The robot says vacant apartments are good actually.

How a Secret Rent Algorithm Pushes Rents Higher:

Agents sometimes hesitated to push rents higher. Roper said they were often peers of the people they were renting to. "We said there's way too much empathy going on here," he said. "This is one of the reasons we wanted to get pricing off-site." [...] "The net effect of driving revenue and pushing people out was $10 million in income," Campo said. "I think that shows keeping the heads in the beds above all else is not always the best strategy." [...]

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. [...]

Davidoff said he was careful to avoid features that might run counter not only to anti-discrimination laws, such as the Fair Housing Act, but also those that bar competitors from conspiring to set prices. [...]

Maureen K. Ohlhausen, who was then the acting chair of the Federal Trade Commission, said in a 2017 talk that it could be problematic if a group of competitors all used the same outside firm's algorithm to maximize prices across a market.

She suggested substituting "a guy named Bob" everywhere the word algorithm appears.

"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."

I also like how the article uses the pejorative "downrenting" for people who choose to only spend 30% of their income on rent instead of 40% when they have the opportunity, like they're slackers who just aren't pulling their weight. THE LINE IS DISPLEASED.

I read an article a while back with the premise, "Universal Basic Income sounds good, but if deployed at scale, how do you prevent landlords from absorbing it all?" E.g. if every person gets $500/month, rents go up by $500 across the board, and you've just given the real estate industry a handout while helping no one. YieldStar is the kind of system that would both implement and launder that.

This is why we can't have nice United Federations of Planets.

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17 Responses:

  1. Russ says:

    The paperclip maximizer seems more and more like a literal story about the future every day.

    • tfb says:

      The tragedy of the paperclip maximizer is that everyone who learns about it reads it as a story about an artificial intelligence.  Despite what its author thought he was writing about it's not, it is a story about us: we are the paperclip maximizers.

  2. Matthew says:

    Great, now you put me on the side of the robber barons, thanks for that.

    98% sounds pretty high for an occupancy rate.  People should be free to move when they want to move.  If there's no empty apartments, they can't.  You get people unable to take a more rewarding job because they live too far away.  Sounds like YieldStar is arbitraging that inefficiency.  Create more vacancies, allow more people to buy when they want, prices rise, and the total value rises by more than was lost by keeping apartments empty a little while.  That's, like... good?

    Suppose a hypothetical alternative where all rental agreements are made public, like Norwegians declare their income.  Same effect.  Instead of phoning around a sample of apartments in the area, landlords would know exactly what people are signing for.  They'd be more prepared to leave the apartment empty and wait for the richest willing buyer.

    The problem with YieldStar is just that it's one more bloodsucking software monopoly data hoarder.  Another case where "algorithm" means "averaging numbers only we can see".  That's a separate problem, which should be easy to solve by simply replacing the supreme court.

    Meanwhile, the problem with rents seems to be that you don't have enough apartments.  Have you tried building more?

    • cmt says:

      The problem with many of those algorithms is that they're skewed in favor of those who can afford to buy the algorithm - that is, the people who already have the money. Others earn their money - and I'm very careful to not write "create value" - by either introducing another middle agent into the market (who then takes the money from at least one of the pre-existing partys) or by undercutting regulation which was set in place for sometimes good reasons.

      • Matthew says:

        Again, this "algorithm" of which you speak is "averaging numbers only we can see".  There's no sophistication in accumulating that data and no justification for it being expensive.  Either establish a competitive market for that data, or have a government agency hold it, or make it public.  Yes, restricting access to a select few just creates a pointless layer of middlemen.  But somehow this article seems to suggest that landlords shouldn't be allowed to know how much their apartments are worth at all, so that they'll panic and give it to the first person they see.  This is not a solution to the housing crisis.

        • jwz says:

          There is a line between "figuring out the going rate" and "price fixing and industry collusion." This software is clearly intended to be a collusion laundry. "We didn't get together and all decide to raise our prices at the same time, no, the algorithm told us to."

          I mean it straight up says that in the article. One of the guys behind this got busted for airline price fixing, and used his experience there to learn how to make this new spin on the grift be less prosecutable.

          • Matthew says:

            Absolutely, the core of the article is a crime happening in broad daylight.  The problem I have with the article (and your quote selection) is that it says "...and that causes occupancy to go down even as rents go up!" which confuses the hell out of the problem.  The problem should be fixed by one of the three solutions I mention before: establish a competitive market for that data, or have a government agency hold it, or make it public.  The net result of any of those would be... occupancy going down and rents going up.

            • db48x says:

              I agree with you; any outrage about empty apartments is misplaced. There will always be empty apartments/houses/properties/etc even if everything else is going perfectly. It’s a necessity no matter how prices are determined.

          • Dave says:

            I think the problem is more than just the shared algorithm.  If I own a building with 10 apartments I can't just leave one empty, I won't be able to make my mortgage if 2 are empty for any length of time.  The optimum strategy is lower prices until they are full.   If I'm a corporation that owns 1000 apartments the optimum strategy could well be to raise rates until 10% are empty, it's not the end of the world if 10.5% are temporarily empty.

        • cmt says:

          "Average" is an algorithm. "Using private data only we can see" is "we have the money and the data and you don't", it increases information imbalance, especially as it's not the (prospective) tenants who can use those numbers. Having appartments sit empty while not 100% of people are housed is a problem, and sometimes they sugarcoat it as "mismatch between supply and demand", but a problem it is. Over here we have a problem with luxury appartments, which in theory you could rent, but in reality they're just an vehicle for tax evasion and "putting your money somewhere" (I won't even call that "investment"), and they're priced accordingly (prohibitively). Same game.

  3. sleep says:

    planet hell

  4. Dalkeith says:

    Capital Gains Tax was introduced in the UK around 1965 when it was observed that UK property values were rapidly growing and property developers found it more profitable to deliberately leave office blocks empty so that a rental could not be established and a greater capital gains made. Hike up capital gains tax on property and I mean all property. Using property as an investment vehicle ties up too much capital for the majority of people in an asset that doesn't return real value. By all means let the builders make capital gains they are actually making something - but landlords - no way. That's me speaking as a landlord as well. Hike capital gains lower income tax and encourage investment in shares... Job done.

  5. sleep says:

    that UBI naysayer line has always irked me for its stupidity. how do we prevent landlords from absorbing the benefit? through regulation…duh

    • jwz says:

      And how's that going so far?

    • Jonny says:

      The way you prevent the landlords from getting all $500 of UBI is by having everyone else that wants your money having exactly the same idea.   You could just as easily ask what is to keep car sellers from raising prices by $500.  You could ask why airlines won't raise their prices by $500.  You can do down the list and ask what is to keep EVERYONE from raising their prices by $500, and the answer is that because nothing has changed in terms of competing for your dollar.  The car seller would still be competing to get you to spend more money on cars instead of housing or vacations, just like they do today.  Everyone has a finite amount of money and an infinite desire for more.  UBI wouldn't change that.

      That isn't to say that UBI won't have inflationary effects.  It might, depending upon how you implement it, but the "if you give everyone $500, the landlords will just raise prices by $500" is the argument of someone naively shooting from the hip with no real understanding of economics.  

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