Kelly Kenoyer: OK Ben, we’ve received a lot – like, a lot a lot – of emails and calls about rent over the last couple of years. But one listener sent us an email that was so frustrated, and yet so concise, that it really takes the cake. They wrote, and I’m reading verbatim here, “why is my rent so f–king high.”
Benjamin Schachtman: Well, that certainly wasn’t the only comment we’d need to bleep – but, ok, let’s get into it. Why is rent so high?
K: Let me guess: is it Capitalism?
B: Capitalism is definitely involved — but we should say, it’s complicated. Part of the recent increase in rents has to do with the basic economic principles of supply and demand, and the phenomenon of filtering – which you’ve reported on quite a bit, Kelly – where the lack of higher-end options pushes consumers into less expensive markets, increasing competition there.
K: Yeah! It’s like musical chairs, only instead of falling on the floor, you fall out the bottom of the housing market and end up homeless. Basically, when there’s not enough luxury units, rich people start renting or buying regular units. That pushes middle-class people into low-end units, which then get to raise their rents, and it pushes the working poor out of housing altogether.
B: We’ll have a link to our trip to the used-car lot to help round this idea out if you want to know more.
K: OK, so there’s filtering. But you’ve been looking at another potential driver of rent increases.
B: Yes. So, strap in, because it’s time for the Ballad of Yieldstar.
Music: Early 16th Century Venetian Lute Music, Paul O'Dette
K: Ooh, a ballad. So who’s the main character of this bawdy tale?
B: Yieldstar is the brainchild of Jeffrey Roper – back in the 80s, he helped develop software that allowed airline companies to more effectively set flight costs. Roper worked for Alaska Airlines, but multiple other airlines also apparently used this or similar software and, by the end of the 80s, this had effectively created a price-fixing cartel. It’s estimated that between 1988 and 1992 this could have cost consumers over a billion dollars in artificially inflated prices.
K: Isn’t that… illegal?
B: The DOJ thought so. Alaska Airlines, along with Delta, American Airlines, and others eventually settled with the feds — and Roper spent some time in Eastern Europe. But when he came back, he set his sights on the real estate market. He brought the same software model he’d used on airlines to corporate landlords.
K: And thus, YieldStar was born!
B: Indeed. A software program that uses public and private rental data to suggest the most effective rents.
K: Effective meaning…what?
B: Ok, so, traditionally, landlords set rents based on a number of local factors — but the basic philosophy is that an empty unit is lost money. So they negotiate with tenants to keep them from leaving. Rents still go up, but there’s a give and take.
Not so with YieldStar – which recommends rate increases that will definitely cause some tenants to leave. But it’s calculated to still be profitable because, yes, there will be some empty units, but they’ll be filled eventually, and with tenants who are paying much more. So, YieldStar basically eliminates negotiations – landlords don’t have to budge because the software gives them the confidence that if a tenant walks, they’ll be okay financially.
K: So bringing this back to filtering, they’re jacking up the rents because there are plenty of higher-paid residents who can afford those higher rents. But I think what we’re also seeing is landlords pushing existing tenants to the brink — a lot of people are unable to find anything they can afford, so they’re taking on extra jobs to try and cover the $200 increase in their rent.
B: Exactly. So, over the last twenty years, YieldStar — which is now owned by a company called RealPage — has made its way into use by corporate landlords controlling about 8% of the market. When Congress looked into this, they found evidence that this software could be acting as a price-fixing cartel, just like with airlines in the late 80s.
K: And I’ve gotta be honest, the stakes are a little higher for people with the housing market. If plane tickets are pricey, you can skip that vacation. You can’t just skip renting a place to live. So… are the feds investigating?
B: After some really great reporting from ProPublica last year, it seems like, yes, they’ve been looking at the issue. And just this spring there’s been some added pressure, including from Senators Bernie Sanders and Elizabeth Warren, for the DOJ’s anti-trust division to look at it. In a joint letter, Warren, Sanders, and two other senators voiced serious concerns. They conducted their own investigation to follow-up on the Pro-Publica reporting, and came away with the same bottom line — in some places where there’s a concentration of corporate landlords using YieldStar, and RealPage, the software is driving brutal rent increases above and beyond what the market would otherwise support.
K: So, to our listener’s question — is that happening here in our area?
B: Well, ProPublica’s reporting showed that Greystar — the country’s largest property manager — used Yieldstar. And Greystar has at least four major apartment complexes in Wilmington, one in Leland, and one on the way in Castle Hayne as that part of the county develops. Bell Apartments, which has a few complexes in our area too, didn’t respond to our requests for comment — but we found they do use RealPage, that’s the company that now owns Yieldstar, for their third-party vendors. So it wouldn’t be surprising if they used RealPage’s other services, like rent-setting software. Hawthorne Living, which has complexes all over the area also declined to answer our question — but last summer, the company rolled out aggressive rent hikes. I know this because my own rent went up almost $200.
K: Yikes.
B: And, I wanna say, if Hawthorne doesn’t use YieldStar it goes to another important point here. Again, RealPage’s rent setting software is used for less than 10% of units nationwide, according to a Congressional report. But that’s enough to push rents in many other units up — if a company, or even private landlord, can see the average rent is increasing, with YieldStar leading the way, they can follow suit and tell their tenants, ‘this is what the market supports.’
And I can say, I’ve lived at Hawthorne properties for a decade. Up until a few years ago, I was able to negotiate my rent every year — sometimes there was no increase at all, because I had a good rental record, didn’t cause trouble, didn’t bug maintenance, etc., and all that. When my rent did go up, it was a $50 increase.
That’s absolutely changed. Now there’s no negotiations, no wiggle room, just staggering rent hikes.
And that’s because this software is helping landlords squeeze tenants as hard as possible — and the filtering effect is helping them feel justified, by shifting more affluent renters down in the market where they can pay more.
K: So that’s why the rent is so high?
B: Yup. I know it’s not a satisfying answer, especially for renters who are being pushed to the breaking point, but yes, that’s why the rent is too high.
K: Well, thanks Ben, and if listeners have other — maybe less depressing — questions, you can send them to staffnews@whqr.org.
