7 ms·

Rent increase has been one of the biggest contributor to core inflation [0]. That has caused fed to raised interest rate at a rapid clip and cause the market cr

Rent increase has been one of the biggest contributor to core inflation [0]. That has caused fed to raised interest rate at a rapid clip and cause the market crash. So is an algorithm responsible for the blood on wall st? [0] https://www.corelogic.com/intelligence/the-role-of-rent-in-inflation-measurement/ https://www.corelogic.com/intelligence/the-role-of-rent-in-i...

thunky 4y ago
- toiletfuneral 4y ago
- richbell 4y ago
  > Bottom line is that this service is not responsible for higher rents, the market is. This service is directly and indirectly responsible for landlord's increasing rent for their tenants. Blaming "the market" is a convenient way to cast blame away from people responsible onto a nebulous concept. Companies like Zillow use software based on "the market" to determine housing prices. But for all intents and purposes they are responsible for driving up housing prices based on actions informed by their software, because their actions directly influence "the market".
  - defterGoose 4y ago
    This is what so many "free market" hawks tend to misunderstand. The market is not an acyclic network, but is still strongly ordered in its power imbalance. 'The world is in greater peril from those who tolerate or encourage evil than from those who actually commit it.' -Albert Einstein
    - anigbrowl 4y ago
      Most of them understand it just fine. They just don't care as long as it benefits them in the short term. Sure, you could talk about the long term unsustainability, but they quite reasonably figure that they'll be better positioned over the long term by virtue of having a lot more money.
    - thunky 4y ago
      If the "free market" isn't good enough for you here, what are you suggesting is the solution? Banning software that analyzes market data if the output may result in pricing adjustments?
      - acdha 4y ago
        There isn’t a single “free market” and this one isn’t particularly free since there’s hefty information asymmetry and buyers typically have much lower negotiating power (you must have somewhere to live this month; a landlord can often leave a place idle for months holding out for a higher offer, especially if AirBnB is an option). Mainstream economic consensus for ages has been that markets need some regulation to work most effectively and that’s especially true for a basic human need like housing which controls how healthy the overall community is. Some obvious things to regulate here could be mandatory disclosure of sources used to justify increases, annual rate caps, requiring amounts over a certain threshold to be itemized and temporary (i.e. if the building includes heat & oil costs spiked require the owner to show that the price they actually paid went up & don’t raise the rent permanently since it’ll come back down).
        baggy_trough 4y ago
        Mainstream economic consensus would be that your proposals are very bad ideas.
        richbell 4y ago
        Why?
        baggy_trough 4y ago
        Because they add deadweight loss to the economy by interfering with price signals and raising transaction costs.
        thunky 4y ago
        > a landlord can often leave a place idle for months holding out for a higher offer, especially if AirBnB is an option I guess they can, but they are running a business and their goal is to make money, so they'll eventually take what they can get. And remember it works both ways. It doesn't seem like it now, but sometimes, in some markets, it's hard for landlords to attract tenants. I have serious doubts that regulation or any other form of intervention on pricing would have anything but unintended consequences, in some cases leading to the exact problem you're trying to prevent: https://www.americanexperiment.org/new-york-landlords-are-keeping-apartments-off-the-market-due-to-rent-control/ https://www.americanexperiment.org/new-york-landlords-are-ke...
  - thunky 4y ago
    > actions informed by their software Yes, informed. The output of this software, and Zillow's algorithms, is only information that still needs to be applied to the real world ("the market"). The algorithms just provide information that wasn't as easy to access before. It's like saying that Google is responsible for higher rents/prices because it allows landlords/homeowners to easily access and analyze market data. I don't think so.
    - richbell 4y ago
      > Yes, informed. The output of this software, and Zillow's algorithms, is only information that still needs to be applied to the real world ("the market"). The algorithms just provide information that wasn't as easy to access before. Who verifies that the algorithm is correct? Who is culpable if the algorithm is flawed or applied incorrectly? If GreyStar or Zillow realized their algorithms were significantly inflating values, would there be any incentive to correct it without regulation? > It's like saying that Google is responsible for higher rents/prices because it allows landlords/homeowners to easily access and analyze market data. I don't think so. Except that information isn't readily available and easily accessible on Google (in many jurisdictios). It's locked away behind pricey subscriptions to vendor products. In the case of YieldStar it means that tenants cannot fairly negotiate because they don't know what a reasonable price is.
      - thunky 4y ago
        > Who verifies that the algorithm is correct? You're not going to like this answer, but...the market does. The point is that no software has to power to force tenants to pay higher than market rents. edit to add: > In the case of YieldStar it means that tenants cannot fairly negotiate because they don't know what a reasonable price is. If that's the case, then the landlords could save the money they're spending on YieldStar and just set the high prices already. They could use their own proprietary "I want more money" algorithm, and the tenant would have no choice but to pay whatever number the landlord popped out of their head.
        richbell 4y ago
  - WalterBright 4y ago
    So, why don't landlords just double the rent? Heck, why not triple it?
    - richbell 4y ago
      > So, why don't landlords just double the rent? Heck, why not triple it? I'm not sure where you're from but the rent in my area HAS more than doubled in the past few years.
      - WalterBright 4y ago
        Since the market is inelastic, and landlords can charge whatever they want, make it 10x.
        richbell 4y ago
        > Since the market is inelastic, and landlords can charge whatever they want, make it 10x. They'll get there, slowly and steadily. You obviously cannot snap your finger and raise the rent 10x in an instant. You have to boil the frog slowly, by continuously buying up properties and raise rents considerably every year, especially for new tenants. In my city the overwhelming majority of residential apartments are owned by a single private company. This is an especially profitable venture with trailer parks, which don't have as many pesky tenant rights or protections. E.g., https://www.newyorker.com/magazine/2021/03/15/what-happens-when-investment-firms-acquire-trailer-parks https://www.newyorker.com/magazine/2021/03/15/what-happens-w...
        WalterBright 4y ago
        > You obviously cannot snap your finger and raise the rent 10x in an instant. Why not? Demand is inelastic, and people will be forced to pay it. Right?
        richbell 4y ago
        > Why not? Demand is inelastic, and people will be forced to pay it. Right? You're clearly not engaging in good faith so continuing this discussion would be pointless.
- pa7ch 4y ago
  So the ever nebulous market is the problem. What regulation do we advocate to stop these bottom feeders from hurting the entire US economy? Rent control doesn't seem adequate and causes other problems. I honestly don't know the answer but people making massive profits on rent seems like a major inefficiency and inequality problem.
  - WalterBright 4y ago
    If the profits are above the usual profits, you can usually point to government interference causing supply shortages.
    - pa7ch 4y ago
      Sure thats part of the problem, but its convenient to lay this as generic government interference when we know its usually the real estate owners who collude or make up parts of local government to achieve this interference. Stopping this regulatory capture seems to be a prerequisite for most good social change.
      - WalterBright 4y ago
        Regulatory capture is still the government doing it, not the market. Government will always abuse its power, the idea is to give it as little as practical.
    - mistrial9 4y ago
      which part of the multi-hundred laws, regulations, taxes and discretionary decision making is "interference" and which part is.. you know, having government with laws? I suggest that the implication here is that a local feudal lord is the correct form of governance.. it was for a thousand years.. that's what you imply, really
      - WalterBright 4y ago
        Interference is things like preventing new construction. Other things are unreasonable burdens local government tends to put on landlords, which always result in higher rents. For example, in Seattle, the landlord cannot charge a tenant for damage to the unit if the damage is the result of domestic violence.
- axiolite 4y ago
  > A landlord can only get the amount of rent that a tenant is willing to pay. A place to live is a rather inelastic commodity. If the price goes up across the board, people will pay, until they can't possibly afford the going rent and are driven into homelessness. > this service is not responsible for higher rents, the market is. This service has effectively cornered the market, and is manipulating the market through shortages, driving rents higher.
  - WalterBright 4y ago
    > A place to live is a rather inelastic commodity. People always say this when prices are going up. Then prices go down, like in 2008. The thing is, it is elastic. For example, people get roommates to split the rent. They get larger or smaller places based on their willingness to pay. More convenient or less convenient. More or less amenities.
    - acdha 4y ago
      Here’s what that looks like on the history: 2008 caused a brief flattening but it’s clear why people are talking about rent going up because that’s what it has overwhelmingly done. https://fred.stlouisfed.org/series/CUSR0000SEHA https://fred.stlouisfed.org/series/CUSR0000SEHA
      - WalterBright 4y ago
        Rents also went down in San Francisco during the pandemic. Something that the people on HN wrote could never happen :-)
        acdha 4y ago
        Oh, no argument - but for how long relative to the time they have been going up? I wouldn’t say they never go down but there’s been a pronounced trend for ages. I bought a house relatively early (thanks dotcom bubble!) and was constantly reminded of how much extra income I had relative to my friends who were renting, and that really adds up over the decades where people in decent jobs were struggling to amass down payments.
- masterjack 4y ago
  It’s true, but it’s not like other markets where someone can choose not to buy and additional sellers can come in, to make sure that prices are in some ways tied to costs. Here, everybody has to live somewhere, so by default you have a “naked short” position on housing. Efficient price discovery here is performing a short squeeze and finding the point of “maximum you can afford to pay without going broke”, which is only possible to reach with price collusion.
  - thunky 4y ago
    I think you're ignoring something important: competition. Your statement would only be true if all rental properties were owned by a single entity or small number of colluding entities. But in reality there is no such thing, and competition for tenants puts a downward pressure on market rents.
    - masterjack 4y ago
      True, but that’s the interesting thing about these kinds of algorithms, they align the pricing approaches so the entities act more like one than they did before, effectively decreasing competition.
      - thunky 4y ago
        I would say that pricing approaches are already aligned, and this software is just another approach that may or may not replace existing approaches in some areas. I don't see how this decreases competition, tough. A competitor can still undercut their competition to attract tenants.
WalterBright 4y ago
The cause of inflation is excess money created by the Fed (i.e. things like the $2 trillion "stimulus" package). The rest is the Law of Supply & Demand.
- JumpCrisscross 4y ago
  > cause of inflation is excess money created by the Fed (i.e. things like the $2 trillion "stimulus" package) You’re mixing up fiscal and monetary policy. Congress and the Fed.
  - anigbrowl 4y ago
    ...very much as usual. There's a lot of well-poisoning going on in this discussion, from multiple sources.
  - WalterBright 4y ago
    The Fed creates the money that Congress wants to spend.
    - dragonwriter 4y ago
      That's very much not how things work.
- derac 4y ago
  https://fred.stlouisfed.org/series/CP https://fred.stlouisfed.org/series/CP Increased profits gaming the public impression of inflation play a huge role. See the FRED chart above. Profits increased 1 trillion since 2020, thats something like 3300 dollars per capita.
  - refurb 4y ago
    You realize that inflation increases profits too? If we’ve had inflation of 15% over the last two years then a 15% increase in nominal profits is a 0% increase in real profits?
FooBarBizBazz 4y ago
1. Inflation goes up. 2. Fed raises rates in response. 3. Mortgages get more expensive. 4. Rents, which compete with mortgages, get more expensive. They are also part of core inflation. 5. GOTO 1. I left out the "break" involving massive unemployment and political unrest.

thunky 4y ago

toiletfuneral 4y ago
richbell 4y ago
> Bottom line is that this service is not responsible for higher rents, the market is. This service is directly and indirectly responsible for landlord's increasing rent for their tenants. Blaming "the market" is a convenient way to cast blame away from people responsible onto a nebulous concept. Companies like Zillow use software based on "the market" to determine housing prices. But for all intents and purposes they are responsible for driving up housing prices based on actions informed by their software, because their actions directly influence "the market".
- defterGoose 4y ago
  This is what so many "free market" hawks tend to misunderstand. The market is not an acyclic network, but is still strongly ordered in its power imbalance. 'The world is in greater peril from those who tolerate or encourage evil than from those who actually commit it.' -Albert Einstein
  - anigbrowl 4y ago
    Most of them understand it just fine. They just don't care as long as it benefits them in the short term. Sure, you could talk about the long term unsustainability, but they quite reasonably figure that they'll be better positioned over the long term by virtue of having a lot more money.
  - thunky 4y ago
    If the "free market" isn't good enough for you here, what are you suggesting is the solution? Banning software that analyzes market data if the output may result in pricing adjustments?
    - acdha 4y ago
      There isn’t a single “free market” and this one isn’t particularly free since there’s hefty information asymmetry and buyers typically have much lower negotiating power (you must have somewhere to live this month; a landlord can often leave a place idle for months holding out for a higher offer, especially if AirBnB is an option). Mainstream economic consensus for ages has been that markets need some regulation to work most effectively and that’s especially true for a basic human need like housing which controls how healthy the overall community is. Some obvious things to regulate here could be mandatory disclosure of sources used to justify increases, annual rate caps, requiring amounts over a certain threshold to be itemized and temporary (i.e. if the building includes heat & oil costs spiked require the owner to show that the price they actually paid went up & don’t raise the rent permanently since it’ll come back down).
      - baggy_trough 4y ago
        Mainstream economic consensus would be that your proposals are very bad ideas.
        richbell 4y ago
        Why?
        baggy_trough 4y ago
        Because they add deadweight loss to the economy by interfering with price signals and raising transaction costs.
      - thunky 4y ago
        > a landlord can often leave a place idle for months holding out for a higher offer, especially if AirBnB is an option I guess they can, but they are running a business and their goal is to make money, so they'll eventually take what they can get. And remember it works both ways. It doesn't seem like it now, but sometimes, in some markets, it's hard for landlords to attract tenants. I have serious doubts that regulation or any other form of intervention on pricing would have anything but unintended consequences, in some cases leading to the exact problem you're trying to prevent: https://www.americanexperiment.org/new-york-landlords-are-keeping-apartments-off-the-market-due-to-rent-control/ https://www.americanexperiment.org/new-york-landlords-are-ke...
- thunky 4y ago
  > actions informed by their software Yes, informed. The output of this software, and Zillow's algorithms, is only information that still needs to be applied to the real world ("the market"). The algorithms just provide information that wasn't as easy to access before. It's like saying that Google is responsible for higher rents/prices because it allows landlords/homeowners to easily access and analyze market data. I don't think so.
  - richbell 4y ago
    > Yes, informed. The output of this software, and Zillow's algorithms, is only information that still needs to be applied to the real world ("the market"). The algorithms just provide information that wasn't as easy to access before. Who verifies that the algorithm is correct? Who is culpable if the algorithm is flawed or applied incorrectly? If GreyStar or Zillow realized their algorithms were significantly inflating values, would there be any incentive to correct it without regulation? > It's like saying that Google is responsible for higher rents/prices because it allows landlords/homeowners to easily access and analyze market data. I don't think so. Except that information isn't readily available and easily accessible on Google (in many jurisdictios). It's locked away behind pricey subscriptions to vendor products. In the case of YieldStar it means that tenants cannot fairly negotiate because they don't know what a reasonable price is.
    - thunky 4y ago
      > Who verifies that the algorithm is correct? You're not going to like this answer, but...the market does. The point is that no software has to power to force tenants to pay higher than market rents. edit to add: > In the case of YieldStar it means that tenants cannot fairly negotiate because they don't know what a reasonable price is. If that's the case, then the landlords could save the money they're spending on YieldStar and just set the high prices already. They could use their own proprietary "I want more money" algorithm, and the tenant would have no choice but to pay whatever number the landlord popped out of their head.
      - richbell 4y ago
- WalterBright 4y ago
  So, why don't landlords just double the rent? Heck, why not triple it?
  - richbell 4y ago
    > So, why don't landlords just double the rent? Heck, why not triple it? I'm not sure where you're from but the rent in my area HAS more than doubled in the past few years.
    - WalterBright 4y ago
      Since the market is inelastic, and landlords can charge whatever they want, make it 10x.
      - richbell 4y ago
        > Since the market is inelastic, and landlords can charge whatever they want, make it 10x. They'll get there, slowly and steadily. You obviously cannot snap your finger and raise the rent 10x in an instant. You have to boil the frog slowly, by continuously buying up properties and raise rents considerably every year, especially for new tenants. In my city the overwhelming majority of residential apartments are owned by a single private company. This is an especially profitable venture with trailer parks, which don't have as many pesky tenant rights or protections. E.g., https://www.newyorker.com/magazine/2021/03/15/what-happens-when-investment-firms-acquire-trailer-parks https://www.newyorker.com/magazine/2021/03/15/what-happens-w...
        WalterBright 4y ago
        > You obviously cannot snap your finger and raise the rent 10x in an instant. Why not? Demand is inelastic, and people will be forced to pay it. Right?
        richbell 4y ago
        > Why not? Demand is inelastic, and people will be forced to pay it. Right? You're clearly not engaging in good faith so continuing this discussion would be pointless.
pa7ch 4y ago
So the ever nebulous market is the problem. What regulation do we advocate to stop these bottom feeders from hurting the entire US economy? Rent control doesn't seem adequate and causes other problems. I honestly don't know the answer but people making massive profits on rent seems like a major inefficiency and inequality problem.
- WalterBright 4y ago
  If the profits are above the usual profits, you can usually point to government interference causing supply shortages.
  - pa7ch 4y ago
    Sure thats part of the problem, but its convenient to lay this as generic government interference when we know its usually the real estate owners who collude or make up parts of local government to achieve this interference. Stopping this regulatory capture seems to be a prerequisite for most good social change.
    - WalterBright 4y ago
      Regulatory capture is still the government doing it, not the market. Government will always abuse its power, the idea is to give it as little as practical.
  - mistrial9 4y ago
    which part of the multi-hundred laws, regulations, taxes and discretionary decision making is "interference" and which part is.. you know, having government with laws? I suggest that the implication here is that a local feudal lord is the correct form of governance.. it was for a thousand years.. that's what you imply, really
    - WalterBright 4y ago
      Interference is things like preventing new construction. Other things are unreasonable burdens local government tends to put on landlords, which always result in higher rents. For example, in Seattle, the landlord cannot charge a tenant for damage to the unit if the damage is the result of domestic violence.
axiolite 4y ago
> A landlord can only get the amount of rent that a tenant is willing to pay. A place to live is a rather inelastic commodity. If the price goes up across the board, people will pay, until they can't possibly afford the going rent and are driven into homelessness. > this service is not responsible for higher rents, the market is. This service has effectively cornered the market, and is manipulating the market through shortages, driving rents higher.
- WalterBright 4y ago
  > A place to live is a rather inelastic commodity. People always say this when prices are going up. Then prices go down, like in 2008. The thing is, it is elastic. For example, people get roommates to split the rent. They get larger or smaller places based on their willingness to pay. More convenient or less convenient. More or less amenities.
  - acdha 4y ago
    Here’s what that looks like on the history: 2008 caused a brief flattening but it’s clear why people are talking about rent going up because that’s what it has overwhelmingly done. https://fred.stlouisfed.org/series/CUSR0000SEHA https://fred.stlouisfed.org/series/CUSR0000SEHA
    - WalterBright 4y ago
      Rents also went down in San Francisco during the pandemic. Something that the people on HN wrote could never happen :-)
      - acdha 4y ago
        Oh, no argument - but for how long relative to the time they have been going up? I wouldn’t say they never go down but there’s been a pronounced trend for ages. I bought a house relatively early (thanks dotcom bubble!) and was constantly reminded of how much extra income I had relative to my friends who were renting, and that really adds up over the decades where people in decent jobs were struggling to amass down payments.
masterjack 4y ago
It’s true, but it’s not like other markets where someone can choose not to buy and additional sellers can come in, to make sure that prices are in some ways tied to costs. Here, everybody has to live somewhere, so by default you have a “naked short” position on housing. Efficient price discovery here is performing a short squeeze and finding the point of “maximum you can afford to pay without going broke”, which is only possible to reach with price collusion.
- thunky 4y ago
  I think you're ignoring something important: competition. Your statement would only be true if all rental properties were owned by a single entity or small number of colluding entities. But in reality there is no such thing, and competition for tenants puts a downward pressure on market rents.
  - masterjack 4y ago
    True, but that’s the interesting thing about these kinds of algorithms, they align the pricing approaches so the entities act more like one than they did before, effectively decreasing competition.
    - thunky 4y ago
      I would say that pricing approaches are already aligned, and this software is just another approach that may or may not replace existing approaches in some areas. I don't see how this decreases competition, tough. A competitor can still undercut their competition to attract tenants.

WalterBright 4y ago

The cause of inflation is excess money created by the Fed (i.e. things like the $2 trillion "stimulus" package). The rest is the Law of Supply & Demand.

JumpCrisscross 4y ago
> cause of inflation is excess money created by the Fed (i.e. things like the $2 trillion "stimulus" package) You’re mixing up fiscal and monetary policy. Congress and the Fed.
- anigbrowl 4y ago
  ...very much as usual. There's a lot of well-poisoning going on in this discussion, from multiple sources.
- WalterBright 4y ago
  The Fed creates the money that Congress wants to spend.
  - dragonwriter 4y ago
    That's very much not how things work.
derac 4y ago
https://fred.stlouisfed.org/series/CP https://fred.stlouisfed.org/series/CP Increased profits gaming the public impression of inflation play a huge role. See the FRED chart above. Profits increased 1 trillion since 2020, thats something like 3300 dollars per capita.
- refurb 4y ago
  You realize that inflation increases profits too? If we’ve had inflation of 15% over the last two years then a 15% increase in nominal profits is a 0% increase in real profits?

FooBarBizBazz 4y ago

1. Inflation goes up. 2. Fed raises rates in response. 3. Mortgages get more expensive. 4. Rents, which compete with mortgages, get more expensive. They are also part of core inflation. 5. GOTO 1. I left out the "break" involving massive unemployment and political unrest.