Soaring rents have mostly been blamed on America’s inflation and a lack of housing supply, but another culprit has been algorithmic pricing software, according to a pair of explosive lawsuits.
Big data has changed the way some landlords make pricing decisions — and is influencing some major property owners to push up rents rather than keep apartment buildings as full as possible, according to the lawsuits.
Algorithmic pricing systems such as RealPage and Yardi Systems have also allegedly facilitated illegal measures to hike up monthly rents in favor of turning a profit, as claimed in the lawsuits first reported on by The Wall Street Journal.
According to two complaints brought by tenants in federal courts in Tennessee and Washington obtained by The Journal, these two companies and their landlord customers have exchanged confidential pricing information that reduces natural competition in the housing market.
Historically, landlords would often make hefty cuts to rents when the market started to head south like it is now, as consumers face record-high rates on a 30-year home loan and skimpy housing supply. However, big data has proven that price reductions aren’t always necessary.
RealPage and Yardi’s software reportedly works by collecting information from its clients — landlords and property managers — on what rent they charge tenants.
Those figures feed an algorithm that then recommends price increases to landlords for their renters’ next lease renewal.
The US Justice Department may soon weigh in on whether RealPage and Yardi unlawfully drive up rents, according to The Journal.
The federal agency’s antitrust division has already been investigating RealPage’s practices and is mulling bringing enforcement action, people familiar with the matter told the outlet.
“We are concerned that the use of this rate setting software essentially amounts to a cartel to artificially inflate rental rates in multifamily residential buildings,” three senators penned in a letter to the DOJ’s antitrust attorney general late last year.
Earlier this month, the department filed a notice in the case against RealPage, saying it would consider posting a “statement of interest” by next month that would attempt to guide the court’s decision in that case, according to The Journal.
It’s the second time the Justice Department has probed RealPage, which has previously denied these allegations, the outlet reported.
Representatives for RealPage and Yardi did not immediately respond to The Post’s request for comment.
Homeowners don’t have it much better.
In the Big Apple, co-op and condominium board fees have surged nearly three times faster than the rate of inflation.
Condo owners typically also have to pay maintenance fees for upkeep — which may include heat and hot water costs, garbage collection, and payments towards cleaning the building’s public spaces — that hover around $1.68 per square foot, according to Jonathan Miller of real estate appraiser Miller Samuel.
This means that owning an apartment in New York City — which isn’t that big, as they average 975 square feet, per research firm Urban Digs — costs roughly $1,638 per month on top of the monthly mortgage payment.
The increase in bills meant to cover utilities, labor, and basic building maintenance jumped about 54% from the first quarter of 2020 to the third quarter of 2023, according to Bloomberg, citing data from Miller Samuel — 2.8 times more than the 19% increase US consumer prices experienced in the same period, per the Bureau of Labor Statistics.
US inflation rose 3.7% in September, more than economists expected and still well above the Federal Reserve’s 2% target, as the central bank weighs whether to hike interest rates again by year’s end.
Meanwhile, as the city implements stricter building standards, homeowners are expected to pay more in maintenance fees in the coming years — costs critics have argued are excessive, Bloomberg reported.
This story originally appeared on NYPost
