Watchdog urged to sniff out any collusion, deception in rent-setting algorithms
Things could get real for RealPage real fast
A US Senator has urged the FTC to scrutinize algorithms used to calculate the optimum rent for properties over fears the software could potentially allow landlords to illegally collude in cities with a housing shortage.
Senator Sherrod Brown (D-OH), who chairs the Banking, Housing and Urban Affairs Committee in the Senate, wrote a letter [PDF] to FTC's chairwoman Lina Khan this week, asking her to "review the current use of price optimization software employed by property owners to set rents."
The memo comes after five renters launched a lawsuit against RealPage, maker of rent-pricing software, and nine real-estate giants, claiming RealPage's YieldStar tool helped the landlords form a rent-fixing "cartel." It's claimed the property owners worked with RealPage to collude and artificially inflate people's rent.
An investigation led by ProPublica indicated YieldStar calculates rent for apartments based on things like location, the surrounding demand, and how much nearby homes were being rented out for. The algorithm then offers a recommended optimal amount to charge tenants: not so much that the market won't bear it and people will go to other landlords, and not so low that the owners miss out on profit. It's claimed, though, that YieldStar was used to ensure no owner undercut another in a city or town, thus keeping rent for people high.
The top ten multifamily property management companies use RealPage's software, according to a company Securities Exchange Commission filing.
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Senator Brown drew attention to another facet of the lawsuit: that RealPage allegedly helped landlords, through a feed of information, keep an optimum number of properties vacant at any one time so as to avoid oversupply and drive up demand and therefore prices. That wouldn't be very fair, the Senator said.
"For both single-family and multifamily buildings, the demand for rental homes far outpaces supply," Brown's letter read.
"Rental vacancy rates were just 5.6 percent at the end of 2021, the lowest vacancy rate since 1984. Yet, even in this tight rental market, there are reports that RealPage's algorithm encourages property owners to keep homes vacant or push tenants out in order to maximize profits … Intentionally holding units vacant, when there are so few homes available, decreases a consumer's negotiating power and exacerbates the housing shortage."
Brown said nearly 35 per cent of Americans rent their homes, totaling approximately 44 million properties. He called on the FTC to investigate the impact automated rental pricing algorithms such as RealPage's YieldStar have on the market, citing concerns over collusion and whether the collection of private rental data violates antitrust laws.
"The FTC's mission to protect consumers and maintain competition in our markets has never been more critical. And this mission has become increasingly complex as technology advances change how entire industries operate … Renters should have the power to negotiate fairly priced housing, free from illicit collusion and deceptive pricing techniques," he added.
A spokesperson for RealPage told The Register: "RealPage is always willing to engage with our policy stakeholders to ensure they have the facts and appropriate context about RealPage." We've asked the FTC for comment. ®