An algorithm designed to help property managers set rents may be boosting prices across the already pricey national market.
RealPage’s YieldStar software could be inflating apartment rents and suppressing competition nationwide, making it easier for landlords to make a profit and harder for tenants to find affordable units, ProPublica reported.
The platform by the Texas-based company analyzes data gathered from clients, including private information on what competitors charge, to recommend a rent for an available unit. Landlords can decline the software’s suggestions, but former RealPage employees told the outlet that as many as 90 percent are accepted.
The YieldStar platform does away with the typical negotiation that occurs between renters and landlords, even encouraging property managers to avoid bargaining with tenants and occasionally advising owners to take a lower occupancy rate in favor of higher rents.
The company took credit at a conference last summer for the platform’s role in driving apartment rents up by 14.5 percent, a number that RealPage vice president Jay Parsons claimed had never been reached before.
Greystar, the nation’s largest property management firm, found that its buildings using YieldStar outperformed their markets by almost 5 percent during a downturn, according to materials on RealPage’s website.
About 70 percent of apartments in one neighborhood of Seattle were overseen by 10 property managers, all of whom used RealPage’s software.
“The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it,” JVM Realty’s Kortney Balas said in a testimonial video on RealPage’s website.
One interesting case study was at Camden Property Trust, which saw turnover rates increase about 15 percentage points in 2006 after it implemented YieldStar, according to CEO Ric Campo. Camden’s revenues jumped more than 7 percent.
“The net effect of driving revenue and pushing people out was $10 million in income,” Campo told Multifamily Executive in 2009. “I think that shows keeping the heads in the beds above all else is not always the best strategy.”
(When ProPublica reminded him of that quote, Campo said it “sounds awful” and doesn’t reflect how he or Camden views renters today. “We fundamentally believe our customers are the most important part of our business,” he said. “We’re not about pushing people out.”)
RealPage and its clients’ use of private information on what competitors charge to determine their own prices has drawn the attention of federal regulators. The company’s use of private work groups that include rival landlords and allowing property managers to indirectly coordinate pricing could be a violation of federal law.
The company admitted that it puts its clients’ internal rent data into its pricing software, which provides landlords with an aggregated and anonymous look at what their competitors are charging. A company representative told the outlet that RealPage uses market data “in a legally compliant manner.”
RealPage also said it can prevent rents from reaching unaffordable levels because the technology can detect drops in demand and respond by lowering prices.
RealPage’s status as the nation’s main provider of rent-setting analytics can be traced back to 2017, when it merged with rival software company Lease Rent Options. The deal greatly expanded the company’s customer reach in markets across the country.
— Pat Ralph