Rent-setting algorithms could exacerbate rising rents: report – Trade Observer

Why is the rent so high? The secret is in the sauce.

And the secret can be actual pageit is YieldStar software, which is becoming increasingly ubiquitous among homeowners across the country, according to a survey by ProPublica.

The software uses an algorithm, with inputs from various market-specific datasets, to price apartment rentals to take the guesswork out of the process. But subjects polled by ProPublica think the algorithm could be artificially inflating rents and recommending hikes most landlords wouldn’t otherwise attempt.

“As a property manager, very few of us would be willing to raise double-digit rents in a month by doing it manually,” Andre BowenRealPage’s vice president of enterprise sales, reportedly said at a convention in Nashville, Tenn., last year.

The data firm disputes the survey’s claims, however.

“RealPage is aware of the article. It is misleading and inaccurate, and we disagree with its findings,” RealPage said in a statement to Commercial Observer. there is a severe shortage of affordable housing that has lasted for decades. …Neither RealPage nor any housing provider can drive the markets up or down. Each asset (room type actually) is optimized separately without considering information on stock availability in other communities or strategies employed by other owners. »

A RealPage customer is gray star, one of the largest landlords in the country, which owns dozens of multi-family assets in the tri-state area alone. The company uses the software to price available units and outperform competitors in its markets by up to 4.8%, according to ProPublica.

Greystar did not immediately respond to a request for comment.

A RealPage fact sheet says the software was developed in the early 2000s and is no different from pricing software used by airlines, hotels, grocery stores and others. After all, YieldStar was developed in part by jeffrey roperan old Alaska Airlines director of revenue management.

RealPage believes that it not only helps its customers, but also renters who can see the rental prices of other apartments in an area and, as “consumers”, make the appropriate financial decisions. The algorithm also provides pricing based on rental terms and move-in dates.

The goal of the software, according to the company, is not “rent maximization” but “revenue optimization.” What is the difference? The latter strikes a balance between filling vacancies at a cost that is both profitable for landlords and acceptable to tenants, the RealPage fact sheet says.

The software doesn’t always look good to humans asking for its opinion – around 10-20% of property managers reject the system’s recommendations.

A key difference between human and algorithmic approaches is that landlords tend to try to minimize vacancy, assuming turnover and long vacancies are detrimental. With the help of the algorithm, however, some landlords have found that keeping the building emptier but higher rents leads to higher yields – which, of course, works against the tenant.

A company with up to 40,000 units under its watch found that while 97-98% occupancy was considered ideal before YieldStar, it could actually raise rents if it kept occupancy higher almost 94%.

Another concern is that if a critical mass of owners use these algorithms, it may amount to collusion or price fixing and could trigger antitrust issues. In fact, the Justice Department got involved when RealPage bought a competitor in 2017, but ultimately cleared the acquisition.

“In any given market, revenue management operates independently in each community, so some communities may see decreases and others may see increases,” RealPage said in its statement. “To be clear, RealPage Revenue Management does not take into account or have visibility into the availability of competitors.”

Realpage is currently being used by landlords to price 19.5 million apartments nationwide, according to ProPublica.

Mark Hallum can be reached at [email protected]

Sharon D. Cole