No real conclusion, but some interesting details from article: […] […] […] […]
No real conclusion, but some interesting details from article:
I began to pick up faint dispatches from a distant, numbers-based reality, where a more plausible counternarrative was taking shape. “Manhattan Lost 6.9% of Its Population in 2021, the Most of Any Major U.S. County,” said a March 2022 headline. “NYC’s Population Plummeted During Peak COVID — And It’s Still Likely Shrinking,” said another from a couple months later. According to these stories, New Yorkers hadn’t come flooding back at all. In fact, they were probably still leaking out.
If that was the case, then the city’s rental frenzy defied not just laws of supply and demand but also conservation of mass. All of the people who fled the city over the past three years should have left behind a surplus of empty, habitable apartments. What happened to them? And why is it so difficult and expensive to lease one now?
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One night, on my way home from work, I pushed the wrong elevator button and got out on the floor below mine without realizing it. My key wouldn’t fit the lock to what I had assumed was my door, so I turned the knob and stepped, to my astonishment, into a completely empty, totally untouched one-bedroom. I turned around and beelined to the elevator, worried that I’d get busted for trespassing, when I noticed strips of masking tape covering the door frames on all of the other (presumably empty) apartments on the floor.
This was how I became aware of “warehousing,” the practice by which landlords keep unrented apartments off the market to create artificial scarcity. Building owners have always done this, especially in new constructions with lots of virgin inventory, because why give renters the upper hand if they don’t have to?
But they really started doing it during the pandemic. On a 2022 episode of the real-estate-industry podcast Talking Manhattan, Gary Malin, COO of the Corcoran Group, made a surprising claim: “At one point during the downturn, the vacancy rate in the city was close to 25 percent,” he said. “You had owners who were sitting on hundreds if not thousands of empty apartments.”
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We know that at least 20,000 rent-stabilized apartments are being warehoused because landlords have admitted as much. (A 2021 Census Bureau estimate puts the number at 42,860.) Owners blame a 2019 state law, the Housing Stability and Tenant Protection Act, which limits the amount they can raise rents to pay for renovations. They say their warehoused apartments are in such poor shape that it would be impossible to recoup the cost of necessary repairs at rent-stabilized prices, so they’re holding them vacant until Albany repeals the law.
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But here, I admit, is where my conspiracy theory falls apart: If all of these luxury buildings were hiding supply, wouldn’t one smart landlord undercut competitors by opening their whole stock and making a killing at today’s artificially inflated prices? Of course one would. And so I almost ended this column with a deeply felt apology for impugning the honest intentions of the New York City real-estate community.
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But then, in October, ProPublica published what seemed like evidence of an actual conspiracy. It turns out that some landlords have been using the same software to do some very interesting things.
The app is RealPage Revenue Management Software, it’s made by the Texas-based company RealPage, and allegedly it works by collecting private pricing and inventory stats from competing building owners and then using that data to give them each recommendations for how to price their available apartments such that nobody undercuts the others.
Some argue — including the plaintiffs of over a dozen class-action lawsuits filed in the wake of ProPublica’s story — that RealPage’s software allows individual landlords to keep their hands clean while indirectly colluding to inflate prices. In 2021, a RealPage executive bragged at a conference that his company’s algorithm was responsible for rent increases nationwide. “I think it’s driving it, quite honestly,” he said, according to the article. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
I have believed for a long while that the “supply and demand” explaination for real estate pricing has been bad for a long time. The pricing software thing I have known about for a while. If you...
I have believed for a long while that the “supply and demand” explaination for real estate pricing has been bad for a long time.
The pricing software thing I have known about for a while. If you are a renter and have wondered why rent increases every year for no apparent reason, this is it! Landlords are getting their pricing from these systems which are artificially inflating the costs for everyone.
I think I can say with some sort of certainty that literally every time we see markets get fucked up this bad it’s because the government has not done its job to regulate it and there are people making bank at the expense of the public.
You might be thinking that this kind of real estate problem doesn’t only exist in the United States, and you’re right. But this kind of software generally exists in all of those markets as well.
I'll even go a step further and say this kind of problem exists in markets without this type of software, although it definitely facilitates and exacerbates it. I think far fewer people than we'd...
I'll even go a step further and say this kind of problem exists in markets without this type of software, although it definitely facilitates and exacerbates it.
I think far fewer people than we'd hope really grok what "what the market will bear" actually means. Like, they know the phrase, they might even give a decent definition of what it means, but then if you ran through an exercise where they imagined starting a business and described the steps I'd be willing to bet almost everyone would naturally just jump to some version of a cost-plus model.
Prices needn't have anything to do with costs, at all, if you're sufficiently insulated from your competition by brand perception/monopoly/product differentiation/whatever. The software helps landlords to realise that they can collectively get away with raising rents, but the same thing goes for businesses crying "inflation" while making record profits: there wasn't necessarily anything more behind it than "hey, we figured out that people would take it".
I think cost plus still has something to do with it though. Anecdotally, there was a buying surge locally where I live and houses were being scooped up for much more than they were worth (we're...
I think cost plus still has something to do with it though. Anecdotally, there was a buying surge locally where I live and houses were being scooped up for much more than they were worth (we're talking an 800 sq ft house selling for well over 1 million USD). We live in an area with very little industry so people weren't buying to live in them, they were looking for an investment. Well the market has cooled now and rents have done little to drop. If you look at what rentals were going for mid pandemic before the buying rush ~$2,500 for a one bed, and after the buying rush ~$4-5,000, you can draw a direct connection to the mortgage cost to of the newly purchased home. We looked at a few homes on Zillow, got their sale price and compared it to the new rent price. About 8/10 new rentals on the market matched that number almost identically. So for us anyway, it seems like an artificial rent spike to cover the costs of, forgive the term, predatory assholes covering the costs of their investment. Honestly, I'd love our real estate market to go the way of Japan where homes aren't commodified or used as investments.
It's less that I'm suggesting pricing never depends on cost, just underlining that it doesn't need to do so - and I actually think your scenario is a great example of that! The investors paid over...
It's less that I'm suggesting pricing never depends on cost, just underlining that it doesn't need to do so - and I actually think your scenario is a great example of that!
The investors paid over the odds because they felt they could make a profit: the market in your area shifted on speculation, nothing to do with any underlying change that meant the sellers actually needed more money to be able to sell.
On the rental side, if people actually pay $4,000 I'll bet anything you like that it won't only be the new buyers who charge that much. The rest of the market prices up because they can, not because their costs have changed from when they were renting out the same property for half that - and that happens as soon as one or two landlords prove that the market will tolerate it. If people don't pay $4,000 it breaks the link in the other direction: the investors are forced to rent or sell below their cost, because they were the ones who misjudged what the market would bear in the medium term.
NYC has strict rent controls on a lot of housing, so I don't think a lack of government regulation is it? Maybe the regulations need to be different, somehow.
NYC has strict rent controls on a lot of housing, so I don't think a lack of government regulation is it? Maybe the regulations need to be different, somehow.
Maybe. But prices are high enough that you'd think that there would be enough financial incentive already to rent places out? For the non rent-controlled apartments, anyway. The article does a...
Maybe. But prices are high enough that you'd think that there would be enough financial incentive already to rent places out? For the non rent-controlled apartments, anyway.
The article does a better job than most, but it's unclear what the deal is on warehousing.
My thoughts on that sort of tax is that it pressures the building owners from a different direction. If they own the property outright, the cost to hold and not rent is essentially just...
My thoughts on that sort of tax is that it pressures the building owners from a different direction. If they own the property outright, the cost to hold and not rent is essentially just maintenance plus property taxes, if any. That can be fairly low. So while they could show more profits if they lowered the rents and filled the spaces, they might not consider that a useful outcome. By comparison, a vacant property tax raises the cost to hold the property without using it.
It's not a universal solution. There's plenty of potential loopholes for eternal repairs that keep things off the market (see NYC's issue with scaffolding), but it can push the rental market in the direction of the desired outcome, actually renting out the units.
It seems that New York City property tax rates are relatively low. A higher property tax rate along with a discount for each resident seems like an alternative way to encourage places to be rented...
It seems that New York City property tax rates are relatively low. A higher property tax rate along with a discount for each resident seems like an alternative way to encourage places to be rented out.
That's a good catch. I haven't heard that specific mechanism for ensuring rentals before, but I like that it's tied to the overall tax rate rather than having a flat dollar value. It's too easy to...
That's a good catch. I haven't heard that specific mechanism for ensuring rentals before, but I like that it's tied to the overall tax rate rather than having a flat dollar value. It's too easy to set a $1000 fine when it's an effective incentive, only for inflation or changing housing prices to make it insignificant.
I suppose the downside is that someone will claim their dog as a resident. (That is, make up a fictitous resident.) Supposedly that's happened for claiming deductibles on income tax? There will be...
I suppose the downside is that someone will claim their dog as a resident. (That is, make up a fictitous resident.) Supposedly that's happened for claiming deductibles on income tax? There will be shenanigans and countermeasures.
Potential solution: require a Social Security Number. When the IRS started requiring them to claim dependents, there were suddenly millions less claimed children.
Potential solution: require a Social Security Number. When the IRS started requiring them to claim dependents, there were suddenly millions less claimed children.
In the end, its all supply and demand, only the factors that make up supply and demand are far more complex than people admit. Rent control is shown to adversely affect supply, future supply that...
In the end, its all supply and demand, only the factors that make up supply and demand are far more complex than people admit. Rent control is shown to adversely affect supply, future supply that would have been created now doesn't as the environment is no longer favorable.
No real conclusion, but some interesting details from article:
[…]
[…]
[…]
[…]
I have believed for a long while that the “supply and demand” explaination for real estate pricing has been bad for a long time.
The pricing software thing I have known about for a while. If you are a renter and have wondered why rent increases every year for no apparent reason, this is it! Landlords are getting their pricing from these systems which are artificially inflating the costs for everyone.
I think I can say with some sort of certainty that literally every time we see markets get fucked up this bad it’s because the government has not done its job to regulate it and there are people making bank at the expense of the public.
You might be thinking that this kind of real estate problem doesn’t only exist in the United States, and you’re right. But this kind of software generally exists in all of those markets as well.
I'll even go a step further and say this kind of problem exists in markets without this type of software, although it definitely facilitates and exacerbates it.
I think far fewer people than we'd hope really grok what "what the market will bear" actually means. Like, they know the phrase, they might even give a decent definition of what it means, but then if you ran through an exercise where they imagined starting a business and described the steps I'd be willing to bet almost everyone would naturally just jump to some version of a cost-plus model.
Prices needn't have anything to do with costs, at all, if you're sufficiently insulated from your competition by brand perception/monopoly/product differentiation/whatever. The software helps landlords to realise that they can collectively get away with raising rents, but the same thing goes for businesses crying "inflation" while making record profits: there wasn't necessarily anything more behind it than "hey, we figured out that people would take it".
I think cost plus still has something to do with it though. Anecdotally, there was a buying surge locally where I live and houses were being scooped up for much more than they were worth (we're talking an 800 sq ft house selling for well over 1 million USD). We live in an area with very little industry so people weren't buying to live in them, they were looking for an investment. Well the market has cooled now and rents have done little to drop. If you look at what rentals were going for mid pandemic before the buying rush ~$2,500 for a one bed, and after the buying rush ~$4-5,000, you can draw a direct connection to the mortgage cost to of the newly purchased home. We looked at a few homes on Zillow, got their sale price and compared it to the new rent price. About 8/10 new rentals on the market matched that number almost identically. So for us anyway, it seems like an artificial rent spike to cover the costs of, forgive the term, predatory assholes covering the costs of their investment. Honestly, I'd love our real estate market to go the way of Japan where homes aren't commodified or used as investments.
It's less that I'm suggesting pricing never depends on cost, just underlining that it doesn't need to do so - and I actually think your scenario is a great example of that!
The investors paid over the odds because they felt they could make a profit: the market in your area shifted on speculation, nothing to do with any underlying change that meant the sellers actually needed more money to be able to sell.
On the rental side, if people actually pay $4,000 I'll bet anything you like that it won't only be the new buyers who charge that much. The rest of the market prices up because they can, not because their costs have changed from when they were renting out the same property for half that - and that happens as soon as one or two landlords prove that the market will tolerate it. If people don't pay $4,000 it breaks the link in the other direction: the investors are forced to rent or sell below their cost, because they were the ones who misjudged what the market would bear in the medium term.
NYC has strict rent controls on a lot of housing, so I don't think a lack of government regulation is it? Maybe the regulations need to be different, somehow.
A tax on vacant property, perhaps?
Maybe. But prices are high enough that you'd think that there would be enough financial incentive already to rent places out? For the non rent-controlled apartments, anyway.
The article does a better job than most, but it's unclear what the deal is on warehousing.
My thoughts on that sort of tax is that it pressures the building owners from a different direction. If they own the property outright, the cost to hold and not rent is essentially just maintenance plus property taxes, if any. That can be fairly low. So while they could show more profits if they lowered the rents and filled the spaces, they might not consider that a useful outcome. By comparison, a vacant property tax raises the cost to hold the property without using it.
It's not a universal solution. There's plenty of potential loopholes for eternal repairs that keep things off the market (see NYC's issue with scaffolding), but it can push the rental market in the direction of the desired outcome, actually renting out the units.
It seems that New York City property tax rates are relatively low. A higher property tax rate along with a discount for each resident seems like an alternative way to encourage places to be rented out.
That's a good catch. I haven't heard that specific mechanism for ensuring rentals before, but I like that it's tied to the overall tax rate rather than having a flat dollar value. It's too easy to set a $1000 fine when it's an effective incentive, only for inflation or changing housing prices to make it insignificant.
I suppose the downside is that someone will claim their dog as a resident. (That is, make up a fictitous resident.) Supposedly that's happened for claiming deductibles on income tax? There will be shenanigans and countermeasures.
Potential solution: require a Social Security Number. When the IRS started requiring them to claim dependents, there were suddenly millions less claimed children.
In the end, its all supply and demand, only the factors that make up supply and demand are far more complex than people admit. Rent control is shown to adversely affect supply, future supply that would have been created now doesn't as the environment is no longer favorable.