The Widely Used Algorithm Helping Apartment Landlords Jack Up Rents

Relentlessly rising rental rates for apartment dwellers in much of the U.S. could be partially a result of the industry's reliance on a commonly used algorithm to help determine pricing, according to a report from ProPublica.

ProPublica found property management companies are increasingly reliant on RealPage's YieldStar software to calculate pricing for their apartments. YieldStar analyzes data gathered from RealPage clients and uses it to set pricing.

Sources in the report suggested that machine-driven pricing pushes rents higher than they might otherwise be because of the removal of the human element from generating the number.

Former employees at RealPage told ProPublica 90% of apartment managers using the software adopt its pricing suggestions, despite having the option to reject them. One software developer for YieldStar told ProPublica that “leasing agents had ‘too much empathy’ compared to the computer-generated pricing,” the report said.

Concerns have grown that the software is leading to artificially inflated rents and less overall competition, although RealPage said in a statement to ProPublica that its program benefits competitiveness by keeping rental rate data private from competitors.

“Machines quickly learn the only way to win is to push prices above competitive levels,” University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Department’s antitrust division, told ProPublica.

Amid recession fears and inflation woes, rising rental rates have been a consistent problem for renters. A report from the Joint Center for Housing Studies of Harvard University found that prior to the pandemic, 46% of renters in the U.S. spent over 30% of their income on rent, classifying them as “cost-burdened.” The pandemic then worsened the economic situation for many Americans living on the lower end of the income spectrum.