Market Rates

#1 in a planned occasional series on Corporate Tips and Tricks!

We're moving to a new apartment. In the same building. Owned by a larger Property Management corporation, and I am pretty sure they all pretty much follow the same policies nowadays because this is not the first time we've run up against 'market rates'.  The Rep of the PMC told us that if we started on a certain future date the price would be a certain amount, let's say $3500 per month. But if we waited 4 or 5 days after that the price would be higher.  They had a list of dates at which the price would change and the amounts for each date. Each date the price was higher than the previous date. They said this was based on 'market rates' although how they know what future market rates are going to be was not disclosed.

So I got curious and asked ChatGPT because AI chatbots are the new thing now.  Here's the conversation:

Me: When apartment complexes have a set list of dates that prices of apartments go up, and the amount of the increase which they say is 'market rate', where do they get their market rate info for the future?

ChatGPT

Apartment complexes typically determine their market rates by conducting market research and analysis. Here are some common methods they might use:

1. Comparable Property Analysis: They might look at similar apartment complexes in the same neighborhood or city to see what rates they are charging. This can involve direct comparisons of amenities, location, size, and quality of units.

2. Occupancy Rates: They may consider the occupancy rates in their own complex and others in the area. High occupancy rates could indicate that prices could be raised without losing tenants.

3. Trend Analysis: By examining historical data and trends in the rental market, they can make educated predictions about future rates. This could involve looking at past rent increases, economic indicators, population growth, and housing demand.

4. Market Surveys: Some apartment complexes conduct surveys or hire firms to gather data on rental rates and market trends in their area. This can provide insights into what tenants are willing to pay for certain amenities or features.

5. Economic Factors: They might also consider broader economic factors such as inflation rates, interest rates, employment rates, and housing market forecasts.

Once they have gathered this information, they can use it to set their rental rates for the future. However, it's important to note that "market rate" is somewhat subjective and can vary depending on factors such as location, demand, and the specific amenities offered by each apartment complex.

Me: So if this information 'predicts' the market rate, and propertey managment firms use this to set their rates, aren't they creating their own market rates?

ChatGPT: Yes, to some extent, property management firms do play a role in shaping market rates within their own complexes. By setting rental rates based on their analysis of market trends and demand, they are indeed influencing the local rental market.

However, it's important to understand that the concept of "market rate" is not solely determined by one entity. It's a dynamic interplay of various factors, including supply and demand dynamics, economic conditions, government regulations, and tenant preferences.

Property management firms are essentially responding to the market forces and adjusting their rates accordingly. If they consistently set rates too high compared to the actual demand in the area, they risk high vacancy rates and potential tenant turnover. Conversely, setting rates too low may result in missed revenue opportunities.

In essence, while property management firms do have an influence on setting rental rates within their complexes, they are still operating within the broader framework of the local rental market. They are essentially interpreting and responding to market conditions rather than unilaterally dictating them.

Me: Who does this analysis? Is it the property managment company, which we'll call PMC from now on, or do they get it from an outside source?

ChatGPT: The analysis of market trends and rental rates can be conducted by various parties, depending on the resources and expertise available to the property management company (PMC). Here are some possibilities:

1. In-house Analysis: Some larger property management companies may have dedicated teams or individuals responsible for conducting market research and analysis internally. These teams may gather data, perform analysis, and make recommendations regarding rental rates based on their findings.

2. Third-party Firms: Alternatively, property management companies may hire third-party research firms or consultants specializing in real estate market analysis to provide them with insights and recommendations. These firms often have access to comprehensive data sets, specialized tools, and expertise in interpreting market trends.

3. Software Solutions: There are also software solutions available that can assist property management companies in analyzing market trends and setting rental rates. These platforms may aggregate data from various sources and provide tools for data visualization and analysis.

4. Industry Reports and Publications: Property management companies may also rely on industry reports, publications, and market surveys conducted by real estate organizations, research firms, or government agencies to gain insights into local market conditions.

Ultimately, the specific approach taken by each property management company may vary based on factors such as their size, resources, and expertise. Some may prefer to conduct analysis in-house, while others may opt to leverage external expertise or resources.

Me: If every PMC in a certain geographical area uses this analysis to set their rates, aren't they then creating those rates?

ChatGPT: Yes, to some extent, property management companies (PMCs) within a specific geographical area do contribute to shaping the rental rates in that area by using their analysis to set their rates. When multiple PMCs in a particular market adjust their rental rates based on similar market research and analysis, they can collectively influence the overall rental market dynamics.

However, it's important to note that PMCs are not the sole determinants of rental rates in a given area. Rental rates are also influenced by various other factors, including:

1. Supply and Demand Dynamics: Rental rates are ultimately determined by the balance between supply (available rental units) and demand (number of tenants seeking housing). Factors such as population growth, employment opportunities, and migration patterns can affect demand, while new construction, renovation projects, and housing policies can impact supply.

2. Economic Conditions: Economic factors such as inflation, interest rates, and local economic performance also play a significant role in shaping rental rates. Strong economic growth may lead to increased demand for housing, allowing PMCs to justify higher rental rates.

3. Regulatory Environment: Government regulations and policies, such as rent control ordinances or housing assistance programs, can influence the rental market and place constraints on the ability of PMCs to set rental rates freely.

4. Tenant Preferences and Lifestyle Trends: Changing tenant preferences, lifestyle trends, and shifts in housing preferences can also impact rental rates. For example, demand for certain amenities or housing features may influence the pricing strategy of PMCs.

While PMCs do contribute to the establishment of rental rates within their respective properties and communities, they do so within the broader context of market forces and external influences. Ultimately, rental rates emerge from the interactions between landlords, tenants, policymakers, and economic conditions within a given area.

Me:  But the upshot is that PMCs then use these 'future' market rates to pressure potential tenants into renting sooner than they might, meaning the decision is rushed, often without a chance to even view the apartment. This seems to me unethical.

ChatGPT: You raise a valid concern. The practice of using future market rate projections to pressure potential tenants into making rushed decisions without adequate time to view the apartment or consider their options can indeed be viewed as unethical or at least as putting undue pressure on tenants.

Tenants should ideally have sufficient time to make informed decisions about renting an apartment, including the opportunity to view the property, assess its suitability, and carefully consider the terms of the lease agreement. Rushing tenants into signing a lease based on projected future market rates may not give them the opportunity to fully understand the terms of the agreement or evaluate other available options.

Furthermore, tenants may feel coerced or manipulated into accepting rental terms that may not be in their best interest. This can lead to dissatisfaction and potentially strained landlord-tenant relationships in the future.

It's important for property management companies to prioritize transparency, fairness, and respect for tenants' rights throughout the rental process. This includes providing accurate information about rental rates, allowing sufficient time for property viewings and decision-making, and ensuring that tenants have a clear understanding of their rights and responsibilities under the lease agreement.

If you believe you've been subjected to unethical or unfair practices by a property management company, you may consider reaching out to tenant advocacy organizations or legal resources for assistance. Additionally, providing feedback to the property management company or lodging a complaint with relevant regulatory authorities can help raise awareness of such issues and encourage better practices in the rental industry.

End of conversation.

So there you have it. This, to me, is an example of how corporations manipulate their own markets and coerce people into ill-considered decisions. It is in all likelihood that any 'Third-Party Analysts' are connected in some way to the industry, with corporate executives on their boards and employing many former corporate workers of the companies they are supplying information too. It behooves them to 'analyze' things in a way that makes if possible for the PMCs to charge more, thus ensuring continued 'growth' in the industry.

Look for more examples in the future! And expect to pay more for them!