This year in July, property rent prices hit record-breaking numbers in most of the states in the US. The median rent nationwide jumped to $1827 a month, and soon it may cross the mark of $2,000. These are tough times for individuals and families who live as tenants.
But while much of this can be traced to the effects of the pandemic or the war in Ukraine, some of it may have a different cause — a more technological one.
A shocking investigation led by the non-profit newsroom ProPublica reveals that YieldStar, an application developed by real estate management company RealPage which is currently used by millions of users in the US, is causing a surge in rent prices in many states.
What’s happening here is that instead of a person deciding the rent, there is an algorithm suggesting rent prices on the YieldStar app to the landlords. Apparently, the algorithm is suggesting higher prices than what landlords would normally ask for, pushing prices up in a way that may seem unfair to the tenants.
When asked about the role YieldStar may have played in increasing apartment rents, a RealPage representative said at a tech conference:
“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 (apartment rent has increased by over 14%) within a single month by doing it manually.”
How can an algorithm have such an effect on a national scale?
The YieldStar algorithms process real-time rental data collected from various sources including clients and even competitors of a landlord listed on the app, and then it recommends a rental price to the owner. According to the ProPublica report, the application does not encourage bargaining, a standard practice in property dealings where the tenants have the chance to negotiate prices on the basis of various factors that they feel are important to them.
Since the app’s price recommendations for landlords are completely based on shared data, it could even give rise to a new kind of property cartel. If everybody knows what others are charging, big property giants would collectively decide on property rents, leaving no scope for tenants or small property agents to have their say. For example, suppose you want to rent a studio flat in New York, and you short-listed some properties that according to some small agents should have monthly rents ranging between $3500-$7000 a month. Great. You’ve secured your range, but this is just the first stage of your rental ordeal. The next stage is what happens on the landlords’ end.
Now you get to know that all these properties could be rented only via YieldStar, but what’s happening on the app is that the owners have already collectively decided that they won’t rent their properties in a price range less than $4700-$8000. The app is also likely to suggest prices to you on the basis of the data it is collecting from its clients which are the landlords.
Since there is no bargaining policy, eventually, you are left with no option other than choosing one of the flats at a higher price — a price that all the players in the market have internally imposed on you via an algorithm. Moreover, the report claims that YieldStar also encourages property owners to maintain high rents despite having low occupancy rates in order to have big profits, which poses major social problems.
Interestingly, YieldStar’s parent company RealPage has 19.7 million users. As of 2020, the total number of properties available for rent in the US stands at 45 million, which means that YieldStar’s algorithm has the potential to influence rents in 50% of total rental units in the US. Although it is still not confirmed if YieldStar has really any role in the recent rental hikes in the country, the evidence from ProPublica clearly highlights another big possibility of how algorithms can affect a large population in the modern world.
Examples that prove YieldStar’s influence
America’s largest real estate management company, Greystar Real Estate Partners has listed thousands of its properties on YieldStar. The company agrees to the fact that the price recommendations from the YieldStar app’s algorithms have allowed them to gain nearly 5% more profits than their competitors.
An ex-RealPage employee confirms that although landlords have the option to discard the rent that the app recommends, in 90% of cases they choose to go with the recommendations because, in the end, all that matters is how much profit you make. RealPage executives also often boast about their app’s ability to outperform the market and deliver huge profits to their clients, but at the same time, they reject their algorithm’s role in burdening tenants with an increased rental costs.
While other property management services like RentPage believe that YieldStar’s approach is unfair and illegal. Jeffrey Rober, the CEO of YieldStar considers their algorithm a secret weapon for their clients which brings them profits. For now, we can neither deny nor be dead sure if YieldStar is manipulating rent to favor the landlords. Maybe rent is high only because of the economic instability and supply-demand gap that resulted from the pandemic, but the investigation surely raises some serious doubts about the software’s algorithm,
However, what’s really depressing and unfortunate is that, in these times, no one is coming up with an algorithm that could help the economy stabilize, prevent conflicts, or at least ensure affordable housing for all.