ProPublica’s Investigation Into RealPage’s YieldStar Software Shows That Algorithms Aren’t All That

Just reading the story is a jaw-dropper: ProPublica, the online independent, nonprofit newsroom that “produces investigative journalism with moral force” is saying that Richardson-based RealPage is using proprietary algorithms to help landlords raise rents, turn profits, and basically screw renters out of affordable housing.

The algorithm, dubbed YieldStar, uses several strategies. According to the ProPublica report, one of them is to actually keep some apartment units empty: “RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.”

The program is also built to discourage renters from staying in units longer for a lower rent, instead making them move to different units. Additionally, ProPublica’s report conveys that RealPage advises landlord reps not to have one-on-one meetings with tenants because ostensibly they may actually empathize with them.

YieldStar is Extremely Popular

The report from ProPublica is incredibly juicy because RealPage has about 32,000 customers across the U.S., including several major apartment development and management firms with properties in Dallas-Fort Worth, and they may be breaking anti-trust laws.

Affordable housing is one of the hottest topics on earth right now, mostly because of the lack of it. We know better than most: We have been tracking real estate prices here at CandysDirt.com for more than a decade.

From underwater properties to squatters, we have watched the average price of a home in Dallas-Fort Worth — still considered the home of affordable housing, by the way — inch toward $400,000 as affordability trickled away. And rents? You could once rent a one-bedroom, one-bath apartment in Dallas for around $880 per month. Now that has jumped to more than $1,200.

Of note, too, is the proliferation of apartments being built in Dallas — more than any other U.S. city. And yet, last week at the National Association of Real Estate Editors’ annual conference in Atlanta, we were told the U.S. still needs more apartments — like 4 million more.

Who Funded The ProPublica Report?

But now a word about ProPublica. Without advertisers, online news organizations can claim independence from influence. So how does this website pay the bills? Donations from the Sandler Foundation, the Knight Foundation, the MacArthur Foundation, Pew Charitable Trusts, the Ford Foundation, the Carnegie Corporation, and the Atlantic Philanthropies, among others just writing tax-deductible checks.

The Sandler Foundation just poked a neuron in my old brain as it sounded familiar. Years ago, my son got a summer internship at a place called World Savings in San Antonio. World Savings Bank was the superstar lending conglomeration of Golden West Financial Corporation, a firm started in 1963 by Herbert and Marion Sandler, Herb being NY-born and a product of Columbia Law School.

Golden West grew into one of the largest thrift institutions in the U.S., with assets of approximately $125 billion, deposits of $60 billion, and 12,000 employees (including my son one summer), according to Wikipedia. The firm’s growth was so amazing media and admirers gushed it was “one of the most efficient and productive money machines on the planet.” Periodicals such as Fortune worshipped it, and the Sandlers were slapped on covers as poster stars for success.

However, Golden West was also blamed as the firm that caused the housing collapse of 2006, or at least “instituted borrowing practices that were largely blamed for the housing market collapse.”

So the Sandlers made $2.4 billion selling Golden West to Wachovia, another bank that no longer exists, and then gave $1.3 billion to the Sandler Foundation.

Maybe they just felt guilty that they had created a monster. The Sandlers helped found and support the Center for Responsible Lending, the Center for American Progress, ProPublica, and also the American Asthma Foundation, trying to do good out of evil, I guess. I think it’s important to look at this story from this framework.

Apartment Rent Reckoning

Now renters in California have filed a class-action lawsuit against RealPage, as well as Dallas-based Lincoln Property Company and other huge multifamily corporate landlords: Greystar Real Estate Partners, Mid-America Apartment Communities, FPI Management, Equity Residential, Avenue5 Residential, Thrive Communities Management, and Security Properties. Those brands own a hefty proportion of the multifamily rental properties in North Texas.

So what does this all mean? First of all, maybe algorithms aren’t all they are cracked up to be. They have been used — and gushed over — in real estate for quite some time now: Zillow’s famous “Zestimates” are created via algorithm and they’re being used more in appraisals.

In fact, a new era of fighting faulty algorithms is at its dawn, with groups now doing algorithm audits to fight bias in widely deployed artificial intelligence systems. If only there were groups such as the “Bias Buccaneers” able to tackle the issues that plaintiffs allege YieldStar caused, including a meteoric rise in rent that keeps affordable housing outside the realm of reality.

But how do you slow the tide of algorithms and AI in a housing market that is teetering on the brink, and with a nation with an affordable housing crisis that is as pervasive as it is widespread? The temptation is strong to feed data into a computer program and wait for it to work miracles.

Except it doesn’t.