Rent Prices Nationwide Are Skyrocketed All Because Of One Company?
There is evidence to suggest that RealPage, the company behind YeildStar, a software designed to help property management firms charge the most competitive rental prices, has birthed a monopoly in the nation's rental market.
Rent prices have shot through the stratosphere nationwide. Many are attributing the price hikes to economic factors like inflation. However, while inflation surely hasn’t helped matters the root of the cause could actually be the fault of one company called RealPage and its rent-pricing software called YeildStar.
RealPage is a software company that primarily services the real estate industry. The company developed a program called YieldStar to aid property managers in setting competitive rent prices for their open units. YieldStar uses an algorithm based on area comps and aggregated market data to generate daily pricing in rental markets across the United States.
YeildStar is exceptionally good at the task it was created to do, perhaps a little too good. Property managers nationwide are reporting significant gains in revenue after they began using the software. And RealPage executives have not been shy to boast about YieldStar’s success.
According to ProPublica, at a real estate convention that took place in Nashville earlier in the year, RealPage executive Andrew Bowen attributed the 14.5% increase in rental prices collectively across the rental market directly to YeildStar. “I think it’s driving it, quite honestly. As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually,” said Bowen.
Bowen made an interesting point. He highlighted that people would be hesitant to raise prices that much. Because people have the capacity to think about external factors like whether or not they would lose a good tenant, but the program is simply doing what it is designed to do with no emotions involved. That is both a good and a bad thing.
It’s great that the program works well and the property managers are seeing huge bumps in profit. But to what end? Take Seattle, for instance.
In Seattle, ProPublica pointed out that about 70% of all rentals in the city are controlled by 10 property management firms, all of whom use RealPage’s YieldStar software. The nature of the algorithm combined with a rental market being controlled by so few companies has caused rent prices to soar way higher and faster in comparison to other areas of the country.
Those high rent prices in Seattle are quickly pricing people out, and causing them to look elsewhere. However, the software is actually designed to do that and make those property managers money on top of it. Steve Winn, a former RealPage CEO gave an example of one property management firm that used to operate at 97-98% capacity and began operating at about 95% percent capacity after they started using the software and immediately stated, “…seeing revenue increases of 3% to 4%.”
Essentially, the software is artificially driving demand which then causes the rent prices to climb higher. This is alarming and certainly raises eyebrows due to the potentiality for antitrust violations to occur. For instance, if those 10 property managers who control 70% of Seattle’s market get together and collectively decide to all operate at 95% capacity across their buildings, they would monopolize the market (more than they already have).
It’s scary to think that an algorithm has the capacity to effectively push people from their homes. Alas, there are still those landlords who are committed to looking out for the little guy. Tami Drougas, who manages a property in Seattle, proudly asserted, “I don’t believe in them. That’s great and fine for larger corporations. But I think it takes the humanity out of what we do.” Here’s to hoping that there are still more Tami Drougas’s left in the world.
