US Senators Ask DOJ to Investigate RealPage Rent Algorithm

A group of US senators, including Elizabeth Warren and Bernie Sanders, have sent a letter to the Department of Justice urging an investigation of the role RealPage’s Yieldstar algorithm plays in setting rents.

In a letter to Assistant Attorney General Jonathan Kantor, the senators said “institutional investors and rent-setting algorithms” have been inflating housing prices, the Dallas Morning News reported.

“The rise of institutional investors and rent-setting algorithms have weakened competition in the already strained housing market, resulting in substandard services and unnecessarily high housing costs for American families,” the letter stated.

The senators said “the widespread use of anonymized and aggregated proprietary rental data by the country’s largest landlords could result in defacto price-setting by those companies, driving up prices and hurting renters.”

“Given these findings, the DOJ should 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,” the letter concluded.

RealPage did not respond to a request for comment.

The DOJ’s Antitrust Division started a probe of RealPage last year, after non-profit ProPublica published the results of an investigation which said the Richardson, TX-based company’s revenue management proptech enabled some of the largest property management firms to illegally share data and act as a “cartel” artificially inflating rents in violation of federal law.

ProPublica’s expose was the basis for two federal class action lawsuits, one filed by apartment renters in Washington and California and the other by a University of Washington student alleging collusion on student housing rents.

According to RealPage’s website, YieldStar software combines lease transaction data from more than 13.5M units and uses AI-driven algorithms to “unlock hundreds of basis points of hidden yield through price optimization.”

The company claims its algorithms enable new users to achieve “up to 400% in year-one ROI” for owners, operators and investors.

ProPublica’s article quotes RealPage execs boasting at a CRE conference that the company’s data analytic tool, used to suggest daily prices for open apartment units, has been driving double-digit rent increases across the country.

ProPublica said RealPage’s 2017 acquisition of The Rainmaker Group’s Lease Rent Option business had effectively given the Texas firm a monopoly on predictive analytics used to set rent prices, expanding RealPage’s client base to 31,700 customers.

“The ProPublica article contains inaccuracies and is misleading. RealPage completely disagrees with its conclusions,” RealPage said, in a statement provided to GlobeSt after the first class action lawsuit was filed.

“We strongly deny the allegations and will vigorously defend against the lawsuit,” the proptech firm said.

“The ProPublica article repeatedly takes information out of context and ignores key facts to craft a distorted picture of how revenue management software works,” RealPage told GlobeSt.

“The article prominently states that ‘RealPage discourages bargaining with renters’ while ignoring the big reason why many housing providers prefer bottom-line pricing,” RealPage said.

“Negotiating rent opens up the possibility of providing different renters with different pricing for the same housing unit, which can put housing providers squarely in violation of federal Fair Housing laws. Fair housing compliance is one of the reasons why revenue management software exists,” the proptech firm said.

“RealPage’s revenue management software is purposely built to be legally compliant,” the company’s statement said. “It focuses on the internal supply and demand dynamics at a particular property and does not consider or have any visibility into availability (supply) at competing properties.”

RealPage’s statement noted that “revenue management is commonly used across many industries, and innovations in this area have been to the mutual benefit of both consumers and vendors.”

“RealPage’s software is but one of a number of such tools available in the marketplace to property operators across the US,” the company said.