Is an Algorithm Raising Your Rent? A New Class Action Lawsuit Says so

Is an Algorithm Raising Your Rent? A New Class Action Lawsuit Says so

Is a tech company partially responsible for skyrocketing rent prices? That’s the story, according to a class-action lawsuit filed in California this week.

Critics allege that Texas-based RealPage, which sells real estate and property management software, has helped landlords prey on unsuspecting tenants via its price-setting algorithm YieldStar. The program does a landlord’s financial calculations for them, assessing particular properties and then spitting out what it thinks is a fair price for tenants to pay. Landlords can ignore the advice and negotiate with tenants if they want to, though ex-RealPage employees have said that a majority of suggestions are typically accepted by clients. The tool has reportedly been used to set prices for tens of thousands of apartments across the country.

The lawsuit, filed this week by four separate firms, lists as plaintiffs a number of former tenants who previously lived in YieldStar-guided buildings and accuses RealPage of helping a small cabal of powerful lessors conspire to inflate the cost of living in select communities via “anti-competitive” practices. The lawsuit is technically listed as a federal antitrust class-action lawsuit, alleging that the defendants (not just RealPage, but landlords, as well) participated in anti-competitive practices. A press release about the lawsuit lays out its argument like this:

The complaint alleges that Defendants conspired to use RealPage’s so-called “revenue management” service to set rental prices and restrict the supply of available rental units in major metropolitan areas across the United States. Plaintiffs allege that by using this conspiracy to stifle competition, Defendants inflated rents to supra-competitive levels and unlawfully suppressed the supply of rental housing, injuring the plaintiffs and thousands of renters across the United States.

In other words: while lessors are supposed to be competitive with one another, the lawsuit is accusing RealPage and its clients of gaming the system by using YieldStar’s “algorithmic pricing” to artificially jack up prices — and then working together to enforce these new, insanely high prices. According to the suit, this prevented tenants from taking advantage of options other than those provided by the software. The landlords that the suit lists as defendants are large real estate companies, described as “some of the largest owners and managers of rental real estate in the United States.”

“Today’s lawsuit plausibly alleges that Lessors of rental units have coordinated to drive rents up to unprecedented levels, exacerbating the nation’s affordable housing crisis,” said Gary I. Smith Jr., a Partner at Hausfeld, in the press release. “We look forward to vindicating our clients’ rights in this important federal antitrust litigation.”

Gizmodo reached out to RealPage for comment on the litigation but did not hear back. We will update this story if they respond.

This whole legal kerfuffle was preceded by a ProPublica article published last week that pointed out the growing influence RealPage’s software has on the U.S. housing market. The article characterised YieldStar as “a mysterious algorithm to help landlords push the highest possible rents on tenants” and noted that RealPage executives had previously bragged about their software’s ability to drive up rents at a precipitous rate, earning landlords more money. Property managers throughout the U.S. have apparently “gushed about how the company’s algorithm boosts profits,” the outlet reported. The algorithm has been inducted into the pantheon of scapegoats for our nation’s ongoing housing woes.

Indeed, people have concocted a whole lot of theories about why staying not-homeless has gotten so expensive lately. Some blame a supply problem wrought by slowed construction during the pandemic. Others blame the middle-class for not wanting their neighbourhoods stuffed with new developments. Still others blame Wall Street or overseas investors, whose goons have been sucking up houses in already hot markets — nabbing properties that would’ve otherwise gone to first-time homebuyers and converting them into rental properties. And, now, others will no doubt blame RealPage and its algorithm. The question as to whether historical precedent, screwy software, or money-grubbing jackasses are more to blame for high prices is surely debatable, though there’s definitely evidence that certain financial gargoyles are making the crisis far worse by exploiting it for their own gain. In short: if RealPage has been profiting off our nation’s housing woes, they are in good company.

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