last five to ten years, LRO – then bought by YieldStar – absorbed by RealPage has grown to control up to 70% of apartment pricing in many major cities. This algorithm originally made to manage airline seat bookings is now used to “recommend” pricing by all the apartment giants on a daily basis. (The ethical difference being that airfare is an elective purchase and your shelter is not.) The apartment rental mammoths pay monthly for this “recommended pricing” service printed out on a daily basis, that is directed by management to be follow to a “T” by the lowly leasing agent. And they have weekly call meetings with the RealPage rep to share pricing at each and every apartment complex that RealPage has sold their algorithm services to. It’s more collusion and price fixing than you can imagine. Realpage is the single largest reason for current high rental prices. It is a price fixing monopoly.
Marie, thank you for your insightful comments.
You’re welcome.
“RealPage’s own statements showed that the company’s software said that it was often more profitable for mega landlords to have higher vacancy rates and keep rents elevated, which contradicted the old landlord practice of getting heads in beds even if that meant lowering rents.”
Reminds me of
“There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange.”
– John Steinbeck, The Grapes of Wrath.
May not be anymore children dying of pellagra, but there’s no lack of homeless where I live in downtown PDX.
Correlation is not causation. You can’t prove that homelessness increased because of price fixing. I could affirm that it increased because of liberal politics such as open borders and drug legalization. There you have it.
Correlation is not causation, true enough, but it is often indicative, and the housing crisis in California has in existence since the 1980s and getting worse each year. That is four decades with only slight increases in affordability after each economic downturn like 2008.
There are multiple causes for the crisis with this collusion possibly being the latest.