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A New Silicon Valley Startup Wants To Turn Renting Into Mad Max And Charge You For Playing

Protesters in San Francisco in 2013 CREDIT: FLICKR/STEVE RHODES
Protesters in San Francisco in 2013 CREDIT: FLICKR/STEVE RHODES

Silicon Valley’s latest big idea will let tenants out-bid each other for apartments, and charge them for the privilege.

Recently-launched apartment-hunting app Rentberry will create online auctions for open rental housing units. The service is free for the landlords who get a windfall from the bidding wars — but not for the winning tenants, who will pay Rentberry a fee based on how far the rent rose above the landlord’s initial asking price.

The startup was founded by a trio of Ukrainian businesspeople in 2015, and raised just under a million dollars in investment capital last year. CEO Alex Lubinsky said the company was valued at $3 million before it even officially launched.

Rentberry says it will make house-hunting transparent, saving tenants time and money they would otherwise have spent on application fees and fruitless open-house visits. In especially “hot” rental markets like San Francisco, Seattle, and New York City, the company predicts apartment hunters will save seven to 10 hours on average and as much as $400 in application fees.

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But that argument, and Rentberry’s entire appeal to users and venture capitalists alike, is predicated on a context that no one should simply accept.

American housing rental markets aren’t just “hot.” They aren’t even on fire. They’re a full-on Chernobyl meltdown that’s destroying economic mobility for a staggering proportion of the population and undermining economic growth for all 320 million of us.

Rental Market Meltdown

Housing researchers gauge the temperature of a rental market based on the vacancy rate and on how rent prices are changing. Today’s numbers show a “historically tight” market, Harvard Joint Center for Housing Studies senior research associate Jonathan Spader told ThinkProgress.

“Vacancy rates are at a 30-year low, and rents as well are at a 30-year historic rate of increase. This is historic, on both measures of tightness and of price,” Spader said. Thanks to a foreclosure crisis that coincides with the population peak of the millennial generation, Spader and his colleagues reported in December, there are almost 10 million more renter households in the country than there were a decade ago.

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Map: How Airbnb Is Fueling San Francisco’s Sky-High RentsEconomy by CREDIT: Flickr/LitGreen Skyrocketing rents in San Francisco are forcing radical change to the city’s social…thinkprogress.orgThe median rent for someone moving in the San Francisco Bay metropolitan area in 2014 was up by more than $3,500 a year from 2013, the Harvard numbers show. In Boston, median rents for new tenants jumped 27 percent, or almost $5,000 more for a one-year lease. New tenants in Los Angeles, Seattle, New York, San Jose and other metro areas saw similar multi-thousand-dollar price leaps from the year prior.

Those are snapshots of a crisis. The whole picture is much gloomier.

More than 42,555,055 Americans — or roughly one in eight people nationwide — are spending an unsustainable amount on rent. They live in households that spend over 30 percent of their income on housing, the threshold traditionally used to define housing costs that will leave people enough money to afford the other things that make up a life.

The numbers get grimmer the closer you look. Within that horde of overburdened renters, more than 22.6 million individual Americans are “severely rent burdened” — meaning rent and utilities gobble up more than half their household’s total income every single month.

That’s enough human beings to fill every NFL stadium in the country 10 times over, and still leave a quarter-million people without a seat.

Cruel Trade-Offs In The Danger Zone

As landlords jack up rents, people who can’t afford to buy houses aren’t getting paid enough to keep up with this historically tight market. That’s a recipe for a rental market crisis, as Enterprise Community Partners housing policy and research expert Andrew Jakabovics explained in an interview.

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“In all the top markets, rents keep getting pushed. Compare that to where wages and income have gone, which is pretty much nowhere,” Jakabovics said. “On a compounded basis, year over year over year of these kinds of increases, people are going to be left behind.”

If keeping a roof over your head devours half your income, you’ll have a hard time stretching your remaining dollars to cover life’s other necessities — let alone basic quality-of-life comforts like a night at the movies or a family vacation.

Those trade-offs get downright ugly when you compare low-income households that are severely rent-burdened with other poor renters whose housing costs come in under the 30 percent affordability line.

“We see reductions of 55 percent on health care spending, 38 percent less on food, 42 percent less on pensions and retirement savings” between the severely-burdened poor and other paycheck-to-paycheck families that are able to find housing that works for them, Spader said.

Extreme Wealth And Absolute Squalor: Homelessness In Silicon ValleyEconomy by CREDIT: Flickr/Richard Masoner In Silicon Valley, abundant wealth commonly lives alongside absolute squalor…thinkprogress.orgPoverty is a treadmill, and the rent crisis is already cranking up the speed. And since auctions concentrate the price pressure created by a tight market, an idea like Rentberry will further accelerate those pressures on tenants.

According to Spader, “those pressures affect low-income households the most,” regardless of where they come from. “That forces them to make trade-offs between housing costs and the other expenses of life,” he said.

It’s not that app-makers are creating a meltdown. But their ideas seem premised on encouraging it.

“I think this app is an indication of the market system doing what it does: You outbid everybody else, you move pressure down the chain to the people with the least capacity to absorb it,” Jakabovics said.

“People think housing is this free-market good and therefore you should operate as a free player and you’ll naturally match, but there’s a tremendous amount of mismatch that comes out of how much people are being forced to pay to keep a roof over their head.”

Background Radiation Hits Everybody

The nuclear meltdown in the rental market is also blasting everyone else in the country with radiation. By squeezing and contorting the overall consumption patterns of tens of millions of working-class people, runaway housing costs subtly but relentlessly undermine the entire economy. Dollars flowing to landlords can’t go to other places in the economy that fuel the spending and job creation cycle of American economic growth.

Unless politicians make a dramatic reversal in U.S. housing policy, the renter crisis Rentberry hopes to capitalize on will only get worse over the coming decade. Another 2 million households will likely join the severely rent-burdened category by 2025, according to a forecast by the Harvard team and Enterprise Community Partners.

America’s Housing Developers Are Almost Exclusively Building Luxury UnitsEconomy by CREDIT: AP America’s housing developers have been hard at work in the past three years. But their labor has…thinkprogress.orgAnd even that figure is probably too optimistic. If rent hikes and worker incomes continue to diverge in the ways Jakabovics described, about 3.6 million additional households will face severe rent burdens.

What would it take to change course? The stock answer, Spader said, is some mix of higher spending on rent support programs to make it easier for low-income tenants to afford their lives and building more units of rental housing to ease vacancies on the supply side.

But that core approach also makes gentrification almost inevitable. “Increased supply eases rent pressures at a metropolitcan level, but it doesn’t necessarily ease them in a particular neighborhood,” said Spader. “Even luxury development helps overall, but it doesn’t mean struggling households in any given neighborhood can afford to stay there.”

A massive investment in rent support systems for low-income families could help resolve the divergence between incomes and housing prices that created the current meltdown. But that’s not the only kind of very low-tech disruption lawmakers could aim for.

“What if we could make incomes higher? The minimum wage, the earned income tax credit, the childcare tax credit, rainy-say savings funds to help people deal with life as it happens, those are the things where I see opportunities to move forward,” Jakabovics said. “You can address the cost side or the income said. I don’t think we’ve done a good enough job talking about the denominator here.”

The Forgotten Victims Of A Capitol Hill Budget FightAdam Peck/ThinkProgress by Tens of thousands of stories about cancelled White House tours. Endless cable news…thinkprogress.orgBarring some truly aggressive policies to pump up working families’ bottom lines, the meltdown in the price side of the rental equation seems destined to continue.

That’s exactly what the investors who bet $845,000 on Rentberry last year are counting on: A forever war among would-be tenants that continues to pump housing prices higher and higher, and an ongoing failure to invest public resources in housing to battle the blaze.

“This is truly a huge market to disrupt,” one Ukrainian investor said at the time.