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Is the rent increasing? A company's algorithm can cause

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Is the rent increasing?  A company's algorithm can cause

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One summer day last year, a group of real estate tech executives gathered in a Nashville conference room to brag about one of their company’s signature products: software that uses a mysterious algorithm to help landlords force the highest possible rents on tenants.

“We’ve never seen these numbers before,” said Jay Parsons, vice president of RealPage, as he passed the convention goers. In a video describing the company’s services, he said apartment rents have increased by as much as 14.5 percent recently. Parsons turned to his colleague and asked: What role did the software play?

“I think it’s driving pretty honestly,” Andrew Bowen, another RealPage executive, replied. “As a property manager, very few of us would be willing to increase rents by double digits in a single month by doing it manually.”

Celebration statements were more than airborne. For years, RealPage has sold software that uses data analytics to suggest daily prices for open units. Property managers in the United States gushed about how the company’s algorithm was driving profits.

“The beauty of YieldStar is that it lets you go places you wouldn’t go if you didn’t use it,” said Kortney Balas, director of revenue management at JVM Realty, referring to RealPage’s software in a reference video. company website.

RealPage said in materials on its website that Greystar, the nation’s largest property management company, said its buildings using YieldStar, even in a crisis, “outperformed their market by 4.8 percent,” a significant premium over its competitors. Greystar uses RealPage’s software to price tens of thousands of apartments.

RealPage has become the nation’s dominant provider of such rent-determining software after federal regulators approved a controversial merger in 2017, a ProPublica investigation greatly expanding the company’s influence on apartment prices. The move has helped the Texas-based company strain its client base for its array of real estate technology services that has surpassed 31,700 clients.

The effect is sharp in some markets.

ProPublica found that in one Seattle neighborhood, 70 percent of apartments were audited by just 10 property managers, each using pricing software sold by RealPage.

To arrive at a recommended lease, the software applies an algorithm (a set of mathematical rules) to analyze a wealth of data RealPage collects from customers.

For tenants, the system subverts the practice of negotiating with apartment building staff. RealPage discourages tenants from bargaining, and in some cases even recommends that landlords accept a lower occupancy rate to raise rents and save more money.

One of the algorithm’s developers told ProPublica that rental agents have “a lot of empathy” compared to computer-generated pricing.

Apartment managers may reject the software’s recommendations, but according to former RealPage employees, as many as 90 percent have been adopted.

The software’s design and increased reach have raised questions among real estate and legal professionals as to whether RealPage has spawned a new type of cartel that allows the nation’s largest homeowners to indirectly coordinate pricing, potentially violating federal law.

Experts say RealPage and its customers invite scrutiny from antitrust enforcers for a variety of reasons, including their use of proprietary data on what competitors are demanding in rent. A former federal prosecutor said RealPage’s creation of working groups that meet privately and include otherwise rival homeowners could be a red flag of potential collusion.

At the very least, critics said, the software’s algorithm may be artificially inflating rents and stifling competition.

“The machines quickly learn that the only way to win is to push prices above competitive levels,” said University of Tennessee law professor Maurice Stucke, a former prosecutor in the Department of Justice’s antitrust division.

RealPage acknowledged that its customers are importing internal rental data into its pricing software, giving landlords an aggregated, anonymous look at how much their nearby competitors are charging.

A company representative said in an email that RealPage “is using aggregate market data from various sources in a legally compliant manner”.

The company said landlords who “typically” use their employees to manually set prices conduct phone surveys to check competitors’ rents, which could lead to anticompetitive behavior by the company.

“RealPage’s revenue management solutions prioritize a property’s own internal supply/demand dynamics over external factors such as competitors’ rents, thus helping to eliminate the risk of collusion that can occur with manual pricing,” a company statement said.

RealPage’s software also helps prevent rents from reaching inappropriate levels, as it detects demand drops, such as those that occur seasonally, and can respond to them by lowering rents, the statement said.

RealPage did not make Parsons, Bowen or the company’s current CEO Dana Jones available for interviews. Balas and a Greystar representative declined to comment on the recording on YieldStar. The National Multi-Family Housing Council, an industry group, also declined to comment.

Fans say the software hasn’t disrupted the market. RealPage’s CEO told investors five years ago that the company wouldn’t be big enough to hurt competition, even after the merger. Ric Campo of Camden Property Trust, CEO of one of YieldStar’s early users, told ProPublica that the apartment market in the city where his company is located alone is so large and diverse that it “would be hard to argue that there was some kind of price fixation.”