Another must-read article from The Prospect and Maureen Tkacik
https://prospect.org/infrastructure/housing/2024-06-18-how-algorithm-turned-apartment-pools-green/?fbclid=IwZXh0bgNhZW0CMTEAAR01jXhY8ueja6JANhjlQUJvz0EqvHkcB7fLoA2eyOLL1516vY5oTb78Tl8_aem_ZmFrZWR1bW15MTZieXRlcw
By now, you have probably heard of Yieldstar, the private equity–owned software that numerous plaintiff’s attorneys, tenant advocates, and state attorneys general say is actually a front for a sprawling nationwide cartel that fixes rent prices to ludicrous heights and has caused the cost of an apartment to surge between 50 and 80 percent over the past seven years in several of the markets where the software is employed. In theory, and in its early days, Yieldstar offered property managers “recommendations” for pricing and duration of leases based on real-time data on what competitors were offering. But by the time Yieldstar parent RealPage acquired its biggest competitor, Lease Rent Options, from the hotel price-fixing giant Rainmaker in 2017, the algorithm had metamorphosed from a tool for informing pricing decisions into a weapon for systemically and liberally hiking them to “way too high” levels, to quote a leasing manager in one of the many lawsuits. RealPage has also been accused of retaliating against anyone who balked or attempted to circumvent the program, with newer “clients” especially singled out for indoctrination and surveillance to root out “rogue” leasing agents and ensure maximum compliance with the system’s demands.
RealPage not only raised the rent, but it baked eternal rent hyperinflation into the forecasting math of multifamily housing.
Reading the most recent version of a class action complaint, brought by 12 tenants in federal court in Tennessee, it’s easy to see why the FBI is digging into the case. The effect of Yieldstar’s market dominance and discipline has been utterly staggering, and neither RealPage nor its clients betray any uncertainty over the role the company has played in gouging tenants. Since 2016, rents have climbed 76 percent in Phoenix, 63 percent in Las Vegas, 80 percent in Atlanta, 66 percent in Wilmington, North Carolina, and more than 50 percent in Portland, Seattle, Charlotte, Nashville, and Dallas. One multifamily executive quoted in an antitrust lawsuit recalls, “We let [Yieldstar] push as hard as it would go, and we saw increases as high as 20 percent … Left to our own devices, I can assure you we would have never pushed rents that hard.” And in a 2021 promotional video cheering on the nation’s unprecedented 14 percent year-over-year average rent increase, RealPage executive Andrew Bowen said, “I think [Yieldstar is] driving it, quite honestly.”
And yet, to blame RealPage for the fact that rents are too damn high may actually understate the company’s impact on the state of apartment living in America. Because as the Morningstar DBRS report—and multiple others that directly reference Yieldstar—suggests, RealPage not only raised the rent, but it baked eternal rent hyperinflation into the forecasting math of multifamily housing, fueling a dramatic plunge in underwriting standards (and attendant rise in valuations) that lined the pockets of every manner of real estate speculator in 2021 and 2022. This maneuver led to extreme blowback when interest rates—and the floating-rate interest payments owed on the thousands of apartment buildings that changed hands during those years—began to balloon. Perhaps even more insidiously, when mortgage payments rose in 2022 and landlords should have, by conventional market logic, been jumping to fill empty apartments, RealPage instead gave them the tools to extract ever-higher revenues out of powerless renters, no matter how trash-strewn, roach-infested, or crime-ridden their homes had become.
How an ‘Algorithm’ Turned Apartment Pools Green
RealPage, the rent-fixing software company currently under FBI investigation, also has apps for bogus fees, monetizing vacant apartments and inflating toxic property bubbles.
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