I think a classic example of an efficient market is one where goods are mostly fungible, e.g. the market for grain, or screws of a particular specification, or copper.
I imagine that inside those markets it feels a lot less like there's any good deals to sniff out. There's definitely bad ones like fraudsters or subpar quality, or someone selling holy screws for 10 times the price, or someone just praying on newcomers to the market who aren't yet calibrated to the standard price, but these are fairly easy to filter out with a bit of due diligence.
Strong upvoted - I don't have much to add, but I really appreciated the concrete examples from what appears to be lived experience.
What’s unique about NYC is that nearly every unit gets listed on the same website
What website is this…?
But what makes you think that every unit gets listed there? I assure you, that is not the case. I can quite clearly see, in my own neighborhood and other areas that I’m very familiar with, plenty of places that have apartments for rent but aren’t listed on there at all.
Some landlords offer cheap rent but only rent to childless non-smokers who have a perfect credit score and a well-paid job (preferably a job that requires security clearance or an enhanced DBS check) and whose demographic characteristics are not too similar to those of their previous bad tenants.
Other landlords are less selective about who they rent to but charge much higher rents to compensate for the risk of property damage and rent arrears. This is why properties that are very similar in quality may be charging at wildly different rents.
I recently moved to New York City, and if there’s one thing people here obsess over, it’s apartments. Everyone eagerly shares how competitive, ruthless, and “efficient” the rental market is.
I have lived in New York City for over 30 years and I have never met anyone who has described the rental market here as “efficient”.
A nice post about the NY flat rental market. I found myself wondering, does the position you are arguing against at the beginning actually exist, or it is set up only as a rhetorical thing to kill? What I mean is this:
everything’s priced perfectly, no deals to sniff out, just grab what’s in front of you and call it a day. The invisible hand’s got it all figured out—right?
Do people actually think this way? The argument seems to reduce to "This looks like a bad deal, but if it actually was a bad deal then no one would buy it. Therefore, it can't be a bad deal and I should buy it." If there are a population of people out there who think this way then their very existence falsifies the efficient market hypothesis - every business should put some things on the shelf that have no purpose beyond exploiting them. Or, in other words, the market is only going to be as efficient as the customers are discerning. If there are a large number of easy marks in the market then sellers will create new deals and products designed to rip those people off.
Don't we all know that sinking feeling when we find ourselves trying to buy something (normally in a foreign country) and we realise we are in a market designed to rip us off? First we curse all the fools who came before us and created a rip-off machine. Then, we reluctantly decide just to pay the fee, "get got" and move on with our life because its just too much faff, thereby feeding the very machine we despise (https://www.lesswrong.com/posts/ENBzEkoyvdakz4w5d/out-to-get-you ). Similarly, I at least have felt a feeling of lightness when I go into a situation I expect to look like that, and instead find things that are good.
Missed the forest for the trees. Supply is short, and lots of government regulations distort the market (mainly risk). Federal US has been chronically underperforming with regards to the supply of housing. Extra distortions on the margins in NYC.
“I often think of the time I met Scott Sumner and he said he pretty much assumes the market is efficient and just buys the most expensive brand of everything in the grocery store.” - a Tweet
It’s a funny quip, but it captures the vibe a lot of people have about efficient markets: everything’s priced perfectly, no deals to sniff out, just grab what’s in front of you and call it a day. The invisible hand’s got it all figured out—right?
Well, not quite. This isn’t to say efficient markets are a myth, but rather that their efficiency is a statistical property, describing the average participant, and thus leaving ample room for individuals to strategically deviate and find superior outcomes.
I recently moved to New York City, and if there’s one thing people here obsess over, it’s apartments. Everyone eagerly shares how competitive, ruthless, and “efficient” the rental market is. What’s unique about NYC is that nearly every unit gets listed on the same website, which shows you the rental history for every apartment—not just the ones you’re looking at, but nearly every unit in the city (and, awkwardly, how much all your friends are paying). You’d think with all that transparency, every place would be priced at its true value. But when you start looking, one thing jumps out: so many apartments are terrible, offering downright bad “value”—and still, they get rented, often at the same prices as the place you’d actually want to live in.
This bugged me. If the market’s so efficient, why are there so many seemingly bad apartment deals out there? Or does the mere existence of bad deals not necessarily imply there are good deals? I don’t think so. What I’ve come to realize is that being inside an efficient market doesn’t feel as airtight as it sounds. There’s still plenty of room to find better value, even in a ruthlessly competitive market like NYC rentals.
Here are some of the opportunities to “exploit” an efficient market that I thought about when looking for apartments in NYC.
The biggest and most obvious is this: everyone’s got different preferences.
Markets aggregate preferences into a single price, but your preferences aren’t the aggregate. It’s important to spell out very clearly: everyone has different preferences, so we all have a different sense of what value actually is.
Some people work from home and crave more space but do not need to be near where the corporate offices are. Others barely use their apartment beyond sleeping and care way more about a trendy location. Some bike and don’t care about being within 5 minutes of a key subway line, etc.
This also comes up outside of one’s strict preferences and their situation. If you’re looking for an apartment for one year only as opposed to a forever home, your appetite for swallowing a broker’s fee (or a steeper one), hefty application costs, or prioritizing rent control shifts compared to someone on a different timeline.
If your needs differ from the crowd’s standard checklist, you’re in a position to exploit that difference.By knowing what you actually value, you can consume more of the things you value more than others, and similarly, consume less of the things you value less than others.. It’s not enough to merely know what you like, but to know how much more you value certain things than others. Conversely, you should also think very systematically about all the other things people value and introspect on if there are any you seem to care about less, then ruthlessly discount these in your search (arguably, for finding what for others is a lemon, but for you is acceptable).
A major reason people end up in lousy apartments in NYC is timing. There are lots of people who move to NYC on set dates (ie right before a new job or starting school) and need a place, whatever the cost, before then. They might have just one weekend to tour apartments and sign a lease fast. Then there are those who need to be out by month’s end when their current lease ends.
Merely by avoiding a time crunch or the busy period when others are in a time crunch will make your search easier. Better yet, if you can increase your slack by finding a short-term housing solution so you have no hard deadline, you can sidestep most of this chaos. This can also enable you to pursue apartments others can’t accommodate, like ones starting on the 3rd of the month (some buildings ban weekend move-ins, or they need a cleanup after the last tenant).
Another aspect of time that can be leveraged is that some buildings have lengthy 2- or 3-week approval processes. If you catch one nearing a point where they might miss a tenant for the next month (earlier than most renters anticipate), the landlord might be open for a negotiation. Rather than lose another month’s rent, they might cover the broker’s fee or application costs to lock you in at the month’s start and get you in right away.
Certain neighbourhoods have an abundance of certain kinds of housing. The Upper East Side in NYC, despite having a reputation as an expensive, fancy neighbourhood, due to having a large supply of one-bedroom apartments (compared to most other NYC neighbourhoods), is actually one of the most affordable neighbourhoods in Manhattan/cool Brooklyn to live in.
Similarly, in areas where housing is more uniform (ie where there are lots of apartment complexes with very similar or sometimes identical units), it’s easier to have comparable information to know exactly what the market says each unit is worth and to negotiate between different units.
There are certain legible metrics everyone fixates on, which become critical filters for which certain apartments go under the radar. People searching for apartments click the same filters like 1 bedroom (no studio), this neighbourhood (not that other neighbourhood), dishwasher included. This means that anything that doesn’t fit this criterion will get less attention. Since these filters are binary, it excludes a lot of edge cases where the thing technically does not meet the criteria but effectively still provides you what you want—maybe there’s a massive studio laid out with a distinct bedroom separation, or one a block past the neighbourhood line in StreetEasy that’s just as good in practice despite not ticking exactly the geographic radius.
There are many illegible things that people don’t know how to value and end up getting priced inefficiently.
Going to the above point, many people have some intrinsic ability to value something like neighbourhood A vs. neighbourhood B or a studio vs. a one-bedroom (the big-ticket items in their search, which they tell their friends and their mom), but how does one value the difference between being on the 8th floor vs. the 15th, or X amount of lighting vs. 3x the lighting, or 20 decibels quieter than the other apartment, etc. Often these things, even the difference between a 3rd-floor unit in the same building as the 20th floor, don’t get priced very efficiently. People might vaguely sense these factors matter and factor them in loosely, but most don’t analyze exactly how much they care.
Oftentimes, there are principal-agent problems with misaligned incentives that can be exploited. A broker might not care about maximizing rent—they just want it leased at the landlord’s asking price with minimal effort. If competition is stiff, maybe the landlord picks you, a solid tenant, over a higher bidder because you visited Albania, where he is from, and now he likes you. Maybe a broker has a new unit with a fixed price that isn’t even on the market yet, and he wants to do as little work as possible, so he gives it to you just because you were the one on his or her mind.
One reason so many apartments are worse than others is that sizing up all these factors is seriously compute-intensive. By creating an actual scoring criterion and using tools like spreadsheets—or merely thinking harder for longer—you can better identify the apartments that maximally align with what you are looking for.
More simply, lots of people suck at looking for apartments (because it’s genuinely hard) or lack time, leaving them poorly calibrated in what is “good value” for them, too slow to make an offer on good places, or simply taking the third place they see just because they are fed up and don’t want to spend any more time on this. But if you’re willing to score and rank criteria, tour more units, and truly outcompute the lazy, you get an edge.
More critically, if you truly know what you want and are well-calibrated, when you spot a great apartment, it affords you the opportunity to commit right away—same with subscribing to a feed of all new listings and knowing when you should schedule viewings as soon as possible so you can be in a spot to fire off an application before others even have the chance to see it (again, brokers often don’t care beyond the first decent applicant, misaligned with the landlord’s hopes).
While I’ve listed many ways one can get an edge in an efficient market, there aren’t likely to be very many huge, unbelievable deals that sound too good to be true.
While much rarer, one of the best avenues for business in general, life planning, and career success is to try to avoid all market competition if you can.
If you find an apartment that isn’t going to be listed anywhere (ie a university professor on sabbatical for a year or a co-op that only wants new renters whom they personally know) or take over the lease of someone who has been in their apartment for an extremely long time with a small-time landlord—there is much more room for finding a good deal without additional competition.
While this post was literally about apartments in NYC, the core insight might be this: efficiency in markets is always relative to the participants’ information, preferences, and constraints. When you are actually in an efficient market, it doesn’t feel like everything is priced perfectly—it feels like a messy playground where efficiency is just an average that masks individual opportunities. What looks like an efficient equilibrium from one perspective reveals itself as full of exploitable inefficiencies when viewed through a more nuanced lens. Markets aren’t perfectly efficient or inefficient; rather, at best, they’re approximately efficient for the average participant but exploitable for those with unusual preferences, better information, or fewer constraints.