Computerized House Flippers and Conflicting Interests

New Orleans       It was bad enough when Wall Street sharpies like Blackstone started buying tranches of foreclosed houses in the suburbs to paint, rent, and then cash out.  Now, algorithms are being deployed for house flippers.  What could go right or wrong with this picture?

A story in the Wall Street Journal claimed that metro Phoenix is ground zero for the future of home purchases.  More than 5% of the home sales in 2018 involving 5000 properties were made by companies launching computer driven, algorithm powered approaches to the market.  Opendoor, a San Francisco startup, Zillow, the listing and area pricing web giant, and Offerpad are breaking this ground.

The Journal walked the reader through the new world:

“At the edge of the city’s stucco sprawl, a beige, three-bedroom house with a gravel yard sold last month for $240,000.  The seller, Opendoor Labs, Inc. paid $215,000 for the house in January, replaced carpet and repainted, and put it back on the market.  A computer told the company what to offer and how much to ask.  There was no need to schedule a showing with a real-estate agent.  Prospective buyers of Opendoor homes can download an app to unlock the door.”

Wham, bam, thank you Alexa, Siri, or whatever they call their thing!

What is it about Phoenix?  The city can’t catch a break.  First, the sketchy boom and then the bust over a decade ago, and just as things begin to even out again, here come the techies.

Sadly, real estate agents and realtors are a bit like taxi drivers in the love-hate relationship they maintain with consumers.  There are over two-millions of them and 1.3 million are actually licensed realtors with access to multi-listings and supposedly a code of ethics.  Even if you like your person, you know she only gets her slice if you buy or sell, so her self-interest and yours are always in conflict, and her advice always comes with many grains of salt.

Many consumers would be delighted to bring the Airbnb model to home buying, although that’s sobering for more than just the loss of jobs.  Airbnb now slants its algorithm to favor listings at its demand price and destinations.   What is there to keep Zillow from favoring the houses it owns on its listings compared to the rest of the field?  Nothing!

Add to the mayhem this disruption will bring is the fact that algorithms will undoubtedly not be limited to purchase and sales prices, but also to rents, which is surely what Blackstone is doing for its 80,000 properties.  Tell me that won’t accelerate gentrification and community mayhem.  Is there a better argument for rent controls? I can’t think of anything else off hand that will stop predatory practices.

Looking at the Uber model, we would have to predict that it would just be a matter of time before the fixed agent price of 7% or whatever would fall like a house of cards.  The companies win and base their business model on volume, which almost always favors price cutting, and that’s the easiest piece to cut.

Hey, you might say, it can’t happen here.  Opendoor is now in 23 cities and is targeting another 27 by next year.  Zillow claims it will be buying 5000 houses per month. Think again!

We need to get ahead of the e-world coming to home and apartment purchase and rental or the consequences could be huge.

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Tenant Breakthrough in New York State on Rent Control

Katy Murphy – Bay Area News Group

New Orleans        For tenant activists and organizers around the country and the world, rent control, real rent control, often seems like gold at the end of the rainbow, almost a mirage, certainly unattainable, and perhaps not worth the struggle.  New York City has long been a beacon for tenants trying to win such protections, even if the light from those policies has been flickering and rising rents have made the divide between landlords and tenants unbridgeable.  Overcoming fierce opposition by landlord lobbyists and decades of erosion of protection in the one-million rent-regulated apartments in New York City and a loss of tens of thousands of affordable housing units, a coalition of tenant advocates and organizations, Housing Justice for All, managed to win a historic agreement that would strengthen rather than weaken the rules.  This is huge!

Here are key elements of the final agreement worth noting:

  • Rent control would be expanded statewide offering cities and towns the ability to create their own rent control policies.
  • So-called “vacancy decontrol” would be abolished.This provision had allowed landlords to take units out of rent protections after rents passed a specified benchmark.  The New York Times noted that 155,000 units had been lost in the last 30 years due to this provision.
  • The so-called “vacancy bonus” would be abolished.This provision had enabled landlords to skyrocket the rents by 20% whenever a tenant vacated a rent-controlled unit.
  • Provisions were strengthened to provide tools to tenants to fight reno-raises, as I would call them, which are increases imposed by landlords when they renovate units or make improvements in the building, some of which were little more than cosmetic, but allowed rents to be gentrified, a problem we see around the world.
  • Rent discounts called “preferential rents” would be made permanent preventing huge bumps when a rent control tenant renews a lease.

I understand we’re in the weeds here, but watching what happens to the real estate market for tenants in New York in the next couple of years will be critically important.  If it works, as we believe it should, and it expands to cities and towns from Buffalo to Syracuse to wherever in New York State, it may serve even more successfully as a model for tenant victories in the future where the special, sui generis nature of the big Apple itself has been a barrier in the debate, even as it has been a beacon of hope.

The fight is not over.  Eviction protections for tenants in market rate units not under rent control did not improve which is a disappointment.  As Jonathan Westin, the executive director of New York Communities for Change, the former New York ACORN, was quoted in the Times, “…this is a huge win for the tenant movement that will impact the lives of millions of renters … but we also feel we have a long way to go.”

Amen, and many of us will be trying to follow your lead!

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