The rent is, infamously, too damn high. That refrain has such staying power because the United States’s noxious rent crisis has shown no signs of abating, with rents rising over 30 percent since 2019. All manner of ill effects have resulted; the rapid simultaneous growth of the homelessness crisis is no coincidence.

Obfuscations aside, the correlation there is quite direct. But the origins of the rent and housing crisis itself can seem a bit more diffuse: perhaps some combination of shortages driven by lulls in development (though in truth, we don’t lack housing per se so much as we lack affordable, low-income housing). Those shortages, in turn, can be influenced by zoning law, mortgage interest rates, various public policies, and other variables like rising materials costs. Neither is it helping matters that Wall Street private equity funds are buying up homes in droves to flip them for profit.

But in 2022, a singular factor that exerts an outsized influence on rent hikes was identified: In October of that year, reporting by Heather Vogell in ProPublica turned up some remarkable revelations. Vogell found that the nation’s punishingly high rents are not solely attributable to vague and abstract structural trends. In fact, allegedly, landlord-coordinated price-gouging has been taking place, and at a staggering scale.

The ProPublica investigation found that a software called YieldStar, supplied by a company called RealPage, has provided a means to share pricing information between large corporate landlords. The program feeds this information into an algorithm that determines the highest possible rent and directs its users to set rents to maximize profit — effectively, legal challenges argue, a form of collusion-by-algorithm to keep rents high. The software has facilitated anti-competitive market manipulation on a scale that multiple state attorneys general and the Department of Justice (DOJ) have charged is tantamount to a nationwide price-fixing cartel.

The subsequent litigation efforts and government inquiries into RealPage and many of its clients continue to mount: class-action and private lawsuits are pending in multiple states, and may set an important precedent for analogous cases. Now, the Department of Justice has weighed in to support plaintiffs and is conducting civil and criminal investigations of its own — and relatedly, a recent FBI raid of one of its major clients indicates that RealPage is facing some real trouble.

Nationwide, the ubiquity of RealPage software among residential management corporations has meant that its algorithmic suggestions and competitor price data have in all likelihood played a determining role in the inflation of rents across the country, exacerbating the suffering of everyday people and inflaming the homelessness crisis. Depending on the outcome of litigation, the cases against RealPage have the potential to set major precedents: Inadvertently, RealPage may end up being comparably influential in the future prosecution of algorithmic price-fixing charges.

Price-Fixing at Scale

The sweeping success of RealPage’s algorithmic rent-setting software product, YieldStar, has its origins in a questionably green-lit 2017 corporate merger in which RealPage acquired four companies — its largest competitor Rainmaker Group among them. The latter company made a software called Lease Rent Options, which, once acquired, granted RealPage access to software technologies and reams of new client data. (The acquisition of the original, obsolete version of the YieldStar platform appears to date to 2002). RealPage found great success hawking its signature YieldStar product and later comparable software suites, thoroughly embedding itself in the industry and attaining near-ubiquity among major landlords. Today, RealPage has traded on that data and rent-raising acumen, expanding to immense proportions, and its products are now involved in the administration of millions of housing units worldwide.

That success is attributable to its adeptness at increasing profits — by a “consistent” 3 to 7 percent year-over-year growth rate on a given property, according to the company itself. At the highest levels, as rent climbs ever-higher and the increased income from those properties trickles all the way up to the top of the hierarchy, the largest corporate landlords have been treated (or rather, have treated themselves) to a profit windfall.

RealPage software works by computing and sharing both public and private rent data from the other local managers, including direct competitors, in RealPage’s extensive client portfolio. To a given client, the software then presents “suggestions” for just how high rates can (and should) be pushed for a property asset in the area. The sustained, elevated rates that the algorithm spits out are only possible when squeezing a powerless and captive audience — when all the other apartment complexes in town are doing it, too.

The effective result is coordinated price-fixing: i.e., the mutual (and illegal) agreement between competitors that none among them will undercut the other’s prices too severely, keeping their products as expensive as possible across the board and ensuring more profit for all. In addition, the widespread use of RealPage software may not only catalyze rent increases — it also incentivizes landlords to accept the low occupancy and high turnover rates that can come with inflated prices and evicting tenants to raise rent.

In effect, the program trains landlords to operate against what was considered conventional industry wisdom: that high occupancy is the best route to high profits. Instead, landlords now trade on RealPage’s key discovery, the strategic innovation that has enabled the algorithm to deliver such outsize returns: if profit is all you care about, then it’s more effective to prioritize income by rent-gouging instead of keeping more units occupied. Low occupancy and higher prices then worsen shortages, establishing a feedback loop.

It’s true that this modern variety of illegal coordination relies on algorithmic computations rather than the more traditional smoke-filled back rooms. However, it is appearing that, legally speaking, that distinction may be moot.

Wave of Litigation

Numerous lawsuits promptly followed the publication of the ProPublica investigation. Initiating the series was a suit filed in San Diego, with renter plaintiffs from both California and Washington State suing RealPage as well as massive landlords Greystar and Lincoln, which are some of the largest property management firms in the nation, just days after the article came out.

Analogous litigation has also been filed in Fresno, California. Across the country in Nashville, Tennessee, a number of private lawsuits against RealPage and landlords were consolidated into a single case. Suits against two of those defendants were settled in February, but plenty more remain ongoing. Additional class-action suits — including in a suit targeting RealPage plus nine landlord companies in Arizona, and another against RealPage and 14 landlords in Washington, D.C. — are also well underway.

Lee Hepner is an antitrust lawyer and senior legal counsel at the American Economic Liberties Project. Reached by Truthout, Hepner detailed the potential significance of the various incarnations of the RealPage litigation. To begin with, the government handling of the litigation from case to case is far from assured. Different parties in the Federal Trade Commission (FTC) and the Department of Justice, Hepner points out, fall across a spectrum of opinions as to the relevance of existing antitrust and price-fixing law to these sorts of cases.

An analogous case against Rainmaker (the same company that merged with RealPage), which was under fire for its provision of software that allegedly helped Nevada hotels coordinate prices, was thrown out by Chief Judge Miranda Du — it could not be proven, according to her ruling, that the hotels actively collaborated to fix prices. Du’s decision could prove highly relevant to other cases against RealPage, as it highlights a distinction in thinking among different elements in the criminal legal system.

While Judge Du saw the algorithmic aspect as a novel application of price-fixing law, Hepner explained that others in the legal system have a different approach: “You have a different school of people, including members of the Federal Trade Commission and Department of Justice, who have argued that price-fixing by algorithm is still price-fixing. There’s a little bit of an ideological disconnect between the camp that says, ‘This is price fixing — doesn’t matter that it’s being done with a software algorithm,’ and the judiciary, particularly the case of Judge Du, saying that this is a relatively novel application of price-fixing law because it invokes the functionality of these newer software algorithms.”

Hepner, speaking from experience as an antitrust lawyer, explained how difficult it can be to further a price-fixing charge through the court system. “These cases are making their way through the courts, and where they get tripped up is at the motion to dismiss phase,” he told Truthout. “The Supreme Court, going back to 20 years ago, has really raised the pleading standards required to survive a motion to dismiss phase. That phase is very early on in the litigation, before parties have been able to conduct any discovery, so they’re operating on limited facts.” The legal procedures structuring these lawsuits may well have a determinant impact on the results.

This might well explain the early settlement reached in the Nashville cases — there are difficult hoops that suits such as these must make it through. As Hepner said, “I think we’re learning whether existing law is adequate to confront the problem of algorithmic price fixing. And we’re learning that through how judges are applying it, in somewhat inconsistent ways.”

The Department of Justice has shown signs that, at least in some cases, it does back plaintiffs bringing the suit against RealPage, indicating that the case is a viable one; before the settlement, it gave an official blessing of sorts to the tenant plaintiffs in the Nashville cases, issuing a type of legal memorandum called a Statement of Interest of the United States, in which the DOJ reiterated the antitrust statues in question. Along with effectively siding with tenant plaintiffs against RealPage, the Justice Department also initiated a civil proceeding of its own in late 2022.

On two occasions, U.S. senators have written letters to the Department of Justice Antitrust Division requesting further, potentially criminal investigation into RealPage. First came Amy Klobuchar, Dick Durbin and Cory Booker in late 2022, followed in March 2023 by Elizabeth Warren, Tina Smith, Bernie Sanders and Edward J. Markey. The latter four urged in their letter that “the DOJ should act to protect American families and closely review rent-setting algorithms like YieldStar to determine if they are having anti-competitive effects on local housing markets that have seen increased institutional investor activity.” Evidently taking heed of their words, later that month, the Department of Justice opened a criminal probe, in a significant escalation. May’s FBI raid of the offices of RealPage client Cortland Management appears to be related to that inquiry.

Interestingly, it’s the third time that the DOJ has intervened in cases of algorithmic pricing lately; clearly, it considers algorithmic collusion as equivalent to the more familiar kind. In fact, in one of those cases, filed by a Seattle tenant against Yardi Systems, which produces comparable property management software, the plaintiff is leveling very similar charges as those faced by RealPage — in this instance against a Yardi price-setting software product called, far too pointedly, “RENTmaximizer.” In addition to the Nevada hotel case involving Rainmaker, Hepner also pointed to a case involving potential algorithmic price-fixing collusion via sharing private information, this time in the poultry industry: one of two lawsuits against the AgriStats software, another price clearinghouse venue, which it is alleged, facilitates “anticompetitive information exchanges.”

One of the ongoing class-action lawsuits against RealPage has been filed in Arizona by the office of Attorney General Kris Mayes. Truthout reached Mayes’s office for comment on the pending litigation. Asked about the nature of the charges against RealPage, Director of Communications Richie Taylor described the violation as follows: “The defendant landlords illegally colluded with RealPage to artificially raise rents and concealed their conspiracy from the public. By providing highly detailed, sensitive, non-public leasing data with RealPage, the defendant landlords departed from normal competitive behavior and engaged in a price-fixing conspiracy. RealPage then used its revenue management algorithm to illegally set prices for all participants.”

Chiefly, in this particular case, the violations are of antitrust and fraud laws on the Arizona books: the Arizona Uniform State Antitrust Act and the Arizona Consumer Fraud Act. The latter is relevant because, as Taylor explained, the Consumer Fraud Act “makes it unlawful for companies to engage in deceptive or unfair acts or practices or to conceal or suppress material facts in connection with a sale, in this case apartment leases.”

The AG’s office drew a direct link from RealPage’s widespread availability to the local rent crisis and tenant harms: “In the last two years, residential rents in Phoenix and Tucson have risen by at least 30% in large part because of this conspiracy that stifled fair competition and essentially established a rental monopoly in our state’s two largest metro areas.”

The Arizona class-action suit is pursuing an injunction to halt RealPage’s practices, as well as “restitution for consumers harmed by their conduct, civil penalties to the full extent authorized by Arizona law,” plus “any other equitable relief the Court deems appropriate.” In a certain respect, RealPage has already halted of its own accord: according to some sources, YieldStar has been shelved in the wake of the lawsuits. However, RealPage continues to operate a rebranded “AI Revenue Management” suite that empowers clients to “Maximize revenue potential with timely, actionable data.” The company will also be rolling out the new, AI-driven “Demandx,” promising “data-informed insights” to “optimize the entire demand funnel,” as the business press breathlessly reported.

Cartel Enforcers

RealPage has certainly found themselves on the defensive lately. But the Department of Justice and its Antitrust Division were not always such a bitter foe. It was under the Trump DOJ that the merger between RealPage and Rainmaker, which supplied the data and instigated the chain of events that brought RealPage software to nationwide prominence, was approved by the very same Antitrust Division. Well, not precisely the same one — in another ProPublica article, Heather Vogell cited a source who claimed that DOJ staff concerns raised internally at the time “were overridden by political appointees of former President Donald Trump.” The Biden Department, conversely, is keen to make antitrust enforcement one of its primary focus areas.

Reached for comment by Truthout, RealPage directed readers to a previously published statement. Company representatives have contested in court arguments that, because their software only offered “suggestions” and set prices by faceless algorithm, its functions did not amount to facilitating collusion or price coordination. Similar points were raised in the letter the company wrote in response to senators’ calls for investigation, claiming that reporting misrepresented the algorithm’s functioning.

Nevertheless, as Department of Justice prosecutors wrote in the Statement of Interest, “[W]hether firms effectuate a price-fixing scheme through a software algorithm or through human-to-human interaction should be of no legal significance. Automating an anticompetitive scheme does not make it less anticompetitive.”

And, more to the point, findings of the DOJ probe appear to indicate clear intent on the part of RealPage to incentivize and even enforce compliance with the algorithm’s calculated rent maximums — going beyond friendly “suggestions.” Again, in a price-fixing gambit, in order to reap the benefits, it is critical to ensure prices remain high throughout the market; one undercutting competitor can spoil the game.

As Hepner explained, there are indeed significant obstacles that a case of this sort must breach. But in the RealPage cases, it’s becoming apparent that evidence of active coordination and enforcement is rather damning. In a price-fixing case, said Hepner, “The burden of proof is on the plaintiffs to plead more than just what’s called ‘conscious parallelism.’ It’s got to be more than just the fact that competitors were raising or lowering their prices around the same time. You have to allege actual evidence of an agreement between the parties.”

“The key variable here, where we see the cases break,” he went on, is the evidence of RealPage’s enforcement of prices. “In the hotel price-fixing case in Nevada, the court did not find evidence that the parties were actually adhering to the price recommendations of this central Rainmaker algorithm. … Hotel chains weren’t necessarily taking the recommendations.”

“That’s very different in the RealPage cases,” Hepner continued. “The pleadings there suggested that there was actually a very cumbersome process [that was necessary if a client wanted to] deviate from the recommendations that were being made by RealPage.”

There was, Hepner noted, an allegation that individual clients of RealPage were assigned a pricing adviser who would ensure compliance with these algorithms. “The penalty for which could be, you get kicked out of the algorithm’s pricing recommendations, and you no longer get to use RealPage. They were really enforcing its price recommendations — and that was evidence of an agreement.”

The DOJ’s Statement of Interest echoed those findings that arose during pleading: “To ensure that the landlords abide by these ‘recommendations,’ RealPage puts significant pressure on them ‘to implement RealPage’s prices,’ including by requiring clients to submit requests to deviate to the ‘corporate office’ and tracking the ‘identity of the client’s staff that requested a deviation. … As a result, landlords using RealPage adopt RealPage’s recommendations 80-90% of the time. … Collaboration on prices, including via sharing nonpublic pricing and supply information, is thus the central feature of the product.”

The DOJ statement also describes and quotes an especially damning characterization: “As an employee for one landlord stated: While ‘we are all technically competitors, [RealPage product] helps us to work together … to make us all more successful in our pricing,’ as the software is ‘designed to work with a community in pricing strategies, not work separately’” [emphasis added].

The text of the San Diego lawsuit contains a similar charge, detailing RealPage’s encouragement and outright requirements of conformity with the “cartel’s” pricing demands:

If [landlords] wish to diverge from the “approved pricing” they must submit reasoning for doing so and await approval. RealPage encourages participating Lessors to have daily calls between the [landlords’] employees with pricing responsibility and the RealPage Pricing Advisor. … RealPage emphasizes the need for discipline among participating Lessors and urges them that for its coordinated algorithmic pricing to be the most successful in increasing rents, participating [landlords] must adopt RealPage’s pricing at least 80% of the time.”

Another factor upon which RealPage cases may hinge is the use of public vs. non-public information. It’s perfectly legal for a company to use publicly available information to set prices. But, said Hepner, “If you’re mixing non-public information into that analysis, and that non-public information is being shared with competitors, that, too, can be evidence of an agreement.”

The result is what’s known as a hub-and-spoke conspiracy, said Hepner. “RealPage, the hub, was enforcing its recommendation on the spokes, the landlords, which created a rim” of collusion. In the Nevada case, conversely, because recommendations were not enforced, “they could not prove that there was actually a rim connecting all of the spokes. Without that rim, you don’t have an agreement, under the law.”

It would seem that there is abundant evidence legitimating the charges tenants are bringing against RealPage in cases nationwide. However, again, as Hepner noted, the risk to these lawsuits is that, because major decisions are made in the pleading stage, “the court is exercising major discretion to make assumptions about the full facts and nature of the case before discovery has come to light, before you actually have that real information to base it on.” For that procedural reason — as well as the differences of opinion in the Department of Justice regarding the appropriateness of price-fixing law — it’s possible that some of these lawsuits may fail.

For the time being, as litigation mounts, RealPage’s operations continue in the background. The company’s offerings are not limited to algorithmic rent services; it also produces a tenant screening program, a type of product rife with bias — and a product over which RealPage was fined $3 million by the FTC for failing to ensure personal information was accurate. (RealPage is also now owned by private equity company Thoma Bravo, in an intersection of insidious housing trends.) Those deep pockets may help prolong the lawsuits far into the future.

Hepner offered strategic insights into the future progression of the cases: “If a price-fixing case can survive the ‘motion to dismiss’ phase, then you’re in full-blown litigation. … Some parties may decide, if they lost the motion to dismiss … [that they would] rather settle this than go through the whole process of litigating a very costly, expensive and cumbersome trial.” This was likely the origin of the early settlement reached in Nashville: “I think that’s what happened in the Tennessee case — some parties saw the motion to dismiss as the writing on the wall,” Hepner told Truthout.

Because of the high profile and the novel (i.e., algorithmic) aspects of these cases, it’s apparent that the ultimate outcomes of RealPage lawsuits may have a significant precedent-setting impact. Asked if he felt the RealPage litigation would form an influential precedent, Hepner said, “I think so. These cases are informing each other. … There’s certainly a dialogue going on, not just between the defendants, but among the district courts that are considering these cases. I think we’re watching as the law is being shaped in real time.”

Real People

The effects of RealPage’s price-setting facilitation and landlord profiteering were not confined to an abstract financial realm. They had substantive impacts on people’s lives, livelihoods and well-being. Truthout spoke with tenants of corporate landlords to learn how the rent crisis has impacted them. Sarah (who requested to go by a first name only to avoid any potential retaliation from her landlord) lives in a one-bedroom in a large apartment complex administered by a major corporate landlord in Tucson. Echoing the facts presented in the lawsuit by AG Mayes’s office, she described the everyday frustrations of living in Tucson, where median income levels rate below the rest of the state and the national average.

“In 2021 to 2022, rent increases went nuts. … My rent went from $1,240 to $1,450. They then raised me to $1,500 and started charging me for the garage, which I didn’t have to pay for my first year here.” Sarah alleges that a manager informed her that they adjust prices as often as “every two days to match the market.” When she attempted to press them about their use of RealPage to tune prices as high as possible, they demurred, claiming that it was proprietary information.

Sarah is hoping that the Arizona lawsuit brought by tenants and AG Mayes’s office against RealPage and its clients might eventually include her own corporate landlord, one of the largest in the region; right now, the company goes inexplicably unnamed in the suit, for reasons unclear.

In the meantime, though, Sarah says her rent has stabilized for now. “I think they probably know at this point they’ve stretched people out as far as they can go,” she told Truthout. “It’s just become unmanageable, since wages are so low in Arizona. I’ve had to change jobs like four times since I moved here, and have a second job on the side.”

As a result of long-stagnant wages and the rent crisis, stories like Sarah’s are not uncommon. Bri is a disabled woman of color who has lived in Boston for three years; she also requested that she be referred to by only her first name to avoid any consequences for speaking out. In that span, she’s moved three times, in large part due to rent increases. Her current residence is managed by Bozzuto Management Company — one of the 14 named alongside RealPage in the lawsuit filed in Washington, D.C. by Attorney General Brian L. Schwalb.

Bri described major frustrations in trying to secure housing compliant with the Americans with Disabilities Act (ADA) in a major city. First of all, before her tenure at a Bozzuto building, she lived in a unit owned by another property management corporation (almost without a doubt another RealPage customer, as the software’s use is endemic among corporate landlords, with Boston being no exception). When that company decided to increase her rent by $600 a month, an apartment for which she was already paying $3,150, Bri and her husband decided to move out.

She moved to a Bozzuto property in August 2023, paying $2,330 for a smaller ADA-compliant unit. But when a leak developed in her unit, she was forced to move to a different (though, she says, not better) unit — and was now paying $2,650 a month for the privilege.

“It’s a lot, to move. Every year I’ve had to move because the rent went up, or some problem with the commute. … It’s really frustrating that we couldn’t get the same rent [as the previous unit that was damaged by the leak],” she told Truthout. “Our unit is not too much different, other than our windows are slightly bigger.” And what’s more, she said, upon her next lease renewal, her landlord will be increasing her rent by another $300, on top of the already elevated rate.

Bri, speaking for herself and other tenants, described a pattern of poor responsiveness to maintenance issues and Bozzuto’s attempts to push for rent increases whenever possible. She reported seeing company social media posts boasting of 95 percent occupancy rates when the buildings were still unfinished — and while managers, she felt, did little to meet the needs of existing tenants. Yet there is little recourse, should she seek to move again. “One of the things I think about — with all of this price-fixing going on, in Boston, the smaller landlords are also raising their rents that much. There’s nowhere people can go for a reprieve,” she said. (Bozzuto Management Company did not respond to Truthout’s request for comment.)

“I’ve noticed [the impact on my finances],” Bri went on. “I don’t buy much. If I buy anything for fun, I notice it. I already don’t make enough to live in Boston. And I don’t think anybody else does. [Laughs.] My husband is unemployed, and it’s hard. We have this $300 rent increase in the middle of the year.” Bri does not, she said, see a commensurate increase in conditions or service that would justify an increase.

“[Over time, in Boston] quality of life has declined, not increased. [Charging more] doesn’t make any sense. At some point I decided, yeah, this has to be because of some algorithm.” When her husband went to the building managers to ask if they could maintain the same rent as their first unit, Bri said, he received stony indifference in return. “They don’t care, because they can always get someone else to take the apartment.”

Bri’s story is only one of millions, of course. At scale, RealPage software (formerly YieldStar, and now in its other incarnations) is so widespread that the true difficulties low-income people face from rent hikes are unimaginable in scope. Making housing unaffordable does not only drive hundreds of thousands of people out to suffer in the street. It also makes the everyday struggles of those who do manage to cling to housing that much more punishing.

Housing, a realm of social necessity (alongside others like education and health care), has fallen victim to the profiteers of the neoliberal era, who are so often the victors when terrains of the commons are opened up to predation. Whether or not RealPage persists through its legal challenges, its existence in the first place points to the broader concern: the perverse incentives introduced into structural functions when social necessities are made subject to the prerogatives of capital. Inevitably, the profits are privatized, the costs socialized. In this case, the costs borne by society are a housing crisis and untold everyday sufferings.

Instead of a perennially precarious underclass, in a moral world, adequate shelter would be supplied to all — not as a commodity but as a human right. As Bri said of the treatment she and her fellow tenants received from her property company, “They’re obviously running it like a business. Not like this is a place to live.”

Source: Truth Out

The post Real Estate Software Aided Price-Fixing “Cartel” Among US Property Companies appeared first on Amora Escapes.

China’s real estate industry is collapsing in slow motion.

Major developers like Evergrande and Country Garden remain stuck in spiraling debt problems. So-called ‘ghost cities’ dot the Chinese countryside. And now the International Monetary Fund just cut its global growth forecasts for 2024 and called out China’s real estate crisis as a big reason why.

″It’s important to recognize that there is a longer-term challenge here, and that is we essentially have too large a construction sector in China, we have too large a real estate sector because underlying demand for apartments is declining,” said Frederic Neumann, HSBC chief Asia economist, in an interview with CNBC. “We have slowing urbanization. We have declining demographics.”

China’s overall post-pandemic economic recovery has been less than stellar. Youth unemployment is at record levels, gross domestic product forecasts have been lowered and the ongoing real estate crisis has been hitting consumer confidence and foreign investment in the country.

Beijing is now attempting to alleviate the sector’s pressure with several policy moves like lowering minimum down payments and allowing for the adjustment of mortgage rates. The spillover effects on the global economy, though, could create headwinds for years to come, said Neumann.

“China’s shrinking real estate sector over the coming years will really have a huge impact on heavy industry, on the commodity markets globally,” he said. “There’s going to be less steel demand. There’s going to be less cement being used — less glass, for example. That impacts within China heavy industrial areas that really produce these raw materials.”

Source : CNBC

The post What China’s Slow-motion Real Estate Crisis Means for the Global Economy appeared first on Amora Escapes.

In July, Nuremberg’s mayor celebrated the final beam being placed atop the redeveloped Quelle building, a monumental 1950s symbol of postwar Germany’s economic revival. Revamped with offices, shops and homes, a big part of the giant complex was slated to open next year.

In recent weeks, however, the site’s developer, Gerch Group, which has €4 billion ($6.6 billion) of projects under construction, has filed for insolvency proceedings, along with one of its project companies linked to the development. The opening date is now in doubt.

It is yet another blow to a property market reeling from the end of the cheap-money era, but it also shows who is most vulnerable to the shakeout. While investor fears during the current real estate crisis have centred on landlords, the travails of Gerch and its ilk show that developers – the firms that own the building projects – are the ones in imminent danger.

“Project developers are struggling with the increased construction costs, increased interest rates and the drop in prices,” says Marlies Raschke, co-head of restructuring and insolvency at law firm Noerr. “We’ve seen several of them filing for insolvency in the last weeks and we expect more.”

Alongside Gerch, Munich’s Euroboden, which touts star architects such as David Chipperfield among its collaborators, is in preliminary insolvency proceedings. Project Immobilien Group filed for insolvency in August along with many of its project companies, and some of the work is being tendered for new contractors, a spokesperson for the preliminary administrator says. The three firms did not respond to requests for comment.

The post The German Property Crisis Claims Its First Big Victims appeared first on Amora Escapes.

The nation is not alone in that regard – and nor will it be alone next year, when prices are predicted to fall notably. With interest rates on the rise, the global housing market is at a “tipping point”, in the words of the International Monetary Fund’s latest financial stability report. House price growth is cooling, or going into reverse, in most the major markets of the world. From Australia to South Korea, the US to Europe, homeowners face an uncertain time in 2023.

A slump in house prices might look like the market correcting itself, but even a severe correction would not solve all of the underlying and connected issues with UK housing. So what will? Successive British governments have tried and failed to get to grips with housing policy, but such decisions remain politically fraught at best. Other countries, while they may be in the same boat in the months ahead, have taken very different approaches to housing delivery.

Four particular countries offer a veritable mix of ideas: Singapore, Japan, the Netherlands and France. Each sees the issue of housing as a different problem and therefore comes up with a different solution.

In Singapore, a lack of housing is solved by government intervention, while in Japan it is by relaxing the planning system. The Netherlands chooses quality over quantity, while France isn’t so much addressing the issue of a housing shortage as it is making neighbourhoods nicer places to live.

Each solution offers a glimpse into a different style of living – but also comes with its own drawbacks.

Singapore – Home ownership for all

Cramming 5.64mn people onto an island less than half the size of London was never going to be easy. Yet, the Singaporean government has managed to do just that. And where only half of Londoners own their homes, nine in 10 Singaporeans do.

This housing delivery miracle is the direct result of arguably the most ambitious and extensive government housing delivery system in the world: the Singaporean Housing & Delivery Board (HDB). Under the system, HDB flats are built by the government and sold directly to citizens on 99-year leases. This gives flat-owners security for their entire lives, but also allows the government to take flats back when citizens die and resell them.

Because 78.3 per cent of Singaporeans live in HBD flats, the state has near complete control over what housing does get built and where in the country. This has been achieved, in large part, because of the strength of the Singaporean state. Where Western democracies are forced to compete with multiple conflicting interests, the Singaporean government – though it too is part of a democracy – is much more autocratic. The ruling People’s Action Party has the majority of seats in the Singaporean parliament and it has done so since Singapore’s inception.

But cracks are emerging in housing policy. Reuters reported in August this year that, due to material and labour shortages hampering the government’s ability to deliver homes fast enough, a lucrative resale market has emerged in the city whereby HBD flats were being sold for in excess of S$1mn (£604,000) for the first time. The HBD in response referred to previous government statements on the matter: it is planning to ramp up delivery.

There are other notable features of the city state’s property market, including tight restrictions on foreign ownership, as well as a something akin to a land value tax. Homeowners pay an annual property tax based on a ‘yearly value’ of real estate – a figure that is calculated based on a property’s hypothetical rental income.

As it stands, Singaporeans still enjoy one of the most equitable housing markets in the world and ownership rates remain high. However, if the Singaporean government cannot meet demand with enough supply, there is an argument for the state to loosen its grip. That has certainly been the case in Japan, where the private sector has had no problem delivering enough homes for its citizens.

Japan – Loose planning, quick building

In the district of Umeda in Osaka, the enormous Japanese conglomerate Hankyu Hanshin (JP:9042) has a plan so ambitious that it would make any Western property developer’s jaw hit the floor. The company is building a City of London-sized financial district from scratch, complete with shopping malls, hotels, offices, flexible working space, residential apartments and two new train stations to boot. Walk around the area and almost everything you see has been built by Hankyu Hanshin in the past decade.

The scale of the work is made possible by the permissiveness of the Japanese planning system. Areas are zoned according to commercial or residential development but, beyond that, companies and individuals can more or less build what they want. ‘Nimbyism’ is therefore limited and the result is rapid and rampant development.

This means that companies such as Hankyu Hanshin can build entire districts with little opposition, but it also means during the country’s 1990s boom period the country developed a significant glut of housing. According to Andre Sorensen, an urban geography professor at the University of Toronto Scarborough, the abundance of lower quality housing in Japan – of the sort that Western countries’ planning standards would not allow for – has helped it to practically eradicate homelessness.

The numbers involved are unfathomable when compared with many Western countries. According to the latest government statistics, a mere 3,824 people are registered homeless in Japan despite the country having a population of 126mn. Put another way, just 0.003 per cent of Japanese people are homeless – a figure small enough to be a rounding error. On a percentage basis, the UK has around 133 times more homelessness than Japan. Even Singapore has seven times more.

However, there are several caveats to Japan’s housing miracle. The first is the quality of the homes built. Sorensen says the laxness of the Japanese planning system is such that there is no standard requiring housing to have windows or even a toilet. “If you wanted to take a garden shed and rent it out as an apartment in your back yard, in Japan you can,” he says.

In practice, he says that the vast majority of Japanese people will insist on such home comforts before renting or buying – a testament to market powers rather than regulation. But market forces are also causing rents and house prices to increase in the affluent, well-located and well-built areas of Japan, according to Sorensen, as they do in many Western countries. He points out that, while it is true that there are many empty homes in Japan, those homes are empty for a reason.

Sorensen says the main reason the country has so much available housing and minimal homelessness is not due to the planning system, but rather its declining population. Since 2015, Japan’s population has fallen 1.25 per cent. Over the same period, the UK population has increased by 3.1 per cent.

Sorensen says that this has created a different kind of housing crisis in Japan. “A lot of vacant housing that leads to empty buildings where garbage is accumulating and empty shops and empty apartments that bring down the neighbourhood: that’s the [Japanese] housing crisis,” he says.

Clearly, Japan’s laissez-faire planning system has not solved all of the country’s housing issues and has created some problems of its own, too. It is worth bearing that in mind when, in the UK, groups such as the Home Builders Federation argue that simply loosening the planning system will unlock development and make better use of available land (see chart). The UK government’s recent attempts to liberalise planning rules have also encountered criticism from within the Conservative party itself, specifically from MPs fearful of the backlash they might experience from voters that adopt a ‘not in my backyard’ attitude.

Yet, instead of loosening the planning system, what if the UK were instead to make it stricter? What would the UK planning system look like if it focused on higher-quality housing rather than on sheer numbers?

The Netherlands – Going in circles

Cycle for half an hour south-east of central Amsterdam, through its narrow cobbled streets and canals, and you’ll come across a development that, from the outside, does not immediately stand out. However, look closer and you’ll see why this residential complex in the district of Ijburg has won an award for being the most sustainable housing development in the world.

Back in 2020, when developer Amvest’s housing project was still in its design stage, it was given the top marks by real estate sustainability accreditor BREEAM, which praised its “sound but innovative technical solutions, widespread engagement and broader community benefit”. The project, known as Jonas, is due to be finished by the end of this year and will provide 273 homes for rent and for sale.

The building is sustainable because of a series of sensible and common sense choices: triple-glazed windows, solar panels, energy-efficient design, high-quality materials and good-sized living spaces. These are all things which exist in plenty of buildings around the world. Jonas pulls all of these ideas together to create a residential development that is of a better quality than even some of the most expensive housing developments in the UK. And it is emblematic of how the wider Dutch real estate market operates.

A quick look at those singled out by BREEAM awards in other years makes it clear that real estate projects, companies and individuals from the Netherlands are overrepresented, especially considering it is a country of just 17.8mn people. An oft-cited reason for this is the relative strictness of planning policy and building standards within the Netherlands.

To give just one example, the Dutch Ministry of Economic Affairs and Climate Policy’s energy efficiency obligation requires “organisations in the Netherlands that use 50,000kWh of electricity or 25,000 cubic metres of natural gas (or equivalent) or more per year to take energy efficiency measures with a payback period of five years or less”. Put another way, if any product exists that is more energy efficient than the products a developer is currently using in its real estate portfolio, the developer has to make the switch if the new product could make them their money back within the next half decade.

On a macro level, the Dutch government is also one of the world’s few to commit to becoming a ‘circular economy’ – whereby every primary resource in the economy is recycled in some way and nothing is wasted. In 2016, it announced a target for the country’s economy to be 50 per cent circular by 2030 and fully so by 2050. For real estate, this means many developers are using recycled building materials. When using new materials they ensure they are of a high enough quality that they can be recycled. A Dutch tech company called Madaster has even developed a ‘building materials passport’ to help developers in this process.

It is hard to see the UK, and the UK real estate sector, being as willing as the Netherlands to take this tack. Developers already complain that onerous restrictions on development make it unviable, and say that this is why housing construction rates remain relatively subdued.

There could be a middle ground. In France, rather than completely rewrite the planning rulebook, the emergence of a different idea stresses how individual cities can improve housing and community life in a much shorter timeframe.

France – The ‘15-minute city’

Most cities around the world profess to offer a degree of convenience to their residents. But that convenience can typically only be achieved courtesy of some form of transport. For most, it remains impossible to travel from a house to shops or to work without getting on public transport or getting in a car.

This, according to French academic Carlos Moreno, is the fault of bad urban planning. In an ideal world, Moreno argues, communities should be built so that all the essential services a person needs are within a 15-minute walk. This, he says, would create tighter knit communities, reduce pollution and make the places we live better.

But the ‘15-minute city’ is not proposed as a way to build new communities and new homes. Rather, Moreno suggests ways in which the communities which already exist can be made more liveable, healthier and equitable. As he put it himself in a recent TED talk, he is “offering a concept of cities which goes in the opposite direction of modern urbanism”.

His idea has had some traction in his native Paris, where socialist mayor Anne Hidalgo used the 15-minute city concept as a key pillar of her election campaign. In practice, it has meant a focus on increasing the number of services available in walking distances from where people already live by maximising the use of space, such as by using school playgrounds as parks during weekends, and school buildings as social meeting spaces after school hours.

There are criticisms. To start, some worry that, while it might prove ideal for some neighbourhoods, it would not deliver the same results for others – further increasing the inequality prevalent in so many modern cities. Another is that by travelling “in the opposite direction of modern urbanism”, Moreno and his ilk are abandoning so much of what makes cities like London, New York and even Paris so well-liked to begin with.

The core business and leisure districts of those cities are what gives them their creativity and vibrancy. By focusing on the fringes, you run the risk of losing the core, the thinking goes.

Moreno says he is not against the concept of the city, and argues that with the right planning and the right investment, any neighbourhood can work as a 15-minute city.

“Don’t get me wrong – I am not angling for cities to become rural hamlets,” he said in his TED talk, recognising the dynamism and creativity of cities. “But we need to make urban life more pleasant, agile and flexible.”

Of course, it is not as simple as Moreno makes out. Pushes to make London more “pleasant, agile and flexible”, via tweaks rather than wholescale redevelopment, have been met with a lot of resistance. In Soho, the pandemic-era decision to move restaurant and cafe tables onto streets was widely praised by visitors, but residents now want their streets back. Central London residents also helped to nix plans to pedestrianise Oxford Street. And that is putting aside the question of affordability entirely.

Ultimately, the pushback against Moreno’s ideas and the praise for them echo the pros and cons of all solutions to the housing crisis. Any solution will have its drawbacks, and there is no real way of knowing how severe they will be until the idea is put into practice.

What is for certain, though, is that no capital city in any of these countries has been able to fully solve the problem of rising house prices. London continues to be head and shoulders above the rest of the UK in terms of unaffordability; Amsterdam has been labelled one of the riskiest housing markets in the world, where offers of 30 per cent over the asking price are sometimes not accepted; the Singaporean resale market is becoming a growing problem, and, while there is a glut of supply of low-quality housing in the rest of Japan, the price of high-end condos in Tokyo are now reaching levels not seen since the early 1990s.

So, while there are lessons the UK could learn from other countries when it comes to housing, those same countries face many of the same problems. Years of ultra-low interest rates have spurred on property prices around the globe, and the fallout from this process could reverberate for years to come. Nor are higher rates necessarily a ‘solution’ to high house prices, given they go hand in hand with higher mortgage rates. Housing should be high-quality, well-located and available to everyone – but the trickiest part remains making sure people, be they would-be buyers or existing homeowners, can afford it.

Source : InvestorChronicle

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