23 hours Ago By Serah Louis
Canadian officials are concerned about YieldStar, a controversial software that recommends to landlords that is currently the subject of a government lawsuit in the United States. In Canada, federal Minister of Innovation, Science and Industry said the government would launch an investigation into the allegations around price-fixing in the writing a letter to commissioner Matthew Boswell. Champagne’s letter followed repeated calls from the New Democratic Party to investigate the presence in Canada of YieldStar.
So what is YieldStar, and what could it mean for Canadians? YieldStar is an algorithmic software owned by Texas-based RealPage Inc. that generates apartment pricing recommendations for landlords by reviewing market surveys, unit types, pricing categories and availability. RealPage said it leverages real-time lease-transaction data in order to respond to changes in supply and demand.
On its website, RealPage said the software can help landlords outperform the market by three to seven per cent. Critics, however, say the algorithm is perpetuating anti-competitive behaviour among landlords and driving up prices for tenants. The U.
S. Department of Justice (DOJ) filed a civil antitrust lawsuit against RealPage in August, alleging the company’s “algorithmic pricing scheme” undermines competition among landlords and harms “millions of American renters” through its algorithmic pricing software. The DOJ claimed RealPage contracts with competing landlords who agree to share “non-public, competitively sensitive information about their apartment rental rates and other lease terms” to run the software.
The DOJ lawsuit claimed landlords are submitting competitively sensitive information to RealPage on a daily basis, including their rental prices from executed leases, lease terms and future occupancy. This information gets fed into the algorithm, which then generates pricing recommendations. The complaint also mentioned RealPage encourages loyalty to the algorithm’s recommendations through its “auto accept” functionality and pricing advisers that monitor landlords’ compliance.
The department alleged that “(this) software allowed landlords to effectively operate like a cartel and that everybody understood what was going on here,” said David Wachsmuth, an urban planning professor at McGill University in Montreal, who also contributed research toward the original antitrust case against RealPage, filed by the District of Columbia in 2023. Although the complaint said RealPage had plans to sunset its YieldStar software by the end of the year, RealPage spokeswoman, Jennifer Bowcock, in an email said, “We have no plans to sunset any of our revenue management software solutions — our customers still find value in them.” Bowcock added, “We are disappointed that, after multiple years of education and co-operation on the antitrust matters concerning RealPage, the DOJ has chosen this moment to pursue a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years.
” She said RealPage has a history of working with the DOJ to ensure its revenue management software is legally compliant and that the department’s claims are “devoid of merit.” “We intend to vigorously defend ourselves against these accusations.” McGill’s Wachsmuth explained that landlords would traditionally operate in a way that balanced the tension between raising rents too high with increasing tenant evictions and subsequent vacancies.
In a competitive market, landlords want to have more “heads in beds.” However, the DOJ said RealPage encouraged landlords to be more aggressive with rental rates and renewals, since their competitors were operating in the same way, and it would maximize their overall revenue. In fact, RealPage referred to its products as “driving every possible opportunity to increase price,” “avoid(ing) the race to the bottom in down markets,” and “a rising tide raises all ships,” the DOJ complaint states.
Edward D. Rogers, partner in U.S.
law firm Ballard Spahr LLP’s antitrust and competition practice, emphasized that using an algorithm is not inherently evil; it’s a question of how it is being used. Rogers said the allegations against RealPage are unique because it has been accused of collecting proprietary pricing information, as opposed to publicly available information, and allowing that information to be shared with the effect of raising prices across the board. “People pay substantial subscription fees to get access to that data,” Rogers noted.
“The legal theory, that intuitively makes sense, is that whatever it is that RealPage is offering is worth something or people wouldn’t pay those subscription fees or turn over their proprietary information.” In a March discussion paper, the Canadian Competition Bureau noted, “concern may arise if multiple competitors purchase or use the same AI technology from a third-party supplier.” The bureau explained that AI can lead to greater market transparency and competitor interactions, allowing for greater ease in detecting competitor price changes and responding with price adjustments.
“A supplier of AI may leverage the technology to facilitate a cartel agreement amongst horizontal competitors who it supplies to, known as a ‘hub-and-spoke’ arrangement.” YieldStar isn’t just limited to the United States — it’s being used in Canada, too. What isn’t clear is whether the software is a common tool among major Canadian landlords, Wachsmuth explained, adding that if just one or two landlords are using it, it won’t have a major impact on the market.
Bowcock said that RealPage’s presence in Canada is “fairly low,” with one per cent of apartment units using its software. GWL Realty Advisors Residential Inc. (GWLRA), a property management company that is a division of The Canada Life Assurance Co.
, used YieldStar for years, stating it was the first Canadian landlord to implement this new software in its Ontario portfolio in its 2017 annual review. RealPage reported that same year that GWLRA apartment buildings that used YieldStar outperformed a control group by up to four per cent in rental revenue, “even in the slow winter months.” However, GWLRA said recently that it had decided to terminate its use of YieldStar.
In a 2023 podcast episode on Toronto Under Construction, Nick Macrae, senior vice-president, head of investments at Woodbourne Capital Management International LP, acknowledged the company’s use of Rhapsody Property Management Services LLP, which he noted used YieldStar software. Rhapsody is the Canadian arm of Pinnacle Property Management Services LLC, a real estate provider that specializes in third party management of multifamily residential communities in the United States. “Rhapsody was specifically built to manage new buildings in Canada and (leverage) U.
S. management practices,” said Macrae in the episode. “We use a piece of software called YieldStar, which is, you know, table stakes in the U.
S., but relatively unique in Canada.” Macrae said the pricing recommendations are “really, to optimize (net operating income), which is different than maximizing occupancy.
” On its website, Rhapsody lists its relationships with nine other developers and investors, outside of Woodbourne. These include RioCan Living (the residential brand of RioCan Real Estate Investment Trust), Choice Properties Real Estate Investment Trust, Tribute Communities, The Rockport Group, EDGAR Development Corp., First Capital Real Estate Investment Trust, TAS Impact, Core Development Group Ltd.
and Dream Unlimited Corp. Most of these companies, including Rhapsody, did not respond to requests for comment. Tribute’s chief financial officer, Gus Stavropoulos, acknowledged Rhapsody as a property manager and its use of YieldStar software for two of its buildings in September, but said at the time he did not know anything about the litigation in the United States or Rhapsody’s plans.
According to a document obtained by the Financial Post, the property manager at 22 John St., a building owned by Dream Unlimited, acknowledged using YieldStar as well. The affidavit originated from a case at the Ontario Landlord and Tenant Board over a rental strike at 22 John St.
and 33 King St., another building owned by Dream, organized by the York South-Weston Tenants’ Union. The 16-month strike, which recently ended with both parties coming to an agreement, was triggered by above-guideline rent increases.
Krystal Koo, a Dream spokeswoman, said in an email that Dream has never subscribed to YieldStar. “To help oversee its buildings, Dream engages property managers, including a property manager that has in the past used YieldStar as one of many inputs into its pricing recommendations.” Koo said Dream instructed this property manager in September to discontinue its use of YieldStar and noted that property managers can only recommend prices, not set them.
“At Dream, our pricing decisions have always been made solely and entirely by our management team based on our analysis of publicly available data and information specific to our buildings.” Chiara Padovani, co-chair of the York South-Weston Tenants Union, said the union has created a database listing 100,000 units across Canada operated by landlords that their research suggests are likely using YieldStar. Padovani said this database would be released sometime this month.
“Algorithmic pricing isn’t necessarily a new phenomenon in Canada,” said Viet Vu, who leads economics research at Toronto Metropolitan University’s public policy think tank, The Dais, pointing to airline pricing models as an example. “But it’s possible that more Canadians are now recognizing the fact that perhaps companies have a bit more control over how they price (their goods) and are using their information about consumers in ways that might not always be advantageous to Canadians.” Algorithmic pricing is more common among industries that see variability in demand, such as in travel and tourism-related industries that are impacted by seasonality, he noted.
However, in the rental industry, it’s less of an algorithmic pricing issue and more of an anti-competitive issue that is being raised, he said. “It is, unfortunately, sort of an emerging area, where we’ll likely have to rely on case law and examples of people bringing up specific litigation to form an understanding of how to interpret each specific case.” Rogers said the impact of the DOJ’s lawsuit against RealPage could be “potentially very significant” and instructive to other industries using similar pricing software.
The Canadian Competition Bureau announced in July that it would be advancing an investigation into Kalibrate Canada, a subsidiary of U.K.-based Kalibrate Technologies Ltd.
and a fuel and convenience retail analytics company, to determine whether its products have an adverse impact on competition between gas stations. Court documents obtained by the National Post revealed that the bureau believes Kalibrate collects pricing, cost and output information from gas stations across the country and then uses “artificial intelligence, machine learning, algorithms and bespoke consulting services” to offer “pricing guidance” to gas station operators. The concerns around Kalibrate sound similar to the DOJ’s allegations against RealPage, said Vu.
“In a truly competitive environment, you aren’t supposed to have inside information about your competitor,” he said. “You should not be able to pool your information together to co-ordinate how you’re going to behave together, as a collective.” Kalibrate denied that it is engaging in any conduct that is in violation of the Competition Act, while the Competition Bureau has said there’s been no conclusion of wrongdoing at this time.
Bureau spokeswoman Anna Maiorino also told the Financial Post in an email she could not confirm whether the bureau was or would be investigating any alleged price-fixing and collusion by corporate landlords using YieldStar due to confidentiality reasons. “The Bureau must conduct a thorough and complete examination of the facts regarding any issue before reaching any conclusion as to whether the Competition Act has been contravened,” she wrote. “If we find evidence of activities that could raise concerns under the law, we will take action.
” “It’s an uncontroversial thing to say that Canada has a housing crisis,” Vu noted, adding that one of the consequences of the collusion alleged by the DOJ is that higher prices could be increasing the vacancy rate of rental units in the United States. “We can’t afford any sort of anti-competitive pricing that means houses go empty without tenants living in them just to ensure landlords can collect as much money as possible.” The latest data from Rentals.
ca indicated the average asking rent in Canada has surged by nearly 20 per cent compared with pre-pandemic levels five years ago. Dania Majid, a staff lawyer at the Advocacy Centre for Tenants Ontario, agreed that YieldStar’s presence in Canada could exacerbate an already existing problem. “We have been experiencing a trend of an influx of financialized landlords (financial firms that buy homes as investments) coming into the residential real estate markets for probably the last 10 to 20 years, but I would say the last 10 years has been most acute,” Majid said in September.
Martine August, a professor and housing expert at the University of Waterloo, noted in a 2022 report that financial firms make up 17 of the top 25 largest landlords in the country, with the largest financial firms alone holding over 344,000 suites. August said this is equivalent to about 20 per cent of Canada’s purpose-built rental housing stock, but added these figures are likely underestimates. Majid said financialized landlords are “not in the business of providing housing, per se,” but are using residential real estate to generate profits.
“YieldStar just becomes a tool for these actors, whether they be in big centres or small centres, to then just be able to set the rent automatically without having to punch any numbers themselves.”.
