Senator Asks FTC to Study Rent-Setting Algorithms for Problems • The Register

A US senator has asked the FTC to review algorithms used to calculate the optimal rent for homes amid concerns the software could potentially allow landlords to collude in cities with housing shortages.

Sen. Sherrod Brown (D-OH), chairman of the Senate Committee on Banking, Housing and Urban Affairs, wrote a letter [PDF] to FTC Chair Lina Khan, asking her to “review current use of price optimization software used by property owners to set rents.”

The memo comes after five tenants filed a lawsuit against RealPage, the maker of rental pricing software, and nine real estate giants, alleging that RealPage’s YieldStar tool helped landlords form a “cartel” to set rent. It is alleged that the property owners colluded with RealPage to conspire and artificially inflate people’s rents.

Research conducted by ProPublica found that YieldStar calculates rent for apartments based on factors such as location, demand in the area, and the rental price of nearby houses. The algorithm then offers a recommended optimal amount to charge tenants: not so much that the market can’t take it and people go to other landlords, and not so low that owners lose out on profits. However, it is claimed that YieldStar has been used to ensure no one owner is undercutting another in a city or community, keeping people’s rent high.

The top ten multi-family real estate management firms use RealPage’s software, according to a filing by the company with the Securities Exchange Commission.

Senator Brown drew attention to another aspect of the lawsuit: that RealPage allegedly helped landlords, through an information feed, keep an optimal number of properties vacant at all times to avoid oversupply and driving up demand and thus prices. That wouldn’t be very fair, the senator said.

“For both single-family and multi-family dwellings, demand for rental housing far exceeds supply,” Brown’s letter reads.

“Rental vacancy rates at the end of 2021 were just 5.6 percent, the lowest vacancy rate since 1984. But even in this tight rental market, there are reports that RealPage’s algorithm is encouraging property owners to leave apartments vacant or displace tenants to do so to do maximize profits… Deliberately leaving homes empty when so few homes are available reduces a consumer’s bargaining power and exacerbates the housing crisis.”

Brown said nearly 35 percent of Americans rent their homes, totaling about 44 million homes. He called on the FTC to investigate the market impact of automated rental pricing algorithms like RealPage’s YieldStar, citing concerns about collusion and whether collecting private rental data violates antitrust laws.

“The FTC’s mission to protect consumers and maintain competition in our markets has never been more critical. And that mission has become increasingly complex as technological advances change the way entire industries operate… Tenants should have the power to negotiate housing at fair prices, free from illegal collusion and deceptive pricing techniques,” he added.

A spokesman for RealPage said The registry: “​RealPage is always ready to engage with our political stakeholders to ensure they have the facts and proper context on RealPage.” We have reached out to the FTC for comment. ® Senator Asks FTC to Study Rent-Setting Algorithms for Problems • The Register

Rick Schindler

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