6 ms·

"Landlords adopt RealPage recommendations on pricing 80-90% of the time, which explicitly drives up revenue by holding apartments off the market. " Can somebod

by jupp0r 2y ago

"Landlords adopt RealPage recommendations on pricing 80-90% of the time, which explicitly drives up revenue by holding apartments off the market. " Can somebody explain how holding apartments off the market is driving up revenues?

lotsofpulp 2y ago
If enough sellers band together and set a minimum price level for a good with low elasticity of demand (meaning people need it no matter what and will sacrifice other parts of their budget to obtain it, like shelter), then the higher prices could lead to higher revenue even though fewer units are sold (due to higher per unit prices).
- r00fus 2y ago
  Yes, this is what Cartels do - and that behavior is generally illegal - but requires a government that cracks down on this. In China this level of crime gets you sent to re-education camps or just executed.
sokoloff 2y ago
If I have 100 units and set the price such that no unit is ever vacant, that price is surely lower than if I set the price such that 90 or 95 of them are occupied at any given time. If the rent to leave 10% vacant is 11% higher, I basically break-even on cash-flow and have a higher building valuation (on a multiple of rents when fully-rented basis). If it's 12% higher, I make more cashflow (plus giving myself an easier job with more freedom in operations to do medium maintenance between tenants and have units free for temporary dislocations, etc;).
- SoftTalker 2y ago
  Right, and it works best for large landlords that have hundreds or thousands of units. The small landlord/owner with a couple of houses or condo units is going to want them 100% rented because leaving even one of them vacant is going to be significant impact on revenue.
  - bombcar 2y ago
    It actually works out for the small landlord also. Let's assume there's a "fair rent" for the house - $1000 a month to make it easy. If you rent that out for $900 a month, you will basically never have it empty, because those in it won't want to move (they lose the $100 bonus) and if they do, someone will grab it right away. If you rent it for $1000 a month, it'll fill up relatively easy (compared to the market it is in) so you'll often have relatively low vacancy (but even one month empty is paid for by ten months rented. If you rent it for $1100 a month, it'll be vacant much longer, perhaps forever depending on supply.
    - jupp0r 2y ago
      "it'll fill up relatively easy (compared to the market it is in) so you'll often have relatively low vacancy (but even one month empty is paid for by ten months rented." You are assuming that the marginal cost of turnover is zero, which it definitely isn't. Putting a unit on the market, showing it to prospective tenants, processing applications, background checks, income verification, etc is labor intensive and expensive. This is during the period where you have 0 income from the unit.
    - QuarterReptile 2y ago
      The real trick is to find good tenants who are, in turn, convinced that you're a good landlord. Then you're in better shape for both turnover and rent amount.
  - joe_the_user 2y ago
    A large number of small landlords buy their units for appreciation rather than rental income. Just as much, small landlords are terrified of the damage a bad tenant can do and might not have the resources and experience needed to quickly get rid of such a tenant and finding a tenant can be expensive and time-consuming giving them further incentive to leave the place vacant. And also having less knowledge and experience, small landlord aim to follow the market and they'd aim to have an apartment as "market rate". Certainly, lowering an existing unit's price would only bring in "less desirable people" since "desirability" is very much a function of income.
- jupp0r 2y ago
  This doesn't make sense in a few ways: 1. You won't increase rents for existing leases, these need to be up for renewal so you can make changes to them. 2. You are assuming that you control the whole market. Even if 70% of landlords use RealPage and their pricing recommendations, the remaining 30% should be able to absorb some of the people moving out as a result of this if the new rent is substantially over market. 3. This creates somewhat of a prisoner's dilemma problem. Any non-compliant landlords inside the 70% bucket could only raise their rent by 5% instead of 10%, get full occupancy rates and come out ahead of their competitors.
  - boscillator 2y ago
    RE #3: yes, and RealPage was caught trying to get employees who realized this fired, thus the illegal monopolization.
  - codedokode 2y ago
    > Even if 70% of landlords use RealPage and their pricing recommendations, the remaining 30% should be able to absorb some of the people moving out as a result of this if the new rent is substantially over market. It means that 30% people will get market-determined terms and other 70% will have no choice but to accept RealPage pricing. Because they need to live somewhere.
infecto 2y ago
Read another way, they fix prices where perhaps the unit sits vacant. Since they have dominant control over some markets they can do this and keep units vacant and know that people will have to rent at $x instead of $x-y
joe_the_user 2y ago
Supply and demand? Lower supply means the price of existing offerings goes up. Obviously, it's not holding all units off the market but collusion to hold enough units off the market to get a maximum value of the units times price, what they called in econ back in the day the monopoly equation.
- jupp0r 2y ago
  How can even a large share (70% are mentioned in the article) of landlords have full control over supply? This is different from the railroad or telco cartels of the past where it is really hard for new players to get into the market. Getting into Atlanta's housing market is as easy as buying some land and building some apartments on it, buying up and renting out single family homes, etc. The barrier to entry is really low.
mcint 2y ago
The model would be, this company RealPage, controls a significant fraction of the ready to rent housing stock in some portion of the market. "Control" because their contracts with landlords include provisions that say landlords will use the prices dictated by RealPage, and RealPage will exclude or ban the landlord from its services if they rent below the rate set by RealPage. A cartel by contract. It increases revenue with fewer units rented, the claim is not "maximize" revenue, but, for a property manager, that they "increase" revenue, in step with a sizable portion of that local market. It's a marketing claim to property owners, not a global/overview claim to the public. Holding housing stock level constant, they can set prices that a renters moving in, in the coming years, can't improve on.
pixl97 2y ago
The law of supply and demand. This is artificially limiting supply so instead of saying you have "100 units for rent" you only show 3 or 4. Done strategically this can give the appearance of a limited supply, even when the supply is not limited. Imagine you go to 5 different complexes and they all say "Oh man, we only have 1 unit left and it's $$$". You're going to behave differently, especially if you're in need for a room then if you go to those 5 complexes and they say "Oh, yea, we have 40-50 units vacant at the moment". A sense of urgency is put on the renter.
- jupp0r 2y ago
  Any actor outside of this cartel could exploit this by creating more supply and getting ahead of the cartel members by renting units out at (real) market rate though.
  - mperham 2y ago
    Theoretically. That’s where zoning comes in and kills any possibility to densify.
    - pixl97 2y ago
      I lived in a dry county at one point in my life, and seemingly the biggest churches around there did a lot of campaigning against removing the existing laws. Eventually the voters voted in liquor sales, but one of the most telling things to come out of all of it was the liquor store owners on the county lines were some of the biggest donors to the large churches in that area. I wonder how many of these large property owners engage in such rent seeking behavior too.
  - sokoloff 2y ago
    If creating more supply were a strong effect resulting from this activity, surely housing advocates would be strongly in favor of this and asking the FBI to back off on this obviously pro-housing action.
- randomdata 2y ago

by jupp0r 2y ago

lotsofpulp 2y ago

If enough sellers band together and set a minimum price level for a good with low elasticity of demand (meaning people need it no matter what and will sacrifice other parts of their budget to obtain it, like shelter), then the higher prices could lead to higher revenue even though fewer units are sold (due to higher per unit prices).

r00fus 2y ago
Yes, this is what Cartels do - and that behavior is generally illegal - but requires a government that cracks down on this. In China this level of crime gets you sent to re-education camps or just executed.

sokoloff 2y ago

If I have 100 units and set the price such that no unit is ever vacant, that price is surely lower than if I set the price such that 90 or 95 of them are occupied at any given time. If the rent to leave 10% vacant is 11% higher, I basically break-even on cash-flow and have a higher building valuation (on a multiple of rents when fully-rented basis). If it's 12% higher, I make more cashflow (plus giving myself an easier job with more freedom in operations to do medium maintenance between tenants and have units free for temporary dislocations, etc;).

SoftTalker 2y ago
Right, and it works best for large landlords that have hundreds or thousands of units. The small landlord/owner with a couple of houses or condo units is going to want them 100% rented because leaving even one of them vacant is going to be significant impact on revenue.
- bombcar 2y ago
  It actually works out for the small landlord also. Let's assume there's a "fair rent" for the house - $1000 a month to make it easy. If you rent that out for $900 a month, you will basically never have it empty, because those in it won't want to move (they lose the $100 bonus) and if they do, someone will grab it right away. If you rent it for $1000 a month, it'll fill up relatively easy (compared to the market it is in) so you'll often have relatively low vacancy (but even one month empty is paid for by ten months rented. If you rent it for $1100 a month, it'll be vacant much longer, perhaps forever depending on supply.
  - jupp0r 2y ago
    "it'll fill up relatively easy (compared to the market it is in) so you'll often have relatively low vacancy (but even one month empty is paid for by ten months rented." You are assuming that the marginal cost of turnover is zero, which it definitely isn't. Putting a unit on the market, showing it to prospective tenants, processing applications, background checks, income verification, etc is labor intensive and expensive. This is during the period where you have 0 income from the unit.
  - QuarterReptile 2y ago
    The real trick is to find good tenants who are, in turn, convinced that you're a good landlord. Then you're in better shape for both turnover and rent amount.
- joe_the_user 2y ago
  A large number of small landlords buy their units for appreciation rather than rental income. Just as much, small landlords are terrified of the damage a bad tenant can do and might not have the resources and experience needed to quickly get rid of such a tenant and finding a tenant can be expensive and time-consuming giving them further incentive to leave the place vacant. And also having less knowledge and experience, small landlord aim to follow the market and they'd aim to have an apartment as "market rate". Certainly, lowering an existing unit's price would only bring in "less desirable people" since "desirability" is very much a function of income.
jupp0r 2y ago
This doesn't make sense in a few ways: 1. You won't increase rents for existing leases, these need to be up for renewal so you can make changes to them. 2. You are assuming that you control the whole market. Even if 70% of landlords use RealPage and their pricing recommendations, the remaining 30% should be able to absorb some of the people moving out as a result of this if the new rent is substantially over market. 3. This creates somewhat of a prisoner's dilemma problem. Any non-compliant landlords inside the 70% bucket could only raise their rent by 5% instead of 10%, get full occupancy rates and come out ahead of their competitors.
- boscillator 2y ago
  RE #3: yes, and RealPage was caught trying to get employees who realized this fired, thus the illegal monopolization.
- codedokode 2y ago
  > Even if 70% of landlords use RealPage and their pricing recommendations, the remaining 30% should be able to absorb some of the people moving out as a result of this if the new rent is substantially over market. It means that 30% people will get market-determined terms and other 70% will have no choice but to accept RealPage pricing. Because they need to live somewhere.

infecto 2y ago

Read another way, they fix prices where perhaps the unit sits vacant. Since they have dominant control over some markets they can do this and keep units vacant and know that people will have to rent at $x instead of $x-y

joe_the_user 2y ago

Supply and demand? Lower supply means the price of existing offerings goes up. Obviously, it's not holding all units off the market but collusion to hold enough units off the market to get a maximum value of the units times price, what they called in econ back in the day the monopoly equation.

jupp0r 2y ago
How can even a large share (70% are mentioned in the article) of landlords have full control over supply? This is different from the railroad or telco cartels of the past where it is really hard for new players to get into the market. Getting into Atlanta's housing market is as easy as buying some land and building some apartments on it, buying up and renting out single family homes, etc. The barrier to entry is really low.

mcint 2y ago

The model would be, this company RealPage, controls a significant fraction of the ready to rent housing stock in some portion of the market. "Control" because their contracts with landlords include provisions that say landlords will use the prices dictated by RealPage, and RealPage will exclude or ban the landlord from its services if they rent below the rate set by RealPage. A cartel by contract. It increases revenue with fewer units rented, the claim is not "maximize" revenue, but, for a property manager, that they "increase" revenue, in step with a sizable portion of that local market. It's a marketing claim to property owners, not a global/overview claim to the public. Holding housing stock level constant, they can set prices that a renters moving in, in the coming years, can't improve on.

pixl97 2y ago

The law of supply and demand. This is artificially limiting supply so instead of saying you have "100 units for rent" you only show 3 or 4. Done strategically this can give the appearance of a limited supply, even when the supply is not limited. Imagine you go to 5 different complexes and they all say "Oh man, we only have 1 unit left and it's $$$". You're going to behave differently, especially if you're in need for a room then if you go to those 5 complexes and they say "Oh, yea, we have 40-50 units vacant at the moment". A sense of urgency is put on the renter.

jupp0r 2y ago
Any actor outside of this cartel could exploit this by creating more supply and getting ahead of the cartel members by renting units out at (real) market rate though.
- mperham 2y ago
  Theoretically. That’s where zoning comes in and kills any possibility to densify.
  - pixl97 2y ago
    I lived in a dry county at one point in my life, and seemingly the biggest churches around there did a lot of campaigning against removing the existing laws. Eventually the voters voted in liquor sales, but one of the most telling things to come out of all of it was the liquor store owners on the county lines were some of the biggest donors to the large churches in that area. I wonder how many of these large property owners engage in such rent seeking behavior too.
- sokoloff 2y ago
  If creating more supply were a strong effect resulting from this activity, surely housing advocates would be strongly in favor of this and asking the FBI to back off on this obviously pro-housing action.
randomdata 2y ago