Powerful interests, including a real estate tech company and private equity firms, are contributing to soaring rents.
After a ProPublica investigation last year, a group of senators demanded answers from a real estate tech company that helps landlords set rents across the country.
The investigation revealed how some of the nation’s biggest landlords share proprietary information with RealPage, a Texas company whose software uses the data to recommend rent prices for available units. Legal experts say the arrangement may facilitate cartel-like behavior among landlords, who could use the software to coordinate pricing.
In a letter to the Department of Justice, the senators said RealPage did not provide all the information they had asked for last November, but the answers the company did give raise concerns that its YieldStar software may play a role in driving rent inflation in some of the country’s biggest markets.
“YieldStar has been most prevalent in some of the regions most heavily targeted by corporate buyers and with the highest rent increases,” the senators wrote.
The legislators said that publicly available information shows the software is used in pricing more than 4 million units, representing about 8% of all rental units nationwide. RealPage has so many clients it has access to “transactional apartment data from the rent rolls of 13+ million units,” according to the company’s website.
“Given YieldStar’s market share, even the widespread use of its anonymized and aggregated proprietary rental data by the country’s largest landlords could result in de-facto price-setting by those companies, driving up prices and hurting renters,” the senators’ letter said.
The senators wrote that “the DOJ should act to protect American families and closely review rent-setting algorithms like YieldStar to determine if they are having anti-competitive effects on local housing markets that have seen increased institutional investor activity.”
In a response to questions from ProPublica about the lawmakers’ letter, a RealPage spokesperson said that the firm “appreciates the opportunity to work with the senators’ offices.” The company is “always willing to engage policy stakeholders to ensure an informed and comprehensive understanding of the benefits we contribute to the rental ecosystem,” the spokesperson said.
After ProPublica’s story ran, more than two dozen federal lawsuits were filed by renters alleging antitrust violations by RealPage and more than 40 landlords in multiple states. When the first complaint was filed, a RealPage representative told ProPublica that the company “strongly denies the allegations and will vigorously defend against the lawsuit.” She declined to comment further, saying the company does not comment on pending litigation.
In November, sources confirmed that the DOJ’s antitrust division had opened an investigation. At the time, RealPage did not respond to a request for comment .
In its 14-page response to the senators, RealPage said recent news stories, including ProPublica’s, “do not accurately describe how these products work, in particular with regard to the role that data about other properties plays in generating rent price recommendations for RealPage’s customers and the effect that the use of these products has had on rents and apartment occupancy rates.” The company said a shortage of supply in rental housing is responsible for driving rents higher, not its software. The letter was redacted in places to protect confidential business information.
The company said that the purpose of YieldStar is not to raise rents at every opportunity, but to “manage revenues” so they are in line with the owner’s needs and management strategy. Data “does not support the assertion that YieldStar uniformly pushes rents higher,” the company said, and the software will often recommend reducing rents to minimize vacancies.
ProPublica’s story did not assert that the software always pushes rents higher. But our data analysis found that five of RealPage’s largest clients controlled more apartments in cities where rents rose rapidly and fewer apartments in metro areas where rents increased more slowly. All five property managers used RealPage’s pricing software in at least some of their buildings, and together they control thousands of apartments in metro areas where rents for a typical two-bedroom apartment rose 30% or more between 2014 and 2019.
RealPage clients may gravitate toward high-rent-growth markets simply because the companies expect those areas to offer more opportunities to make money. But RealPage says pricing suggested by its software helps landlords beat their market.
In its letter to senators, RealPage said the software itself “never” recommends removing apartments from a landlord’s inventory — a move that reduces the supply of housing and could make it easier to command higher rents — though property managers can do so if a unit needs repairs or renovations, for example.
The company said that increased use of its software has not reduced the number of apartments available for rent overall. The company said the metro areas where YieldStar has the highest penetration “have not seen inflated vacancy rates.”
“While it is difficult to differentiate the impact of revenue management tools like YieldStar from other market forces that affect occupancy rates, the fact that apartment providers now have commercial revenue management products available to them has not resulted in a national increase in vacancy rates,” the company said. RealPage said vacancy rates have dropped over the decade — a trend that housing experts say is part of a crisis in housing availability and cost.
But we found examples where company officials had urged property managers to consider whether they could make more money from rentals by raising prices and not rushing to fill all vacant units.
RealPage’s former CEO, Steve Winn, boasted on an earnings call in 2017 that one large property company found it could make greater profits by operating at a lower occupancy rate that “would have made management uncomfortable before.”
“Initially, it was very hard for executives to accept that they could operate at 94% or 96% and achieve a higher NOI by increasing rents,” Winn said on the call, referring to net operating income. The company “began utilizing RealPage to operate at 95%, while seeing revenue increases of 3% to 4%.”
A RealPage blog in 2018 also warned student housing landlords that if they weren’t using revenue management software, they could be “leaving money on the table” by being too quick to decrease rents.
“Many of the beds renting earlier in the season were arbitrarily set at a lower tier price — and may have been rentable at a higher price,” the blog said. “Worse, in fear of empty beds, some properties offer concessions or discounts for early rental decisions when they might have been able to fill all the beds at a top tier price.”
Another page on RealPage’s website said: “By focusing on the right information — not just occupancy — capabilities like revenue management empower operators to assure that pricing is right and there’s no money left on the table.”
The company also told the senators that the final decision on what to charge rests with the property manager. “YieldStar customers are under no obligation — contractually or otherwise — to follow the pricing recommendations generated by YieldStar software,” the company said.
But former RealPage employees told ProPublica that landlords follow as much as 90% of the software’s suggestions.
The letter said that news reports “badly distort and overstate the role that non-public data about other properties plays.” RealPage said its software prioritizes a landlord’s internal rent data over external factors such as what competitors charge.
But it acknowledged that it draws information from “executed leases,” which are typically not public.
Even with RealPage’s explanation, Warren and the other senators expressed concerns about the use of such data.
“Notably, RealPage provided important information about the extent to which the company facilitates information sharing by and among large institutional landlords — a particular concern given the market share of the product,” the senators’ letter to the DOJ said.
The company said its software helps landlords offer prospective renters more options for the length and cost of a lease. It said that the algorithm removes human biases that can result in violations of laws barring discrimination in housing.
The letter said revenue management software is not unique to RealPage, or even to the housing market.
But ProPublica found that the company became the dominant provider of such services for apartment rentals in 2017, when it bought its biggest competitor.