Tomas J. Philipson: Chicago's housing market shouldn't have a hidden inventory

A real estate listing service that dominates Chicago's market was built to give buyers and sellers a transparent view of what's for sale. Now it is steering inventory out of the open market and into hidden private networks — a shift serious enough that it has drawn scrutiny from a federal courthouse and Congress. The question is not whether the government should dictate how homeowners sell their property. It is whether powerful market gatekeepers can legally use the monopoly they have on listing information to limit competition and keep available homes out of the public's view. From an antitrust perspective, the answer should be no. A dominant market gatekeeper should not be able to use its control over essential market information to restrict competition, disadvantage rivals and leave consumers with fewer choices. And at a time when Chicago's affordable housing is already in very short supply, this is having significant ramifications for the city's residents who are most in need. At the center of the fight are Compass, the nation's largest real estate brokerage and Midwest Real Estate Data (MRED), the dominant Chicago listing service whose monopolistic position makes it a gatekeeper to the city's housing market. MRED has pushed a strategy in which many of the homes in its net are marketed privately, out of the public's view. Compass is partnering with the listing giant in this effort, committing to providing MRED with nationwide inventory. Chicago-area buyers are already competing in a tight market. The Institute for Housing Studies at DePaul University reported that the inventory of single-family homes for sale in the Chicago metropolitan area was down about 14% in March from a year earlier. Prices, as a consequence, remained near record highs. When homes are scarce and expensive, the last thing buyers need is to wonder whether some of the most coveted available inventory is effectively hidden from them. It is ironic that this paywall effect is happening in Chicago as the city helped pioneer the opposite idea of transparent housing markets. More than a century ago, Cook County real estate brokers helped develop the modern listing exchange. Instead of each broker guarding a separate list of properties, brokers shared information so buyers and sellers could find one another more easily. Today's multiple listing services, or MLS, grew from that basic idea — the idea that the real estate market works best for consumers when it remains transparent so that everyone has a fair shot at obtaining affordable housing and no single company could monopolize knowledge of what was for sale. As a free-market economist, I have no objection to a homeowner choosing to sell a house privately. If a family values privacy over maximum exposure, that is their choice. But that is very different from a dominant market gatekeeper building a system in which more inventory is systematically kept from the broader public market. When a self-serving gatekeeper in that position helps divide inventory between what the broad public can see and what only market insiders can see, the result is a less transparent and competitive market. The response to the antitrust issues involved has been bipartisan. U.S. Rep. Scott Fitzgerald, R-Wis., chair of the House Judiciary Committee's antitrust subcommittee, recently opened an inquiry into whether private-listing arrangements could reduce competition and harm consumers. U.S. Sen. Elizabeth Warren, D-Mass., followed with her own inquiry. Consumer choice directing a market economy to efficient outcomes depends on consumers knowing the available opportunities to choose from. They should not have to wonder whether the home that would be perfect for them is sitting in a database they cannot see. Free markets depend on buyers and sellers being able to find one another and competitors having a fair opportunity to compete. Chicago helped pioneer the modern listing marketplace that has led to enormous gains in allocating houses efficiently. This was enabled because transparency and shared information made housing more competitive. Chicago should not now become the testing ground for turning that infrastructure into a gatekeeper. A free housing market needs open competition. Chicago should make sure its most powerful gatekeepers are not making that market less free.