U.S. Plans to Accuse RealPage of Enabling Collusion on Rents - The New York Times (Free Article)
U.S. Plans to Accuse RealPage of Enabling Collusion on Rents - The New York Times (Free Article)
The Justice Department is set to file an antitrust suit against the real estate company RealPage alleging illegal price-fixing facilitated by algorithms.
RealPage, maker of YieldStar, is almost singlehandedly the ones causing rent to skyrocket across much of the United States.
One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing.
You can learn more about them here and why this antitrust case is so important:
https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
The software vendor does have a point: the software doesn't set prices itself, it just makes suggestions based on the metrics it sees, and ultimately the property owners are the ones that raise rents. But I don't think the developer realizes the role it is playing in the feedback loop.
Landlords pay for this software to help them set "fair" rents. But if the software consistently sets rents that the landlord sees as too low, they will question whether the software is worth paying for, and the software vendor goes bust. On the other hand, if the software sets rents that are too high, landlords will see that software as working well, and will continue to use it. So the developer is incentivised to goose the numbers up a bit, knowing that landlords are free to set their rents lower....
... except we all know that's not what actually happens, particularly for these large real-estate conglomerates whose tenants are just lines in a spreadsheet. Some pencil pusher is just using these numbers from the software as-is, because there is probably more paperwork involved in justifying a rent change to their boss, while if they just accept the computers' numbers they can make it to Happy Hour a bit early.
It gets even worse when most of the real estate in an area is owned this way, because then the additional "the computer told me to charge this" surcharge gets "baked into" the overall market, and gives landlords who don't use the software a reason to raise rates, because of "the market". Then next year, it all rises again, because the software sees the overall increase in rates and thinks it's because of "the market" and not because of its role in the increase last year.
The incentives in this system benefit everyone but the renter. This may be a appropriate place for the government to step in and force change. Government is accountable to voters, and there are more voters who are renters than landlords.
No, they don't have a point. The software is clearly created explicitly for the purpose of collusion for maximizing rent.
But that's the thing, it's not "collusion" in the sense that rental companies all conspired to raise rates at the same time. None of them actually collaborated with each other.
At the same time, the software isn't designed for collusion at all. It is just hoovering up public data. It is not doing anything that the companies couldn't do themselves, and they have to keep all their client data separate.
The end result is collusion, once enough companies are using this software that their price increases drive the public market and then get sucked into the algorithm and generate more price increases. But there is no action by any party which a court can point to and shout "Collusion!". There are enough independent actions that just happen to go in the same direction. That's the reason why new legislation may be necessary, in order to catch this sort of distributed algorithmically-enabled collusion.
The purpose of a system is what it does. So I agree.
(RealPage isn't the only problematic software that does this either. Check up on how rental rates are set and then jacked up in storage facilities, owned predominantly by 2/3 companies)
In one news release, Realpage offered its property management clients the ability to outsource daily rent-setting and revenue oversight. “We believe in overseeing properties as though we own them ourselves,” the company said in a presentation that plaintiffs’ lawyers referenced in the lawsuit.
A leasing manager at a RealPage client said, “I knew [RealPage’s prices] were way too high, but [RealPage] barely budged” when the manager asked to deviate from the suggested rent.
An update to the software tracked not only clients’ acceptance rate, but also the identity of the landlords’ staff members who had requested a deviation from RealPage’s price, the lawsuit said. Compensation for some property management personnel was even tied to compliance with the company’s recommendations, it said.
The Washington lawsuit alleged that the system was designed to police compliance of the cartel. It cited RealPage training documents that urged clients to have the “discipline” to enact the software’s pricing suggestions 90% of the time or more. Training documents encouraged regional rental managers to beware of “‘rogue’ leasing agents who too frequently override” the software’s recommended prices. Rejections would also often trigger outreach from a RealPage pricing advisor, the suit said.
I agree. I'm a capitalist but this seems, effectually, like price fixing to me.
The a few accusations that make this worse, and probably illegal if proven:
- This software doesn't just use public data. It uses the private data of multiple landlords who submit their private/proprietary data to be used by all the competitors.
- The software, and the company's contracts, prevent the landlords from actually deviating from the formula, through a combination of a hostile interface and contractual requirements.
- The software encourages landlords to do non-pricing activity, like taking units off the market, to feed into the algorithm for everyone else.
God I wish I had a magic baseball bat that would let me bash an understanding of what an "ALGORITHM" actually is into people's heads. Of course it was algorithmic. It would have been algorithmic if they'd done it using styluses and stone tablets. fucking. Not the point but christ is this the one thing that drives me nuts above all others.
In this case, "algorithmic" really means "shifting responsibility to a computer".
I had an experience like this earlier this year, when I went to buy a car. There was part of the financing regarding the state Sales Tax that I didn't understand. When I asked their "finance manager" about it, he said that the computer spit out all the numbers and they pay a lot of money for that software so the numbers must be correct.
I almost stopped the deal right there, but I went home and googled the answer, and they were doing it correctly after all. The deal was pretty good so I still bought the car. Still, it amazes me that businesses don't feel the need to promote managers who actually understand finance because "the computer does all the hard math".
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