Rent Going Up? One Company’s Algorithm Could Be Why.

Yeah, the ‘you’re too poor and you have to move to the area with the other poors’ was tongue in cheek.

But my point still stands- if you can’t afford rent in one area, you have to figure it out. Either move or make more money. It’s simple economics. It’s why Texas is flooded with people from Cali.

If you can’t afford rent and are driving a $100k car it’s time to look at life priorities. A $20k car will get you where you’re going just as easily.

 

You’re wrong. Financial irresponsibility is a huge issue in the USA. Look at debt in this country. It’s not just a $100k car. The priorities here are ****ed. It’s going out to eat daily when you could be eating ham sandwiches instead. It’s buying a designer purse or shoes when your car doesn’t run. It’s buying a $1k phone every year or two instead of rocking that five year old phone.

 

Salient rebuttal.

 

I'll tell you a story.

I live in a middle middle class neighborhood. Nothing fancy, because I don't chase the bigger and better things as my buying potential goes up. I had a door-to-door salesperson come by my house selling ATT 'fiber' about five years ago. I ended up signing up. It required a credit check. It passed right away. The sales chick commented that people with 'average cars (I drove a 2004 Jeep Grand Cherokee and my wife had a Jetta) usually passed credit checks, but people with $100k+ cars usually had terrible credit. This was from someone who ran credit checks daily on people at their homes.

I took a lesson from that: people live way above their means. Once I got into rental houses, I saw the same thing. I would meet with people who wanted the house, but a lot of those people who were driving nicer cars couldn't pass the credit score I required - 650. People who had 'average' cars generally could.

It's not rare. It's common. People in the US are fiscally irresponsible. A $100k car is a good example.

Snapshot of consumer debt
Type of debt Average debt in 2021

Credit card $5,221
Personal loan $17,064
Auto loan $20,987
Student loan $39,487
HELOC $39,556
Mortgage $220,380
​

What I bolded there is 'bad debt' as far as banks are concerned.

So you can rail against the machine all you want. But if you want a roof over your head in a specific place, you have to be able to afford it.

 

I have mixed feelings about this. Yes this algorithm is maximizing profits and part of that is removing the human factor out of it. It's like analytics in baseball. You remove your own personal feelings about a player. As a manager you might like that player and want to see him succeed so you put him in your lineup. The analytics though tell you he shouldn't be in the lineup because he doesn't hit enough at your home park.

That can be a bad thing because then you're going to cut a player you like, they possibly are going to be out of baseball. On the other hand your team wins.

So yes this is dehumanizing and the OP has a point about it raising prices. At the same time though landlords don't have to use this tool and certainly could still use empathy. At the sametime a good landlord would likely consider other factors in what they charge and retaining good tenants is also a benefit. For example you could use this algorithm to maximize what you could charge but if you get a tenant that's not going to take care of the property, that not going to pay the rent, that other tenants complain about that leaves you with a larger problem. Evictions can be costly and difficult. Constantly turning over your property because of evicting bad tenants or tenants that can't keep up with rent is costly and leads to times where your property is just sitting empty and you aren't making anything from it. So a calculation should be made by is it worth it more to keep a good tenant or to maximize your profit from what you can charge but take a gamble on the tenants you;re getting.

Another issue is that maximizing profits isn't inevitably a bad thing for society. As an architect who has been working on apartment projects financing is a huge issue for my clients. Successful / profitable clients are more likely to build more housing. More housing could lead to lower costs but also since construction has a large economic multiplier effect it leads to more jobs and more money into the local economy to afford housing.

Obviously this isn't always as simple as that and the Invsible Hand doesn't always work but it has proven to be the most successful system for meeting human needs and increasing prosperity.

 

I don't have much of a problem with maximizing profit and removing the human factor if it's done at a "local" or small scale. When it's one alg used by nearly all (a monopoly in price setting alg.) without customization for local regions, it can be a problem. When a group (even regional) agrees to use the same alg, it's effectively can be anti-competitive even if their intention wasn't to fix pricing.

I don't know if that applies here, but it's something possible and interesting with services that provide dynamic pricing software.

 

I don't think the lack of empathy is a problem here. People don't need computers to help them be dicks. The price-fixing angle will come from many landlords all using the same algorithm for setting prices. Without diversity in pricing strategies, the owners are in a way acting in concert with their supposed competitors.

 

Sure, I just don't think that it is anti-competitive, so I don't have a problem with it. I think having pricing software that applies the same logic for all competitors' pricing is possibly anti-competitive.

 

If we remove enough empathy to maximize profits we could always get back to that slavery thing again

I can see why that application can be worrisome but I think it's more worrisome in conjecture to a bigger problem in the consolidation of housing into large investment groups. Today at least the majority of renters are actual people who on average only own a couple of rentals, for tomorrow this is looking increasingly less likely for at least certain areas in the country.

https://www.tpr.org/business/2022-0...early-a-third-of-all-homes-in-texas-last-year

With a shrinking middle-income class and a growing lower-income class, the probability for many people to be negatively affected in their ability to buy a home while also being screwed in a rental market that increasingly has less competition, and a greater ability to price gouge seems problematic.



This is a good thread, I like the topic and discussions, but wish yall would quit being such dicks to each other. I understand the emotion when discussing housing though, some do believe there may be a housing crisis amongst us...

 

I’m not familiar with this software but if it’s setting the same prices nationwide yes that would greatly inflate rates but also be unsustainable. You can’t charge same rent in the SF Bay Area as Omaha and hope to stay in business.

 

This is a good point that institutional investors are buying up a lot of housing stock. The We Buy Ugly Houses guys taking up a lot of lower income homes.

Although I’m wondering if that’s slowing down. My house is a very old and small house and I used to get offers to buy it at least a few times a week. I haven’t gotten an offer in the last few months.

 

If the average car debt is $20k, then I think it’s safe to say that the number of people with a $100k car but also dealing with housing insecurity is statistically zero.

 

I'm not either . No, it would never do that, but with software, it can "optimize" for the local areas and do that nationally, meaning, applying it to all areas everywhere using the same algorithm. My thinking if nearly everyone uses the same SW, it's not good. This is more of a general case of new technology that poses new challenges to the conventional wisdom of WHAT IS anti-competitive or monopoly.

 

Good ****, this is a great topic to be discussed.

I will be on my P's and Q's.