just like all resources, most houses are hoarded by a small number of people
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This was how I became aware of “warehousing,” the practice by which landlords keep unrented apartments off the market to create artificial scarcity. Building owners have always done this, especially in new constructions with lots of virgin inventory, because why give renters the upper hand if they don’t have to?
But they really started doing it during the pandemic. On a 2022 episode of the real-estate-industry podcast Talking Manhattan, Gary Malin, COO of the Corcoran Group, made a surprising claim: “At one point during the downturn, the vacancy rate in the city was close to 25 percent,” he said. “You had owners who were sitting on hundreds if not thousands of empty apartments.”
Officially, during the peak of the COVID exodus, the vacancy rate in Manhattan was 4.3 percent, the highest in at least 14 years. But those “official” vacancy rates we hear so much about are sourced from market reports by brokerage firms like Corcoran and Douglas Elliman, and they only reflect the number of rentable apartments that landlords are advertising, not the number that actually sit empty. Given the incentives for underreporting, this is a little like calculating a city’s crime rate by asking criminals how many people they robbed and murdered last month.
I asked Malin to estimate the real vacancy rate post-rebound. “I think it’s close to 2 percent,” he told me, which would put it back in line with official rates. “Unless an owner is intentionally keeping units off the market for whatever their reasons — maybe they need to do renovations, maybe they plan to sell the building and think it’s better to sell it vacant — right now, if you have apartments available, you are renting them.”
Still, a 23-point drop in New York City’s vacancy rate would signal an inflow of hundreds of thousands of residents who haven’t yet appeared in any other data. Where are they? Or, perhaps more pertinently, if building owners were lying to us about the amount of their unused inventory as recently as a couple years ago, why should we believe them now?
We know that at least 20,000 rent-stabilized apartments are being warehoused because landlords have admitted as much. (A 2021 Census Bureau estimate puts the number at 42,860.) Owners blame a 2019 state law, the Housing Stability and Tenant Protection Act, which limits the amount they can raise rents to pay for renovations. They say their warehoused apartments are in such poor shape that it would be impossible to recoup the cost of necessary repairs at rent-stabilized prices, so they’re holding them vacant until Albany repeals the law.
But here, I admit, is where my conspiracy theory falls apart: If all of these luxury buildings were hiding supply, wouldn’t one smart landlord undercut competitors by opening their whole stock and making a killing at today’s artificially inflated prices? Of course one would. And so I almost ended this column with a deeply felt apology for impugning the honest intentions of the New York City real-estate community.
But then, in October, ProPublica published what seemed like evidence of an actual conspiracy. It turns out that some landlords have been using the same software to do some very interesting things.
The app is RealPage Revenue Management Software, it’s made by the Texas-based company RealPage, and allegedly it works by collecting private pricing and inventory stats from competing building owners and then using that data to give them each recommendations for how to price their available apartments such that nobody undercuts the others.
Some argue — including the plaintiffs of over a dozen class-action lawsuits filed in the wake of ProPublica’s story — that RealPage’s software allows individual landlords to keep their hands clean while indirectly colluding to inflate prices. In 2021, a RealPage executive bragged at a conference that his company’s algorithm was responsible for rent increases nationwide. “I think it’s driving it, quite honestly,” he said, according to the article. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
Landlords are allowed to reject RealPage’s pricing guidance, although former employees of the company told ProPublica that up to 90 percent of suggestions are followed. The software discourages negotiation with tenants and has even been known to tell owners to goose prices by holding back supply.
On a 2017 earnings call, RealPage CEO Steve Winn described how a property manager saw revenues go up when their buildings that had historically been 97 or 98 percent full cleared out to 95 percent, “an occupancy level that would have made management uncomfortable before.” According to one lawsuit, “This is a central mantra of RealPage, to sacrifice ‘physical’ occupancy in exchange for ‘economic’ occupancy, a manufactured term RealPage uses to refer to increasing prices and decreasing occupancy in the market.”
https://www.curbed.com/2023/01/nyc-real-estate-covid-more-apartments-higher-rent.html