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I built software for this industry (not at realpage) for 10+ years and can explain why price compliance is a big deal. The reason is that there is a fundamenta

I built software for this industry (not at realpage) for 10+ years and can explain why price compliance is a big deal. The reason is that there is a fundamental principal vs. agent problem in the fee-based property management industry. Usually an investor buys a building and then hires a separate corporation called a fee-based property management company to manage the property. The management company gets to keep 8-10% of the rents that come in exchange for doing all the management work. (there are situations where the owner and the manager are the same corporation but they are less common and are called owner-operators) The fee-based management company and the building owner have different interests. The building owner wants to maximize net operating income, which usually means maximizing revenue. The fee based manager wants to maximize their earnings, which is the 8-10% of the rents minus paying for all the management work to happen. On first glance you might think these are similar interests, but when it comes to choosing the price they are not the same. If a rental price is optimal, it takes a bit of work to rent it out. The housing unit will sit on the market for a little bit and be shown to a lot of people before you find someone willing to pay the price. If, on the other hand, the price is 10% below the optimal price, it will take very little work to rent out and will be taken by the first person who comes to look at it. In this case "little work" means the management company can save money by paying fewer staff members. So, property owners want optimal prices and property managers want prices that are slightly lower than that. Revenue management algorithm compliance is a solution to this principal agent problem. The building owner insists on it being used by the management company because he doesnt trust the management company to choose prices. He doesnt trust the management company to choose the price because they are motivated to lower the price in order to reduce their workload. High price algorithm compliance is important to realpage because it is how the owner makes sure the manager is choosing prices that maximize the owners interests, rather than the management company's interest. And the owner is the person who chooses to enforce the pricing algorithm, and thus the true customer of realpage when it comes to revenue management algorithms.

doctorpangloss 2y ago
Yeah, but listen brother. Do you want housing prices to be lower or higher? Do you want rents to be lower or higher? Which is best for you? What is best for the country? Your experience is really valuable in the context of what this action is meant to address, which is a potentially irreconcilable political interest in low rents for all, high prices for some, low prices for others, which could be achieved many ways.
tqi 2y ago
> the owner is the person who chooses to enforce the pricing algorithm Very interesting - I can't find anything about this on their website, but assuming that is the case I feel like this is the only explanation so far in this thread that makes sense. Other explanations in this thread (marketing, optimizing for all the customers) fall short to me because (as far as I can tell) there is no reward / punishment mechanism. This is not to say that the effect isn't the same though, driving prices up. And the other quotes from internal documents certainly hint that there might have been some awareness of this as well.
- andrewmutz 2y ago
  To the best of my understanding I think the technology does drive up prices, but not in an anticompetitive way. I know people get really passionate about this, so I don't want to argue with people on hacker news about it, but to the best of my understanding this is what is happening: Rental prices in the USA keep going up primarily due to a housing shortage. Revenue optimization algorithms like realpage's do genuinely increase rents by about 2-5%, because without them fee-based property managers lower rents below market-clearing price in order to make it easier on themselves. The increased rent that comes from using these algorithms is, in my opinion, not really anti-competitive. If you only used public information for the pricing algorithm, you'd get largely the same prices out of the system. In almost all rental markets, algorithmic pricing of any sort doesn't have high enough market share to see success by anticompetitive price-fixing, since most suppliers of housing don't use it. Apartment rents are crazy high because there simply isnt enough housing, and we dont let people build enough dense housing near jobs. Going after Realpage, or blackrock, or landlords, or AirBnB is just trying to find a scapegoat, when the hard truth is we need to let people build more housing near where the jobs are.
  - claytonjy 2y ago
    do we know roughly how common use of this or similar technologies are in various markets? I was under the impression this was quite common, though I have no evidence and would love to be shown otherwise!
laegooose 2y ago
Thank you for clear explanation, very interesting
hansvm 2y ago
That's my main argument against realtors too -- at first blush they look to have aligned incentives, but the vastly different scales and workloads tend to push realtors into trying to get you to sell for a lower than optimal price.

doctorpangloss 2y ago

Yeah, but listen brother. Do you want housing prices to be lower or higher? Do you want rents to be lower or higher? Which is best for you? What is best for the country? Your experience is really valuable in the context of what this action is meant to address, which is a potentially irreconcilable political interest in low rents for all, high prices for some, low prices for others, which could be achieved many ways.

tqi 2y ago

> the owner is the person who chooses to enforce the pricing algorithm Very interesting - I can't find anything about this on their website, but assuming that is the case I feel like this is the only explanation so far in this thread that makes sense. Other explanations in this thread (marketing, optimizing for all the customers) fall short to me because (as far as I can tell) there is no reward / punishment mechanism. This is not to say that the effect isn't the same though, driving prices up. And the other quotes from internal documents certainly hint that there might have been some awareness of this as well.

andrewmutz 2y ago
To the best of my understanding I think the technology does drive up prices, but not in an anticompetitive way. I know people get really passionate about this, so I don't want to argue with people on hacker news about it, but to the best of my understanding this is what is happening: Rental prices in the USA keep going up primarily due to a housing shortage. Revenue optimization algorithms like realpage's do genuinely increase rents by about 2-5%, because without them fee-based property managers lower rents below market-clearing price in order to make it easier on themselves. The increased rent that comes from using these algorithms is, in my opinion, not really anti-competitive. If you only used public information for the pricing algorithm, you'd get largely the same prices out of the system. In almost all rental markets, algorithmic pricing of any sort doesn't have high enough market share to see success by anticompetitive price-fixing, since most suppliers of housing don't use it. Apartment rents are crazy high because there simply isnt enough housing, and we dont let people build enough dense housing near jobs. Going after Realpage, or blackrock, or landlords, or AirBnB is just trying to find a scapegoat, when the hard truth is we need to let people build more housing near where the jobs are.
- claytonjy 2y ago
  do we know roughly how common use of this or similar technologies are in various markets? I was under the impression this was quite common, though I have no evidence and would love to be shown otherwise!

laegooose 2y ago

Thank you for clear explanation, very interesting

hansvm 2y ago

That's my main argument against realtors too -- at first blush they look to have aligned incentives, but the vastly different scales and workloads tend to push realtors into trying to get you to sell for a lower than optimal price.