With Shared Software, Landlords Are Teaming Up to Raise Rents
▻https://jacobin.com/2024/08/realpage-software-housing-landlords
Voilà ce qui arrive quand on confie la gestion du prix des loyer à la main invisible des propriétaires. Ils se feront aider par des plateformes qui les renseignent sir le prix le plus élevé sur le marché qu’ils exigeront ensuite des preneurs de bail.
7.8.2024 by Akil Vicks - San Francisco has banned RealPage, a software company that computer-generates recommended rents for landlord clients in what some are calling a price-fixing scheme. It’s a step toward curbing rent-raising collusion between landlords.
Last month, the San Francisco Board of Supervisors approved a city ordinance that would ban the use of algorithmic pricing software for rental housing. San Francisco’s housing crisis is among the very worst in the nation, with a constricted housing supply and massive wealth inequality pricing most people out of the ability to afford a home. This is happening while the city continues to enjoy steady economic growth according to the metrics that matter most for the wealthy.
To many, the solution seems simple: San Francisco needs to build more housing. Restrictive zoning laws, an undermanned home construction industry, and high interest rates have constrained both the supply and the ability to afford housing on an average salary. But a lack of supply doesn’t tell the entire story.
Enter RealPage, a real estate revenue management company that provides computer-generated pricing recommendations to over thirty-one thousand landlord clients managing over 19.7 million rental units across the country — recommendations that always seem to favor raising rents, no matter the vacancy rate or basic shelter needs.
The company has reported that it provides these services to 10 percent of the rental market in San Francisco. Critics, such as San Francisco board president Andrew Peskin, say that RealPage facilitates collusion between landlords and drives up rental prices beyond what the already tight market should theoretically bear. This sentiment is shared by many across the country, with investigations and lawsuits mounting against the use of RealPage’s software, which some are accusing of price-fixing.
San Francisco and other American cities could certainly benefit from more housing. But they also need to reckon with a rogue landlord cohort that will do anything to increase profits. RealPage’s existence and success are signs of a deeper problem with the housing market, a problem that requires a fundamental reimagination of housing economics.
The Numbers Don’t Always Tell the Story
The United States is deep in the throes of a housing crisis, the severity of which contradicts all official appraisals of the strength of the economy. The crisis isn’t adequately reflected in record stock market profits, rising GDP, or even strong employment numbers. Higher interest rates, intended to fight inflation, have helped put homeownership out of reach for even middle-income families, with a person or family needing to earn $108,000 a year to afford a typical mortgage.
Wall Street firms have been buying up as much residential real estate as they can, fattening their balance sheets with home values that are increasing at a rate 2.4 times the rate of inflation.
In a recent speech, presumptive Democratic presidential nominee Kamala Harris acknowledged this disconnect between the numbers and people’s lived experience of the economy:
It is true that by many indicators our economy is the strongest in the world, but while inflation is down and wages are up, prices are still too high. On day one, I will take on price gouging and bring down costs. . . . We will take on corporate landlords and cap unfair rent increases.
Last month, the FBI raided the offices of Cortland Management in Atlanta, a landlord company that manages about eight-five thousand apartment homes in seven states. The raid appears to be in connection with a Justice Department (DOJ) investigation into RealPage for antitrust violations. A 2022 investigation by ProPublica reveals the specifics of how RealPage’s algorithm, named YieldStar, helps property owners set the most profitable rents:
To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.
If that sounds like huge numbers of landlords all using the same software to compare prices and keep rents high by circumventing competition, that’s because it is. Hence the allegations of price-fixing.
Executives at RealPage insist that their algorithm doesn’t violate antitrust law because all it’s doing is predicting market trends and clients cannot directly access competitors’ raw data. However, data from competitors is a large part of what the algorithm uses to generate its recommendations for rents. Because the purpose of this software is to maximize revenues, it inevitably recommends that landlords charge no less or more than what other buildings are charging, even if it means operating at higher vacancy rates. The algorithm has also turbocharged real estate speculation, with investors buying properties for much more than traditional evaluations, expecting that YieldStar will provide more than enough return on investment.
Since the ProPublica investigation into RealPage, over thirty class-action cases have been filed against the company and associated landlords. In 2023, these were consolidated into one lawsuit being adjudicated in the US District Court of Middle Tennessee. Two of the rental management companies named in the suit settled out of court with the plaintiffs in May. A separate lawsuit in Washington, DC, against the company and fourteen property management companies is also progressing. These suits have received an important endorsement by the DOJ, which launched its criminal antitrust investigation earlier this year.
The DOJ’s case is very clear. Despite protestations of RealPage executives, the company’s dominance in rental markets where rents have risen precipitously — along with its self-professed claims to generate revenues above market rates — paints a picture of a company facilitating a loose cartel that allows landlords to raise prices beyond what normal supply and demand forces would allow.
The Human Element
RealPage is squarely focused on maximizing profit. The human element of providing and maintaining housing is secondary, often even an annoyance or an obstacle to landlords intent on squeezing every bit of revenue possible from an inelastic good. If that seems heavy-handed, ProPublica’s investigation noted how one developer of the software remarked that computer-generated pricing circumvented the problem of landlords displaying “too much empathy” in lease agreements.
When you remove empathy from the act of providing shelter, there are consequences. Being rent-burdened is commonly defined as paying housing costs totaling over 30 percent of a household’s income. A recent Harvard study concludes that about 50 percent of US households are currently rent-burdened — a figure exacerbated by the pandemic but welcomed by landlords who have seen their profits skyrocket.
While the high turnover rates caused by RealPage’s rent suggestions have resulted in higher revenues for the large firms managing properties, the experience of being rent-burdened is exhausting and demoralizing. It can even be a life-and-death matter for those struggling to afford housing. As USA Today notes, evidence is mounting that housing precarity can actually shorten life spans due to a variety of factors precipitated by high housing costs:
The study found people who had spent more than 50% of their income on rent were 9% more likely to die in the next 20 years compared with those who paid 30% of their income on rent. People were 12% more likely to die if they had spent more than 70% of their income on rent.
These are the high stakes of forcing people to choose between rent and other material necessities, like food and health care. And matters are far worse for those who can’t afford housing at all. For homeless people, these health effects are exacerbated. They’re also compounded by increased police harassment for the crime of reminding people about the inequality in our economy.
It’s the Economy, Stupid
RealPage is a profoundly disturbing enterprise that needs to be dealt with directly. But it’s also a symptom of a deeper structural issue in the housing market. Since housing in America is viewed and utilized as an appreciating investment, as opposed to a basic commodity necessary for maintaining the public good, all of the economic incentive is aligned toward pushing prices up rather than providing decent shelter to all. Homeowners routinely vote for zoning restrictions on high-occupancy housing in their neighborhoods because building more housing for lower-income people negatively affects their property values. Efforts to build more public housing and provide more services for homeless people face similar obstacles, rooted in a reluctance to lower the cost of renting or owning a home.
The housing supply is limited not only by physical constraints on building materials and too few workers available for the necessary construction. It’s also limited by the perverse incentive to artificially restrict supply in favor of increasing demand and thereby raising prices. Here again RealPage is indicative of the consequences of capitalist housing relations. An expected response to vacant rental housing would be for landlords to lower rents and get people into those units. But as ProPublica revealed, YieldStar told users like Camden Property Trust CEO Ric Campo that following the Econ 101 rules of supply and demand was actually leaving money on the table:
“The net effect of driving revenue and pushing people out was $10 million in income,” Campo said. “I think that shows keeping the heads in the beds above all else is not always the best strategy.”
The Yes in my Backyard (YIMBY) movement posits itself as a serious solution to the nation’s housing problems. YIMBYism is certainly right about some things, such as the need for greater supply, but it also tends to rely significantly on deregulation to create natural downward pressure on prices. Those hopes are misplaced: Deregulation was also supposed to push down airfares in the late ’80s and ’90s, but innovations in pricing software all but neutralized those effects.
The same problem is in effect today. Even without a tool like YieldStar, the fundamental economics involved in inelastic commodities complicate the idea that upzoning alone can fix the problem. But RealPage and YieldStar make it even clearer that deregulation to increase supply is not a silver-bullet solution. To wriggle out of this obvious bind, some vocal proponents of YIMBYism have taken to expressing skepticism of RealPage’s significance to America’s housing crisis.
The entire justification for a housing market based on extracting the most profit possible is that this profit incentivizes developers to build more and get more people in homes. But as seen with many other sectors of the economy, the reality is that profit is not inexorably attached to serving the needs and desires of consumers. In light of the perverse incentives driving the housing crisis, it’s clear that market solutions cannot be relied upon to solve it.
Efforts to take on RealPage, like San Francisco’s and the DOJ’s, are good and necessary. But so long as profit is the principal driver of housing provision, there will always be another bad actor to innovate new ways of squeezing money out of basic need.
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