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Sen. Brown Seeks FTC Review of Rental Pricing Algorithms

Sen. Sherrod Brown, Chair of the Senate Committee on Banking, Housing, and Urban Affairs, has sent a letter to Lina M. Khan, Chair of the Federal Trade Commission (FTC), to urge the FTC to review property owners’ and landlords’ use of price optimization software like RealPage’s YieldStar and its AI Revenue Management software to set rental prices.

Founded in 1998, Richardson, Texas-based RealPage’s YieldStar software helps landlords set prices for apartments across the U.S., using a platform to gain transparency into asset performance, leverage data insights, and monetizing space to create incremental yields.

Sen. Brown’s letter to the FTC was in response to recent reports that RealPage’s software algorithm inflated rental prices and suppressed competition in the housing market. ProPublica recently posted an article, "Rent Going Up? One Company’s Algorithm Could Be Why," examining how RealPage’s YieldStar software proprietary algorithm may be hurting competition.

In the letter, Sen, Brown asks the FTC to “review the current use of price optimization software employed by property owners to set rents.”

“According to recent reports, the collection and use of rent data in price optimization software is allowing for anticompetitive and potentially unlawful collusion among competitors at the expense of consumers,” Sen. Brown wrote in the letter to the FTC. “Renters should have the power to negotiate fairly priced housing, free from illicit collusion and deceptive pricing techniques. Recent reporting raises serious concerns about collusion in the rental market, and the FTC should review whether rent setting algorithms that analyze rent prices through the use of competitors’ private data, such as YieldStar, violate antitrust laws.”

A recent study from Grubb Properties found that 51% of young renters reported they experienced a rent increase in the past year, with an average increase of 30%. Of these renters, 7% said they had the resources to cover the increase without changing their lifestyle. The remaining 93% plan to or have already taken action, most notably cutting back on extra purchases (54%), looking for a new job or side gig (39%), and looking for a new place to rent or live (35%). Almost one in four (22%) said they'd consider using their credit cards to cover the rent. Roughly one in five (17%) would consider asking a friend or family for help with rent, while 12% would consider adding a roommate to help defray costs, and 7% would consider selling their car.

“In 2017, RealPage, a provider of price optimization software, acquired their main competitor, Lease Rent Options from The Rainmaker Group,” said Sen. Brown in the letter. “This $300 million acquisition resulted in RealPage becoming the dominant provider of this price optimization software. Since then, rental housing market concentration has increased and RealPage’s influence has only grown.”

Further impacting renters in their pursuit of homeownership, homebuyer affordability further dipped in September, as the national median payment applied for by applicants increased 5.5% to $1,941 from $1,839 in August, according to the Mortgage Bankers Association's (MBA) Purchase Applications Payment Index (PAPI).

“Homebuyer affordability took an enormous hit in September, with the 75-basis-point jump in mortgage rates leading to the typical homebuyer’s monthly payment rising $102 from August,” said Edward Seiler, MBA's Associate VP, Housing Economics, and Executive Director, Research Institute for Housing America. “With mortgage rates continuing to rise, the purchasing power of borrowers is shrinking. The median loan amount in September was $305,550–much lower than the February peak of $340,000.”

A recent Point2 analysis found that a spike in the fixed-rate mortgage (FRM) also took a large bite out of renters’ already limited buying power in the nation’s most expensive markets, with entry-level homes remaining unaffordable for renters in the majority of large U.S. cities. In San Francisco, for example, the average renter household made $100,715, but the amount a first-time buyer would need to comfortably cover mortgage payments was $251,190. This means that San Francisco renters are $150,475—or 60%—short of obtaining homeownership.

Sen. Brown has long fought to protect consumers and working families from bad actors in the housing market. In August, the U.S. Senate Committee on Banking, Housing, and Urban Affairs, held a hearing entitled “The Rent Eats First’: How Renters and Communities are Impacted by Today’s Housing Market” to better understand the challenges renters are facing in the housing market.

“The huge shortage of housing means that renters have to make do with what they’ve got–even if their house has dangerous lead paint on the walls, or the landlord won’t fix the heat, or their bath tub has been clogged for weeks,” said Sen. Brown during the August hearing. “And with housing so tough to find, renters are forced to ask themselves whether it’s worth it to push for a repair from the same person who can put an eviction on their record and decide whether they have a place to sleep at night.”

Click here to read the article from ProPublica, and click here to read the letter from Sen. Brown to the FTC.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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