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Too Damn High — Rent going up? One companys algorithm could be why YieldStar helps landlords set prices across the US, likely harming competition.
Heather Vogell, ProPublica – Oct 17, 2022 2:04 pm UTC EnlargeBusa Photography reader comments 25 with 19 posters participating Share this story Share on Facebook Share on Twitter Share on Reddit
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On a summer day last year, a group of real estate tech executives gathered at a conference hall in Nashville to boast about one of their companys signature products: software that uses a mysterious algorithm to help landlords push the highest possible rents on tenants.
Never before have we seen these numbers, said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the companys services. Turning to his colleague, Parsons asked: What role had the software played?
I think its driving it, quite honestly, answered Andrew Bowen, another RealPage executive. As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.
The celebratory remarks were more than swagger. For years, RealPage has sold software that uses data analytics to suggest daily prices for open units. Property managers across the United States have gushed about how the companys algorithm boosts profits.
The beauty of YieldStar is that it pushes you to go places that you wouldnt have gone if you werent using it, said Kortney Balas, director of revenue management at JVM Realty, referring to RealPages software in a testimonial video on the companys website.
The nations largest property management firm, Greystar, found that even in one downturn, its buildings using YieldStar outperformed their markets by 4.8%, a significant premium above competitors, RealPage said in materials on its website. Greystar uses RealPages software to price tens of thousands of apartments. Advertisement
RealPage became the nations dominant provider of such rent-setting software after federal regulators approved a controversial merger in 2017, a ProPublica investigation found, greatly expanding the companys influence over apartment prices. The move helped the Texas-based company push the client base for its array of real estate tech services past 31,700 customers.
The impact is stark in some markets.
In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.
To arrive at a recommended rent, the software deploys an algorithma set of mathematical rulesto analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.
For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
One of the algorithms developers told ProPublica that leasing agents had too much empathy compared to computer generated pricing.
Apartment managers can reject the softwares suggestions, but as many as 90% are adopted, according to former RealPage employees.
The softwares design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nations largest landlords to indirectly coordinate pricing, potentially in violation of federal law.
Experts say RealPage and its clients invite scrutiny from antitrust enforcers for several reasons, including their use of private data on what competitors charge in rent. In particular, RealPages creation of work groups that meet privately and include landlords who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said. Advertisement
At a minimum, critics said, the softwares algorithm may be artificially inflating rents and stifling competition.
Machines quickly learn the only way to win is to push prices above competitive levels, said University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Departments antitrust division.
RealPage acknowledged that it feeds its clients internal rent data into its pricing software, giving landlords an aggregated, anonymous look at what their competitors nearby are charging.
A company representative said in an email that RealPage uses aggregated market data from a variety of sources in a legally compliant manner.
The company noted that landlords who use employees to manually set prices typically conduct phone surveys to check competitors rents, which the company says could result in anti-competitive behavior.
RealPages revenue management solutions prioritize a propertys own internal supply/demand dynamics over external factors such as competitors rents, a company statement said, and therefore help eliminate the risk of collusion that could occur with manual pricing.
The statement said RealPages software also helps prevent rents from reaching unaffordable levels because it detects drops in demand, like those that happen seasonally, and can respond to them by lowering rents.
RealPage did not make Parsons, Bowen or the companys current CEO, Dana Jones, available for interviews. Balas and a Greystar representative declined to comment on the record about YieldStar. The National Multifamily Housing Council, an industry group, also declined to comment.
Proponents say the software is not distorting the market. RealPages CEO told investors five years ago that the company wouldnt be big enough to harm competition even after the merger. The CEO of one of YieldStars earliest users, Ric Campo of Camden Property Trust, told ProPublica that the apartment market in his companys home city alone is so big and diverse that it would be hard to argue there was some kind of price fixing. Page: 1 2 3 4 5 Next → reader comments 25 with 19 posters participating Share this story Share on Facebook Share on Twitter Share on Reddit Advertisement
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