Are landlords using an algorithm to hike rents in NYC?
- Landlords across the U.S. use RealPage’s YieldStar software to calculate rents
- An article by ProPublica raises concerns about price fixing among owners
- Rent-setting software also raises questions about how renter data is used
There are concerns landlords who use rent-setting software may be colluding and artificially inflating rents but these allegations are hard to prove.
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Is an algorithm responsible for hiking rents? That’s the question posed by a recent ProPublica article that identifies Texas-based RealPage’s YieldStar software as the dominant rent-setting tool used by landlords across the country. There are concerns owners who use these applications may be artificially inflating rents.
Legal experts are also concerned RealPage’s software could be allowing collusion in areas where the majority of large landlords use it to set rents. ProPublica reports renters in San Diego have filed a lawsuit claiming RealPage fixed prices and artificially inflated rents in violation of federal law. RealPage denies these accusations.
It’s not clear how many landlords in New York City currently use rent-setting software. Many owners and leasing agents dispute the idea that an algorithm is the cause of rent increases or that there’s collusion through data use, saying rising rents are caused by inflation, supply outstripping demand, and tenants being willing and able to pay the higher prices.
How does an algorithm set rents?
ProPublica reports rent-setting software is being broadly used to make it more efficient to calculate comparative prices and set rents accordingly. A series of mathematical calculations are made on many variables—including vacancies and rents for comparable apartments—and each day, the software recommends a new price for every available unit. A landlord can either accept or reject the recommendations.
When rents are set by an algorithm, landlords are emotionally distanced from the process. A RealPage developer is reported as saying leasing agents had “too much empathy” with renters, making them hesitate to ask for the highest rents possible. The algorithm arguably emboldens owners to raise rents higher than they would if they were doing the calculations on their own.
The algorithm can also convince otherwise skeptical landlords that having more vacant apartments while also raising rents doesn’t always negatively affect their net income, according to the article.
Claims of collusion or price-fixing are difficult to prove—and landlords have ultimate discretion to override the algorithm’s recommendations—but as the technology expands and becomes more sophisticated questions are being raised about the impact on housing affordability.
How are rents set in NYC?
To set rents, landlords typically look at demand for apartments, competitors' rents, what the last apartment rented for, how quickly it rented, whether there are other vacancies, and feedback from leasing agents who have timely anecdotal information from renters. This is the information used by Arik Lifshitz, CEO of DSA Property Group, a property management and development firm. It’s possible to input all that information into some software but “the source of the rent increase remains the same, and it doesn’t start at the algorithm, it starts at the supply demand ratio,” he says.
Adam Frisch, principal broker at Mantus Real Estate, doesn’t think rent-setting software is relevant to NYC because incomes here are well above the national average and rent-stabilization keeps rents below market—covering both extremes of the rental market.
Allia Mohamed, co-founder and CEO of rental platform Openigloo, also isn’t sure the software is applicable to NYC. She notes owners here can have massive numbers of units. “You have landlords that own 10,000 or 15,000 units—do they really care what another 15,000 unit portfolio is doing?” she asks.
Frisch points out there’s nothing unusual about software that tries to gauge rents and renewals. If anything, Frisch worries it will give landlords a false confidence in the market, thinking their reliance on data will protect them. “If landlords are going to make decisions based on this they are going to lose a lot of tenants,” he says.
In order to set rents and renewal rates, Marc Weber, asset manager at the property management company Weber Realty, does a comparative analysis of what’s available on listing sites like StreetEasy. He and the brokers he works with look at the bedroom number, neighborhood, the condition of the apartment, and its size. Weber acknowledges that if companies are using this software to determine rents, it is directly impacting landlords like him because they analyze rents based on the competition. “That may be why our rents are achieving the highest rents we’ve ever seen for [our] buildings,” Weber says.
If renewal rents are set too high, landlords will have to turn over the apartments more frequently as tenants leave to find somewhere cheaper. That can affect a landlord’s income. “Turnover costs are really high—you have to repaint the apartment, fix any repairs, and if someone wants to renew, you don’t have to incur those expenses, which can be up to a month’s rent,” Weber says.
How is tenant data being used?
RealPage doesn’t just offer rent-setting software to landlords, the company also provides property management software, which gives them access to lease transactions. “The more property managers who sign on to RealPage services, the more data flows into the company’s repository,” writes Heather Vogell, the reporter of the ProPublica article. This aids RealPage’s pricing service.
California, Virginia, and Colorado already have privacy laws allowing residents the right to delete personal information. A similar data protection law for New Yorkers is currently under consideration in the New York State Senate.
Renters don’t want their data being used against them. However, most renters are accustomed to giving away data without really questioning who is benefiting. “We are so used to scrolling to the bottom of a contract because we want to use the platform and if you don’t agree, you don’t get to use the tool,” Mohamed says. Certainly paying rent online offers a convenience that tends to outweigh privacy concerns for many. According to ProPublica, RealPage says it uses data in a “legally compliant” way.
Mohamed says there are some incentives for tenants to share their data. For example, she points out you can share your on-time rent payments to credit bureaus to boost your credit score, putting you in a better position to buy. “That’s an example where platforms are taking that rent payment data and sharing it in a way that’s actually helpful,” she says.
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