As per CNBC, rent prices jumped by a double-digit proportion during the first half of 2022, reaching a national average of $2,495. This has put many families in financial difficulty because inflation has raised the prices of basic commodities, also preventing them from buying property.
As it turns out, landlords aren't just raising rent prices because of the recession. According to a class-action lawsuit recently filed in California, YieldStar software from real estate seller RealPage aids in the pricing of apartments across the country. Critics worry that the business's proprietary algorithm is harming competition as rents rise.
A Rent Cartel?
A Gizmodo report tells us that the software performs the financial calculations for landlords, evaluating specific properties and then producing what it deems to be a reasonable rent charge for tenants.
Although former RealPage employees claim that most suggestions are typically accepted by clients, landlords are able to ignore the recommendation and negotiate with tenants if they so choose.
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ProPublica also reports that the software could be raising rents for apartments and stifling competition across the country, making it simpler for landlords to turn a profit and more difficult for tenants to find affordable housing, investigation suggests. Tens of thousands of apartments across the nation reportedly had their prices set using the tool.
The lawsuit, which was recently filed by four different firms on behalf of a number of former tenants of properties who used Yieldstar to apprise rent, alleges that RealPage is part of a small cartel of big lessors conspiring to inflate the cost of rent in most properties in the sunny states.
According to the Gizmodo report, the lawsuit is technically classified as a federal antitrust class-action lawsuit, alleging that RealPage and a chain of landlords engaged in anti-competitive practices.
Questionable Algorithmic Pricing
The defendant, RealPage, according to a report from Yahoo, was a publicly traded company from 2010 until 2020, when Thoma Bravo acquired it in a deal that valued RealPage at about $10.2 billion. The Lessor Defendants are some of the largest owners and operators of rental property in the United States.
As per official court documents, the alleged crime was in operation as early as 2016. Landlords agreed to work with a centralized third party that gathered real-time pricing and supply levels and used that information to recommend pricing and supply for individual units.
The class action complaint reads an argument:
"RealPage openly boasts that its services "balance supply and demand to maximize [Lessors'] revenue growth." And that is precisely what RealPage has done, facilitating an agreement among participating Lessors not to compete on price, and allowing Lessors to coordinate both pricing and supply through two mutually reinforcing mechanisms."
What this means is that RealPage is basically using YieldStar's "algorithmic pricing" to toy with the system and artificially inflate rent rates. RealPage even urges potential clients to "Find out how YieldStar can help you outperform the market by 3% to 7%," according to its website.
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Written by John Lopez
