Not enough new construction and the tight market for homebuyers have exacerbated an existing housing shortage. But there is more to it than that. There is a concentration of ownership into large businesses that own and manage a growing percentage of America’s rental housing market. Unfortunately, building more housing may make the problem worse for renters, if it is run by big corporations.

ProPublica published about the effect of these large companies using an algorithm to maximize their profits. These companies, increasingly, rely on an algorithm in a service called RealPage to set prices for their rental property.

How many rental units are controlled by large property management companies?

“The number of apartments controlled by the country’s 50 largest property managers has grown every year for 14 years, according to the National Multifamily Housing Council, which surveys buildings with five or more units.”

“Those firms oversaw about 1 in 6 such apartments nationwide in 2019, amounting to 3.6 million units. By 2021, the number had risen to almost 4.2 million.”

“By the end of 2020, the firm was reporting in a Securities and Exchange Commission filing that its clients used its services and products to manage 19.7 million rental units of all types, including single-family homes.”[source]

 

Does the concentration of landlords using this database affect rental pricing?

RealPage’s clients include some of the largest property managers in the country. Many favor cities where rent has been rising rapidly, according to a ProPublica analysis of five of the country’s top 10 property managers as of 2020. All five use RealPage pricing software in at least some buildings, and together they control thousands of apartments in metro areas such as Denver, Nashville, Atlanta, and Seattle, where rents for a typical two-bedroom apartment rose 30% or more between 2014 and 2019.

In contrast, these same companies control fewer buildings in metro areas such as Philadelphia, Tampa and Chicago, where rents have increased more slowly, the analysis found. [source]

Large landlords decreased housing supply through intentional vacancy.

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. [source]

Is it legal – not an anti-trust monopoly tactic – to have an algorithm that tells property managers how to set prices for their units?

Maureen K. Ohlhausen, who was acting chair of the Federal Trade Commission, when she said this in 2017. She explained that if a person should not do it, a corporation should not do it:

“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?” she said. “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.”

What can be done?

Support local landlords.

Local small landlords are more likely to be setting their rents based on relationships with their tenants, as opposed to relying on an algorithm designed to maximize to landlord’s profits on a larger scale.

Small landlords cannot afford vacancy, since they only collect rent from a limited number of units. Larger companies have done the math and chosen to drive up prices, even if it means letting vacancy rates go up a bit.

“A normal mom-and-pop landlord, they’re worried about having a good tenant and protecting their interest in the agreement,” [Kaylee]Hutchinson [a tenant and an analyst for the police department] said. “These companies, they’ll just replace you.” [source]

It is a side-effect of the increased growth in large rental building development that more of our housing is controlled by fewer corporate entities. The way they operate is contributing to the escalation of housing prices.

This is a national issue as well as a regional issue. Pay attention and talk to your elected officials.