Why rent control laws need to change

>>>@krolik, Originally 421a was enacted because the City was selling vacant lots for $1 and still couldn't get anyone to build on them. Now all it does is increase the price of land.

Why do you think that is, what has changed?

Lots of areas have improved.

This thread got me thinking.

I always thought buyer & rental RE markets in NYC were dislocated because people rarely cross shop the two. That is, people "graduate" into ownership (in their own minds) and then never rent again. Few do the nada arb.

However another angle I think is that rent is a much more salient political issue, and policy will always target rental affordability over ownership affordability. Renters are a constituency while condo owners are a revenue source.

Further - since we don't build co-ops anymore, every new unit built is hypothetically a rental but not vice versa. Rental units are rentals, and condos are also potential rentals (as decent percent of them go directly to investors-to-let, or convert later).

It's interesting that even a fairly lefty magazine like NYMag would run an article like this which highlights some of the asymmetry in the tenant's favor in NYC housing law & how it plays out in practice - https://www.curbed.com/article/monster-tenant-bond-street-scam.html

i see both sides. rent control allows a city to be diverse but it also raises the cost of renting and creates a two tiered market.

Riverside,
I agree with what you said, except that it raises the cost of renting.

If you look at prior landlord behavior you can see that when there are large numbers of vacancies they hold thousands of units vacant on purpose to keep prices high. So it's not the units in RS which are doing it. If those units were destabilized prices wouldn't come down. They would simply hold enough vacant so that didn't happen.

https://search.app?link=https%3A%2F%2Fwww.propublica.org%2Farticle%2Fdoj-backs-tenants-price-fixing-case-big-landlords-real-estate-tech&utm_campaign=aga&utm_source=agsadl1%2Csh%2Fx%2Fgs%2Fm2%2F4

@30yrs - Interesting! I don't know if it would hold up in court but maybe the city could pass a negative tax for every unoccupied rental unit.

https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-justice-departments-lawsuit-against

Attorney General Merrick B. Garland Delivers Remarks on the Justice Department’s Lawsuit Against RealPage for Algorithmic Pricing Scheme that Harms Millions of Americans

Friday, August 23, 2024
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Location
Washington, DC
United States

Remarks as Delivered

Good morning.

Over a century ago, Congress passed the Sherman Antitrust Act to protect competition in the marketplace. As the Supreme Court has explained, the “central evil” addressed by Section 1 of that Act is “the elimination of competition that would otherwise exist,” including competition on prices.

When the Sherman Act was passed, an anticompetitive scheme might have looked like robber barons shaking hands at a secret meeting.

Today, it looks like landlords using mathematical algorithms to align their rents.

But antitrust law does not become obsolete simply because competitors find new ways to unlawfully act in concert.

And Americans should not have to pay more in rent simply because a company has found a new way to scheme with landlords to break the law.

So today, after a nearly-two-year investigation, the Justice Department, joined by eight states, has sued RealPage, a commercial real estate software company, for violating the Sherman Antitrust Act.

RealPage sells landlords what it calls “revenue management” software. We allege that this software is developed, marketed, and sold to enable landlords to sidestep vigorous competition in the rental market. Competing landlords agree to submit to RealPage, on a daily basis, their most sensitive, non-public information, including rental rates, lease terms, and projected vacancies.

RealPage then combines this data from competing landlords and feeds it into an algorithm that provides real-time pricing recommendations back to the competing landlords.

But as we allege, these are more than just recommendations. RealPage actively polices landlords’ compliance with those recommendations. It also monitors landlords’ other policies by, for example, trying to stop concessions that landlords use to attract or retain renters.

A large number of landlords effectively agree to outsource their pricing decisions to RealPage by using an “auto accept” setting, which effectively permits RealPage to determine the price a renter will pay.

Landlords understand what their arrangement with RealPage gets them. As one said, “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. That’s classic price fixing.”

And RealPage understands what it’s doing, too. In advertising its service to landlords, RealPage frequently says that a “rising tide raises all ships.” As a RealPage vice president explained, this phrase means that “there is greater good in everybody succeeding versus essentially trying to compete against one another.”

But “essentially trying to compete against one another” is what our free-market economy is all about. And ensuring such competition what our antitrust laws are all about.

Americans spend more money on housing than any other expense. Tens of millions of Americans are renters, and almost half of those households spend close to a third of their hard-earned income on rent.

Under the antitrust laws, landlords — like any competitors — may not share with each other their confidential, sensitive data in a way that permits them to align how they price their products —in this case apartments — and thus cause renters to pay more than they would in a competitive market. Using software as the sharing mechanism — or calling it “Artificial Intelligence Revenue Management” as RealPage does — does not immunize the scheme from Sherman Act liability.

The Justice Department takes seriously its responsibility to protect Americans from illegal conduct that undermines competition and drives up prices.

We will continue to aggressively enforce the antitrust laws and protect the American people from those who would violate them.

I applaud the attorneys and staff of the Department’s Antitrust Division for their outstanding work on this case on behalf of the American people.

Thank you all.

The point being it's not Rent Stabilization forcing up rental prices, but landlords colluding to do so.

100 years ago food was more expensive than housing. Farmers were well off. People will always find ways to fleece each other.

Good for the Justice Dept sounds like a step in the right direction.

@30yrs: Thanks for the update. I see that NY did not join the original lawsuit (https://www.justice.gov/opa/media/1364976/dl?inline) -- does RealPage not have significant customers in NY, or this specific aspect of collusion wasn't clearly identified in NY?

The 2025 Justice Dept is likely to shelve that lawsuit pronto. Whenever anybody asks me about NYC real estate, I say that it is no surprise to me that the most power human on the planet (arguable, I know) cut his teeth in NYC real estate. Everybody comes in thinking they know everything. I tell them: BEWARE, NYC is DIFFERENT.

>Under the antitrust laws, landlords — like any competitors — may not share with each other their confidential, sensitive data in a way that permits them to align how they price their products —in this case apartments — and thus cause renters to pay more than they would in a competitive market.

What are we talking? 2%, 5%, 10%, 20%?

https://www.nytimes.com/2024/12/05/realestate/manhattan-upper-west-side-eric-abrams-landlord.html
He Won’t Leave His Home. The Landlord Is Renovating Around Him.
A longtime tenant is locked in a standoff with the owner of his Upper West Side building.