Rent going up? One company’s algorithm could be why

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On a summer time day final 12 months, a gaggle of actual property tech executives gathered at a convention corridor in Nashville to boast about one among their company’s signature merchandise: software program that makes use of a mysterious algorithm to assist landlords push the best doable rents on tenants.

“Never before have we seen these numbers,” mentioned Jay Parsons, a vice chairman of RealPage, as conventiongoers wandered by. Apartment rents had just lately shot up by as a lot as 14.5 p.c, he mentioned in a video touting the company’s providers. Turning to his colleague, Parsons requested: What function had the software program performed?

“I think it’s driving it, quite honestly,” answered Andrew Bowen, one other RealPage govt. “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 have been greater than swagger. For years, RealPage has offered software program that makes use of information analytics to counsel every day costs for open items. Property managers throughout the United States have gushed about how the company’s algorithm boosts income.

“The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it,” mentioned Kortney Balas, director of income administration at JVM Realty, referring to RealPage’s software program in a testimonial video on the company’s web site.

The nation’s largest property administration agency, Greystar, discovered that even in a single downturn, its buildings utilizing YieldStar “outperformed their markets by 4.8 percent,” a major premium above opponents, RealPage mentioned in supplies on its web site. Greystar makes use of RealPage’s software program to cost tens of 1000’s of flats.

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RealPage turned the nation’s dominant supplier of such rent-setting software program after federal regulators authorized a controversial merger in 2017, a ProPublica investigation discovered, drastically increasing the company’s affect over condominium costs. The transfer helped the Texas-based firm push the consumer base for its array of actual property tech providers previous 31,700 prospects.

The impression is stark in some markets.

In one neighborhood in Seattle, ProPublica discovered, 70 p.c of flats have been overseen by simply 10 property managers, each single one among which used pricing software program offered by RealPage.

To arrive at a really useful lease, the software program deploys an algorithm—a set of mathematical guidelines—to investigate a trove of information RealPage gathers from purchasers, together with non-public data on what close by opponents cost.

For tenants, the system upends the follow of negotiating with condominium constructing employees. RealPage discourages bargaining with renters and has even really useful that landlords in some instances settle for a decrease occupancy fee as a way to increase rents and earn more money.

One of the algorithm’s builders informed ProPublica that leasing brokers had “too much empathy” in comparison with computer-generated pricing.

Apartment managers can reject the software program’s solutions, however as many as 90 p.c are adopted, in line with former RealPage staff.

The software program’s design and rising attain have raised questions amongst actual property and authorized specialists about whether or not RealPage has birthed a brand new type of cartel that permits the nation’s largest landlords to not directly coordinate pricing, probably in violation of federal regulation.

Experts say RealPage and its purchasers invite scrutiny from antitrust enforcers for a number of causes, together with their use of personal information on what opponents cost in lease. In explicit, RealPage’s creation of labor teams that meet privately and embody landlords who’re in any other case rivals could be a pink flag of potential collusion, a former federal prosecutor mentioned.

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At a minimal, critics mentioned, the software program’s algorithm could be artificially inflating rents and stifling competitors.

“Machines quickly learn the only way to win is to push prices above competitive levels,” mentioned University of Tennessee regulation professor Maurice Stucke, a former prosecutor within the Justice Department’s antitrust division.

RealPage acknowledged that it feeds its purchasers’ inner lease information into its pricing software program, giving landlords an aggregated, nameless have a look at what their opponents close by are charging.

An organization consultant mentioned in an e mail that RealPage “uses aggregated market data from a variety of sources in a legally compliant manner.”

The firm famous that landlords who use staff to manually set costs “typically” conduct cellphone surveys to test opponents’ rents, which the corporate says could lead to anti-competitive conduct.

“RealPage’s revenue management solutions prioritize a property’s own internal supply/demand dynamics over external factors such as competitors’ rents,” an organization assertion mentioned, “and therefore help eliminate the risk of collusion that could occur with manual pricing.”

The assertion mentioned RealPage’s software program additionally helps stop rents from reaching unaffordable ranges as a result of it detects drops in demand, like people who occur seasonally, and may reply to them by reducing rents.

RealPage didn’t make Parsons, Bowen, or the company’s present CEO, Dana Jones, obtainable for interviews. Balas and a Greystar consultant declined to touch upon the report about YieldStar. The National Multifamily Housing Council, an trade group, additionally declined to remark.

Proponents say the software program just isn’t distorting the market. RealPage’s CEO informed buyers 5 years in the past that the corporate wouldn’t be large enough to hurt competitors even after the merger. The CEO of one among YieldStar’s earliest customers, Ric Campo of Camden Property Trust, informed ProPublica that the condominium market in his company’s residence metropolis alone is so massive and numerous that “it would be hard to argue there was some kind of price fixing.”

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