Are some rents in Canada part of a price-fixing scheme?

Cynthia Black believes her rent has been rigged.

Since 2022, the Toronto resident says she has twice faced annual rent increases of either seven or 11 per cent depending on the lease type her household was offered in two Livmore buildings owned by GWL Realty Advisors, a division of Canada Life.

The buildings were constructed after 2018, which means they are exempt from Ontario rent controls, which are currently set at an annual increase of 2.5 per cent.

"The hikes have never made any sense. And when myself and other tenants sat down and asked [GWLRA] to please stop raising rents so high, they told us they use software called YieldStar to help determine our rents," she told CBC's The National.

Black had never heard of YieldStar and says she didn't think much of it.

"I wasn't able to negotiate my rent in any way," Black said.

But in June, she says, YieldStar came up again only this time it was in the news, as the FBI was investigating the company that owns it, RealPage, and landlords who use it for alleged collusion, price-fixing and artificially inflating rents across the U.S.

That investigation ultimately led the U.S. Department of Justice to announce a lawsuit against RealPage this past August. In a statement, the DOJ said, "Americans should not have to pay more in rent simply because a company has found a new way to scheme with landlords to break the law."

The DOJ says YieldStar allows landlords to use "mathematical algorithms to align their rents."

The DOJ further alleges the software is developed and sold to allow landlords to "sidestep vigorous competition in the market. Competing landlords agree to submit to RealPage, on a daily basis, their most sensitive, non-public information, including rental rates, lease terms and projected vacancies. The algorithm then takes that information and sends real-time pricing back to competing landlords."

According to RealPage promotional material, "by leveraging real-time lease-transaction data, YieldStar monitors price shifts daily, providing greater precision for optimum pricing."

Black told CBCNews she was furious when she realized what was happening.

"How dare my landlord be using this software that's under investigation for price-fixing in the States," she said.

Software used in Canada since 2017

When CBCfirst approached GWLRA which owns thousands of properties across Canada in early October to learn more about its use of YieldStar, the company would not respond to questions about the software. GWLRA did, however, emphasize that it has only raised rents at a rate of 3.5 per cent per year, on average, across its real estate portfolio.

But toward the end of October, the corporate landlord reached out to CBCwith an email statement, saying, "Following an internal review, GWLRA has decided to terminate the use of YieldStar."

GWLRA did not respond to CBC questions about why this decision was made.

Cynthia Black remains concerned about the rent increases that have already happened. She and others in her building have also been part of a red flag protest hanging flags off their balconies in order to warn tenants about the rent hikes.

"We still need an investigation," she said.

Black is one of more than a hundred tenants from different buildings who have called on Canada's Competition Bureau to investigate the use of YieldStar in Canada, worried landlords are using it to artificially inflate and price-fix rents in this country.

Black and other tenants also flagged their concerns to local MPP Bhutila Karpoche, who then researched the issue.

Karpoche says she found YieldStar has been used in Canada since at least 2017, and that average rents were higher in buildings that used the software. She believes the issue is widespread across Canada.

"What we're seeing is that in the non-rent-controlled units where YieldStar is being used, the rents are increasing at a very rapid rate," she said.

She also pointed to RealPage marketing material from 2017 that highlighted a pilot project in Canada where buildings that used YieldStar outperformed a control group by up to four per cent in rental revenue, "even in the slow winter months."

"We need to see swift action here, because it appears laws have possibly been broken. Collusion, price-fixing and restraint of supply to the market are crimes set out in the Competition Act and if found guilty, these landlords could be facing criminal charges," said Dania Majid, a lawyer at Advocacy Centre for Tenants Ontario.

"This is all very similar to what we saw with the bread price-fixing a few years ago," Majid said, referring to efforts by several of Canada's major grocery retailers to artificially inflate the price of packaged bread over the span of 14 years.

Rent increases 'can feel crippling,' says tenant

GWLRA acknowledged using YieldStar in an annual review from 2017: "We now use an algorithm rather than human effort to leverage real-time pricing strategies that balance shifting supply and demand factors."

In its lawsuit, the FBI alleges that landlords are able to use Yieldstar to share otherwise confidential information about rents and vacancy rates for the purpose of maximizing the price that is charged for any given apartment.

Majid said the sophistication of the technology shouldn't distract from what's actually going on.

"It's not much different than if these competing landlords were all sitting around a table discussing how to set prices, which would be clearly considered collusion. But in this case, the software is the table," Majid said.

A day after CBC's The National aired its segment about the alleged use of Yieldstar in Canada, federal Minister of Innovation Franois-Philippe Champagne said the government will launch an investigation into theallegations around price-fixing in the rental market.

"It is completely unacceptable what we have seen. I am going to write to the competition commissioner today to launch an investigation," Champagne said during Question Period on Thursday

His comment was in response to a question from NDP MP Bonita Zarrillo, who asked, "Will the Liberals support an investigation into the use of AI in rent fixing and protect Canadians from illegal rent gouging?

RealPage says U.S. DOJcase 'devoid of merit'

In a building with no rent controls, such as the Livmore where Cynthia Black lives, rents can be raised without limit on a yearly basis. Use of this technology could also have a greater impact in provinces with limited rent controls.

In an email, GWLRA told CBC "when compared to peer properties in Toronto, rent prices at Livmore High Park reflect current market demand in this highly desirable community."

In an email to CBC, a spokesperson for RealPage denied all FBI allegations, saying "we believe the claims brought by the DOJ are devoid of merit" and that the company intends "to vigorously defend ourselves against these accusations."

The spokesperson also said RealPage's presence in Canada is "fairly low." The company also said it is "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."

Ketan Khanna lives in West22, a building owned by another Canadian landlord, Dream Unlimited.

Khanna is among the renters who filed a complaint to the Competition Bureau after he learned the property manager of his building, Rhapsody Living, had been using YieldStar. Tenants of West22 which was also constructed after 2018 and thus exempt from provincial rent controls have also had red flags hanging from their balconies for the past year.

"The rent increases here can feel crippling," Khanna said, who moved into his unit in 2022.

As of Nov. 1, he says the rent for his one-bedroom unit will be $2,568 per month, up from just over $2,344 in 2022. In Toronto, the average current rent for a one-bedroom is $2,402, according to Rentals.ca.

Dream has never subscribed to YieldStar.

In a statement to CBC, Dream said it engages property managers to help oversee its buildings, including one property manager that has used YieldStar. It told CBC it instructed this property manager to "discontinue its use of YieldStar" in September.

CBC reached out to Dream's property manager Rhapsody Living which appears to manage more than 5,000 units across Canada and asked if it is still using YieldStar. The company did not respond in time for this story.

Dreamsaid "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." The company denies that rent prices were in any way impacted by the software.

Financialization of rental housing

Majid said that in Canada, like other parts of the world, residential real estate has become "completely commodified."

"That's why tech like this really can't go unchecked," she said.

Majid says that as financialized landlords own an increasingly larger share of the rental market, technology that helps them maximize profit is inevitable, but also worrisome.

Dr. William Strange, a professor of economic analysis and policy at the Rotman School of Management, doesn't think the concept of rental software is inherently bad, saying it's technology "that helps assets perform better."

He believes the software makes sense for investors in Canadian real estate, who have traditionally found it challenging to understand the competition and get a full picture of the rental market.

"If we see a company using expert systems to do its business better, we don't usually see a problem with that," he said. "If we talk about housing, there are lots of suppliers and usually, if you've got lots of suppliers, you don't have to worry about colluding."

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Metro Morning host David Common spoke with Michael Brooks, CEO of the Real Property Association of Canada (REALPAC), about investment real estate firms.

But he said he agrees with Majid's assessment of the use of YieldStar.

"If [grocers] Longos and Loblaws started using technology that allowed the others to see what they were charging, that could be considered collusion. And unfortunately [YieldStar] seems to possibly have built-in collusion," he said.

In the email to CBC News, RealPage said its "revenue management software is purposely built to be legally compliant."

In a statement to CBC News, Canada's Competition Bureau said "protecting competition in the real estate industry is a priority for the bureau." It did not say whether or not it will begin an investigation into the use of YieldStar software by Canadian landlords.

"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."

Black said she is hoping for a fair resolution if the Competition Bureau does find any wrongdoing.

"Once you understand the ramifications of this algorithm, if you do nothing and say nothing, it will continue to cause harm," Black said.