MReport November 2022

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TH E M R EP O RT | 51 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT Sen. Brown Seeks FTC Review of Rental Pricing Algorithms In a letter to FTC Chair Lina Khan, Sen. Sherrod Brown urges the Commission to examine whether proprietary rental pricing algorithms may be hurting competition, in violation of antitrust laws. S enator 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 proper- ty 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 United States, using a platform to gain transparency into asset perfor- mance, 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 sup- pressed competition in the hous- ing market. ProPublica recently posted an article, "Rent Going Up? One Company's Algorithm Could Be Why," examining how RealPage's YieldStar software pro- prietary 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. "Renters should have the power to negotiate fairly priced housing, free from illicit collusion and de- ceptive pricing techniques. Recent reporting raises serious concerns about collusion in the rental mar- ket, 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 expe- rienced 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 fam- ily for help with rent, while 12% would consider adding a room- mate 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," Sen. Brown said. "This $300 million acquisition resulted in RealPage becoming the dominant provider of this price optimization software. Since then, rental housing market concentra- tion 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 typi- cal 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 me- dian 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 unafford- able 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 mort- gage 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 work- ing 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 hous- ing 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." "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 bathtub has been clogged for weeks." —Sen. Sherrod Brown, Chair of the Senate Committee on Banking, Housing, and Urban Affairs

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