Whole country, 9% increase in rent Figures for September are on a year-on-year basis. It will be the first time that rent growth has been in his single digits in 2022, up from his 18% rise in March, according to analysis by real estate firm Redfin.
Supply and demand, high mortgage rates and other economic factors are certainly contributing to rising rents. Research by ProPublica It’s rental pricing software owned by real estate tech company RealPage. Here’s what we learned.
How RealPage’s Rent Algorithm Works
The software collects tons of data from clients, many of which are priced in the tens of thousands.Overall, RealPage says its rent-setting algorithm works Lease transaction data Over 13 million units nationwide.
Every day the software will recommend new prices for all available units. To determine the new rate, it utilizes competitor data on rent actually paid by tenants, as opposed to publicly advertised rent.
The use of private competitor data to set prices is one of the concerns raised by experts. The practice could allow RealPage to stifle rental competition, drive up rents nationwide and even violate antitrust laws, they said. Experts say RealPage also sponsors meetings to bring competitors together to discuss pricing, which could also be a warning sign of collusion.
What you need to know about RealPage
1. Landlords use RealPage to make more money. RealPage brags about helping landlords Up to 7% above market — This means that its software users can expect higher than market returns, even in weak markets. Greystar, the largest U.S. property manager, outperformed the market by 4.8% in one recession, according to RealPage data.
RealPage promises streamlined apartment pricing and flexible options for renters, but the real benefits for landlords lie far beyond what most property managers do manually: the software that manages rent. is how much to push up
2. RealPage believes it’s driving up rents nationwide. In a now-deleted video, RealPage executives claim their software will be Double-digit rent increase all over the country. Another executive said most property managers would be hesitant to raise rents by double digits without the help of software.
Let’s take Seattle as an example. In a RealPage-priced building in a downtown Seattle zip code, rent for a couple living in a one-bedroom apartment has risen 33% in his one year. In a non-algorithm-priced building in the same zip code, another tenant’s studio rents rose by only 3.9% over a similar period.
Property managers do not have to accept software recommendations. Feel free to decline if you feel the algorithm is priced too high or too low. But overall, about 90% of the recommendations have been implemented, according to former employees.
3. RealPage discourages landlords from negotiating rent with tenants. One of the developers of RealPage’s pricing software said that lessors are “too empathetic” to renters and may be hesitant to ask for top rents. The software automates the calculation of rent settings and increases revenue for landlords and property management companies.
This may be why RealPage is reluctant to negotiate rent with tenants. Profits seem to skyrocket when you remove the human element from the equation.
4. Critics say RealPage can encourage price collusion among landlords. When RealPage acquired its main price competitor, LRO, in 2017, the Department of Justice’s antitrust division investigated the deal. The merger eventually went ahead, with RealPage doubling his price and a larger cache of data.
Legal experts have expressed concerns that RealPage’s software may foster collusion among its clients where many of them use it to set rents. In particular, the company’s user group, a forum for clients to work together and suggest software improvements, can be an “antitrust red flag,” they say. The group has more than 1,000 of his members and his two subcommittees on pricing, which meet privately at annual meetings.
A few days after ProPublica published its RealPage survey, the tenant filed a lawsuit Nine of the largest U.S. property management companies are alleging they are working together to artificially increase rents, violating federal law.
5. RealPage states that it uses the data in a “legally compliant” manner. The company told ProPublica that it “uses market data aggregated from a variety of sources in a legally compliant manner.”
RealPage says landlords who use employees to manually set prices “usually” conduct phone surveys to verify competitors’ rents, which can lead to anti-competitive behavior. said the company.
“RealPage’s revenue management solution prioritizes the internal supply and demand dynamics of the property itself over external factors such as competitor rents.” company statement “Thus, it helps eliminate the risk of collusion that can arise with manual pricing.”
RealPage’s software also helps prevent rents from reaching affordability by detecting seasonal declines in demand and responding by lowering rents, according to a statement.
Other reasons for high rent
RealPage’s software influences rental prices in markets across the country, but it’s not the only factor driving up rents. Here are a few other things that help explain why rent is so high.
1. Private Equity Owned Rentals: Since 2011, the number has steadily increased. Rental units owned by private equity backed companies, according to a ProPublica report. These property management companies aim to increase short-term profits by raising rents, cutting costs, or both. By 2021, more than half of the top 35 condominium owners will private equitypossibly contributing to rising rents across the country.
2. High cost of buying a home: In the years following the Great Recession, property prices in many markets rose sharply. Recently, the average interest rate on his 30-year fixed-rate mortgages in the US has skyrocketed. >7% — Almost double this time last year. Both trends are slowing home buying and pushing up rental demand and prices.
3. Slow and expensive construction: Supply chain issues are slowing home construction and reducing the supply of rental properties as demand increases. As inflation affects all sectors of the economy, labor and material costs are rising, making it difficult for people to build affordable housing. The country has fallen behind in building the new housing units it needs in most years since the Great Recession.
4. Supply and demand: As more people are forced to rent, there simply aren’t enough rental units, especially in some markets that have seen an influx of new renters during the pandemic. As rental competition increases, prices will rise.