In The News

Description

• The company said the software only suggests rental prices and its customers accept those recommendations less than 50% of the time.

• Landlords, who pay to use the software, share information about rents and occupancy rates that is otherwise confidential. Based on that data, an algorithm generates suggestions for what landlords should charge renters

•  Properties containing about three million rental housing units use RealPage’s software, and the company has access to confidential information from over 16 million units across the country

Issues

• The company commands an 80% market share in commercial revenue management software

Significance

• It’s the first major civil antitrust lawsuit where the role of an algorithm in pricing manipulation is central to the case

• A rent-setting algorithm that allows landlords to illegally coordinate price increases

Introduction

The Good

• Houses have improved in terms of size and quality

• Very low-income individuals cannot afford the lowest quality housing units

Challenges

• In certain areas, housing has become unaffordable for the middle class (tightly regulated, supply constrained coastal markets) 

Concerns about Fire

Public Health Concerns

Limiting Commercial Development

Congestion Externalities

Environmental Externalities

Homeownership?

Motivation for Housing Policy Intervention

Guidance

• The federal government should counter local governments inclination to limit development

• Policy solutions meant to aid the lowest income individuals should not be placed based: Cash/Vouchers

• Need policies that address the regional differences in housing markets

Issues of Poverty

Problems in the Housing Market

Affordability Challenge # 1

"We argue that direct housing-market interventions should be contemplated only when the housing market is failing to deliver
homes at a price that is close to or below construction costs. The existence of people so poor that they cannot afford even inexpensive housing does not justify intervening in the housing market, whether to stimulate new supply or to regulate in different ways. The proper way to deal with poverty is to transfer resources to the impoverished, not to meddle with
the housing market."

Motivation for In-kind Transfers

• Shape/Restrict behavior

• Directly benefit children

• Head Start

• Food Stamps

• Medicaid

What's Missing From this?

• More politically feasible

I am petrified about doing this pilot project, that it might prove something I’ve been working on for 30 years is not effective,” he told me. “It could challenge the overall system. That’s the unnerving part. But it takes a little bit of courage to say in the end it’s not about me.

Affordability Challenge # 2

"Perhaps new development should be restricted in some areas because of the environmental and aesthetic externalities that are associated with new homes. On theoretical grounds, at least, land-use regulations might decrease affordability while still being quite rational and efficient"

"The reason construction costs are a good benchmark for what the price of housing should be in a well-functioning market is that, if we believe housing is too expensive in some place, then the correct response presumably is to produce more housing so that its price will fall to the level at which it can be produced in a competitive market"

"If housing prices, no matter how high, simply reflect strong demand and normal supply conditions, then it is hard to see why a policy intervention is called for"

"This scarcity is artificial in the sense that policy created it. If local policy is primarily responsible for the wide and growing gap between house prices and construction costs in many of the nation’s coastal markets, then housing in those areas is unnecessarily, and possibly inefficiently, expensive."

• Mortgage Interest Deductions & Local Property Taxes

• Government Sponsored Enterprises

Incidence

Takes

• Chapter 40B unambiguously strengthens housing supply in Massachusetts because it gives developers more options and more bargaining power. It does not impose new requirements, but gives builders an escape hatch to avoid local zoning boards

• In contrast, by directing housing to low-price areas where there is no other private construction, the LIHTC ensures that new construction will generate the least social surplus and the least impact on overall housing affordability. Building in census tracts with little demand, even within high demand metropolitan areas, does little to make housing more affordable overall.

• According to a longstanding result in urban economics, optimal development occurs when the land value in a community is maximized

Historical Overview

Analysis

Heterogeneity

• In areas with weak demand and low housing prices, such as the declining inner cities of the Midwest, the LIHTC probably is adding to the housing stock. But given that housing prices are already quite low in these areas, why are we subsidizing housing there in the first place?

• In areas with robust demand and highly elastic housing supply such as Houston or Atlanta, the LIHTC programs are far too small to make much of a difference to affordability and are substituting for much unsubsidized development that would have occurred anyway. If anything, the program serves only to ensure that there is development in those low-demand submarkets where housing probably shouldn’t be built anyway.

The Need for Data

Given reasonable assumptions, including that there are both subsidized and unsubsidized builders in each market and that both types of builders use the same construction technology so that their production costs are the same, it is likely that rents are no lower than they would be in the absence of the program.

How insightful do you find this?

The study finds a very large crowd-out effect of about two-thirds. That is, each unit of subsidized housing displaces about two-thirds of a purely private-sector unit, implying that the net increase in the housing stock is only one-third of the gross increase in units from the subsidy program.

Motivation to Understand How Results are Drawn