Landlords Are Coordinating Rent Hikes With Algorithms

A ProPublica investigation reveals that a software called Yieldstar is helping landlords set rents, potentially leading to higher than average rent spikes. Deployed by a Texas-based company called RealPage, the program uses market data to suggest rent prices for open units. ProPublica found that in some markets, a reliance on the software by groups of landlords was distorting the market. The investigation found one neighborhood in Seattle where 70% of properties had their rents set by Yieldstar. Executives have boasted in front of a convention audience that the software was responsible for driving a 14.5% rent increase, and had written on its website that it can help people “outperform the market by 3% to 7%” – a claim that has since been scrubbed.

Even early in the pandemic when tenants were fleeing cities, Yieldstar clients insisted on higher rents, and companies using Yieldstar were encouraged to keep units vacant while waiting for a higher offer. Some analysts told ProPublica that the software’s wide adoption could lead to landlords coordinating prices and what the outlet described as “a new kind of cartel.”

The software’s developers touted its depersonalization of setting rents. But the deployment of a cold algorithm is only part of the problem - if groups of landlords are operating in lockstep, they can raise market rates more than if they were in competition.

New York City Has Over 60,000 Vacant Rent-Stabilized Units

New York City has a homeless shelter system bursting at the seams; there were 64,890 people in city shelters on October 13, according to a tracker run by City Limits. Yet amid a shortage of affordable housing and a low vacancy rate, many New Yorkers might be surprised to learn that over 60,000 rent-stabilized units are currently being held off the market. In fact, for months, the landlord lobbying group Community Housing Improvement Program (CHIP) has defiantly proclaimed that its constituents own 40,000 vacant units in its roster, claiming these vacancies had outstanding maintenance costs that could not be recouped due to 2019 rent reforms that made it harder to raise rents on rent-stabilized tenants.

A memo uncovered by the news outlet The City reveals that there were 61,593 vacant rent-stabilized units - a dramatic increase of 33,667 in the year before. The estimate is higher than the 42,860 documented in New York’s vacancy survey last year. The outlet also parsed claims that landlords were leaving apartments vacant because they were too expensive to maintain. They found that vacant rent-stabilized units had a median monthly rent 49% higher than the median rent of all stabilized units. According to The City, “Apartments vacated after 2019 would bring in more revenue for landlords than the typical stabilized apartment, not less.” Most of the city’s rent-stabilized apartments are owned by landlords with 1,000 or more units, according to JustFix.

A caveat about the data is that the city’s overall vacancy rate in 2021 was inflated due to the pandemic, but the memo shows the vacancy problem has only grown. Landlords in NYC do not face any kind of penalty for leaving units vacant, and large landlords can still make a profit off of vacant housing stock by borrowing against the equity of all the buildings in their portfolio.

Rent Is Driving Inflation, Report Says

A new report released Oct. 13 by Groundwork and the Homes Guarantee campaign shows the extent to which rent is driving inflation. The Federal Reserve has repeatedly raised interest rates to curb inflation, despite the fact that such increases lead to rent spikes, and rent accounts for nearly a third of the Consumer Price Index, the government’s inflation barometer. Rents rose 7.2% year over year in September, the largest increase in 40 years, the report found.

According to the report, “The Federal Reserve’s aggressive interest rate hikes are designed to make the cost of borrowing more expensive, resulting in higher mortgage rates and fewer new houses being built. As the cost of buying a house becomes more expensive, potential homebuyers shift into the rental market when there are already too few rental units to meet our needs – putting even more upward pressure on rent prices.”

The report authors call on the president to implement rent controls on units with federally-backed mortgages, which amounts to 43.8 million rentals.

Roshan Abraham is Next City's housing correspondent and a former Equitable Cities fellow. He is based in Queens. Follow him on Twitter at @roshantone.