The Politics of Apartment Rent

Recently a major landlord company in Atlanta was raided by the FBI as part of a nationwide investigation into apartment rent price-fixing. What began in 2022 as a class action suit by renters in several states has now escalated into a national criminal investigation, and is impacting dozens of the largest property owners and managers across the country. A couple of landlords have settled on undisclosed terms, but many others are maintaining a defense. The DOJ, Federal Trade Commission, and several State Attorney Generals are leading the crackdown. The outcome could materially change how property managers and landlords use revenue management software to enhance profits.

At the heart of the class action suit is YieldStar software, owned by a Texas-based company called RealPage. YieldStar is used nationwide for 70%, or 16 million, of available apartment units. The plaintiffs allege the software manipulates apartment pricing, artificially inflates rents, and violates anti-trade laws.

YieldStar is used by apartment managers to help establish apartment rents based on real-time sub-market data. Algorithms incorporate non-public information on price, inventory, and occupancy rates, which are provided by landlords, some of which may be direct competitors in local sub-markets. When determining a lease rate, most property managers will use YieldStar’s pricing guidance in establishing a new lease. Market studies suggest using YieldStar is highly effective in enhancing a property’s ultimate profitability.

Landlords claim YieldStar is also helpful in taking the emotion out of pricing rent. This is pertinent given property managers will often live in the apartment community that they manage. Having an ‘objective system’ counteracts the tendency for personal relationships with tenants to affect discussions on rent prices.

The legal probe comes at a time when homeownership affordability is very low. The decline in affordability can be attributed to many factors. One of the most important is the increase in the home price-to-income ratio. According to the Joint Center for Housing Studies of Harvard University, this ratio has risen from around 3.5 in 2000 to a high of 5.5 today. This makes the purchase of single-family homes materially less affordable in relation to income levels. The rise in mortgage interest from sub-3% to almost 7% is obviously a key driver of the change in affordability. Many aspiring first-time homeowners now face a financial glass ceiling and consequently have no choice but to remain renters.

Plaintiffs in the lawsuit need to prove beyond a reasonable doubt that landlords and RealPage conspired to artificially inflate rents. This could be a very difficult legal hurdle since the availability of the information from the software usage is probably not a sufficient cause on its own. The fact the case has been brought demonstrates the political and economic sensitivity of housing affordability. The general concern about inflation in the US makes the debate around this topic highly relevant to our elections this coming fall.

Gary Martin