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

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A group of real estate tech executives gathered at a conference hall in Nashville to show off their software that helps landlords push the highest rents on tenants.

Jay Parsons, a vice president of RealPage, said that they had never seen numbers like that before. He said in a video that apartment rents had recently shot up. He asked what role the software had played.

Andrew said that he thought it was driving it. Most property managers wouldn't be willing to raise rents in a single month by doing it manually.

The remarks were more than just words of encouragement. RealPage has been selling software that uses data to suggest prices for open units. Property managers gushed about how the company boosted profits.

"The beauty of YieldStar is that it pushes you to go places that you wouldn't have gone if you weren't using it," said Kortney Balas, director of revenue management at JVM.

Greystar, the nation's largest property management firm, found that its buildings using YieldStar "outperformed their markets by 4.8%," according to materials on its website. RealPage's software is used by Greystar to price apartments.

The company became the nation's dominant provider of rent-setting software after federal regulators approved a controversial merger. The Texas-based company pushed the client base for its real estate tech services past the 30,000 mark.

In some markets, the impact is striking.

In one neighborhood in Seattle, 70% of apartments were overseen by just 10 property managers, all of which used pricing software from RealPage.

To arrive at a recommended rent, the software deploys an algorithm that uses mathematical rules to analyze a trove of data RealPage gathers from clients.

Tenants are no longer able to negotiate with apartment building staff. RealPage encourages landlords to accept a lowerOccupancy Rate in order to raise rents and make more money.

One of the developers told ProPublica that the agents had too much sympathy for them.

According to former RealPage employees, as many as 90 percent of the suggestions are adopted.

The design and growing reach of RealPage has raised questions about whether the company has created a new kind of Cartel that allows the nation's largest landlords to indirectly coordinate pricing in violation of federal law.

The use of private data on what competitors charge in rent is one of the reasons experts say RealPage and its clients invite scrutiny. A former federal prosecutor said that the creation of work groups that meet privately and include landlords who are not rivals could be a red flag.

Critics said the software might be artificially inflating rents and hurting competition.

Maurice Stucke, a former prosecutor in the Justice Department's antitrust division, said that machines are the only way to win.

RealPage gives landlords an anonymous look at what their competitors are charging by giving them internal rent data.

RealPage uses aggregated market data from a variety of sources in a legally compliant manner, according to a company representative.

The company said that landlords who use employees to set prices typically conduct phone surveys to check their competitors' rents, which could result in anti-competitive behavior.

According to a company statement, RealPage's revenue management solutions prioritize a property's own internal supply/demand dynamics over external factors such as competitors' rents.

According to the statement, RealPage's software can respond to seasonal drops in demand by lowering rents.

The company did not make any of its executives available for interviews. The record about YieldStar was not commented on by the representatives of Greystar. The National Multifamily Housing Council refused to speak.

Proponents say the software isn't making the market less competitive. Five years ago, RealPage's CEO told investors that the company wouldn't hurt competition after the merger. According to the CEO of Camden Property Trust, the apartment market in his company's home city is so big and diverse that it would be hard to argue there was price fixing.