Competition Bureau investigating high tech price-fixing by Canadian landlords

Since early September, Canada’s corporate law enforcement agency has been investigating landlords over high-tech rental price-fixing, The Breach has learned.

The investigation by the Competition Bureau was sparked by an article published in The Breach, which exposed how Canadian real estate developer Dream Unlimited and its property managers were using an artificial intelligence software known as YieldStar.

The makers of YieldStar, who are being sued by the U.S. government, are accused of helping landlords collude to form a “housing cartel” that allowed them to raise rents in a coordinated fashion.

The Bureau carefully guards the confidentiality of its work, but it let slip in meetings with tenant groups that an investigation was underway.

A spokesperson for the agency refused to confirm this, but did tell The Breach that “protecting competition in the real estate industry is a priority for the Bureau.”

Three weeks ago, CBC published an article similar to The Breach’s investigation, prompting François-Philippe Champagne, federal Minister of Innovation, Science and Industry, to say the government would push the Bureau to take action. 

“It is completely unacceptable what we have seen,” Champagne said when questioned in the House of Commons. “I am going to write to the competition commissioner today to launch an investigation.”

This came after months of Liberal and Conservative parliamentarians shutting down a wider study on algorithmic price-fixing called for by New Democrat Bonita Zarrillo.

Geordie Dent, the executive director of the Federation of Toronto Metro Tenants’ Associations, was one of the individuals to learn from the Bureau about their investigation. 

He said it’s a significant win for tenants, as the investigation and the media coverage has put pressure on corporate landlords.

“If you’re a big landlord in Canada right now, you’re probably not going to consider using YieldStar, because there’s just too much heat and too much of a risk for your corporation,” he said.

One major corporate landlord, GWL Realty Advisors, has already stated they have “terminated” the use of YieldStar, and Dream Unlimited has said it has advised its property manager to stop using the software.

YieldStar is a program that runs confidential data about vacancy rates and rent prices collected from landlords through an A.I. algorithm to generate rent increases that are higher than typical market rates.

Vass Bednar, an adjunct professor and executive director of the Master of Public Policy Program at McMaster University, said that opening an investigation is a sort of preliminary step that signals the Competition Bureau has “some kind of inkling or reason to believe that there might be anti-competitive behaviour here.” 

‘We don’t really send executives to jail’

An investigation by the Bureau can lead to fines, said Bednar, which are “the main kind of scary tool” companies are likely to face.

But these are not always enough to deter businesses. They are sometimes seen as “more like the cost of business” than as something to be avoided, she said. 

As to what the Competition Bureau might do as a result of its investigation, Dent pointed to one of the most high-profile Bureau cases in recent memory: the bread price-fixing scandal of the mid-2010s, where millions in fines and class action settlements have been paid out by the companies implicated.

Dent also pointed to the FBI raid of Cortland Management, a company in the U.S. that uses YieldStar, as an example of what he would like to see here in Canada. The raid was part of a U.S. Department of Justice criminal antitrust investigation. 

“This is the kind of strong antitrust behaviour that we want to see to prevent this cartel behaviour,” Dent said.

Unlike the U.S. Department of Justice, Canada’s Competition Bureau is not a criminal investigatory body, and as such it has to work with the Public Prosecution Service if it feels that a criminal investigation is warranted. 

The differences between Canadian and American law mean that Canadian courts have almost never resorted to jail time for specific employees, instead levying fines or applying prohibition orders to the company, the latter of which “basically says, ‘don’t do anything like a cartel in the future,’” said Bednar.

“In Canada, unlike in the U.S., we don’t really send executives to jail. There’s not as much peril for them.”

Investigations ‘done outside of public view’

The Bureau is typically secretive about its investigations, according to Jennifer Quaid, an associate professor with the University of Ottawa faculty of law who specializes in competition law.

“The nature of investigations into [business practices] that are characterized or treated as criminal are generally done outside of the public view, particularly when it relates to competition offenses,” Quaid said. 

“Unlike a plain vanilla criminal investigation—like when someone is killed on the street, when there’s obviously something that precipitates an investigation, there’s something public to look at—these kinds of things tend to proceed more quietly.”

But Bureau officials don’t always cover their tracks.

They hinted at the possibility of an investigation when, a few days after The Breach’s exposé, the York South-Weston Tenant Union held a demonstration at the Bureau’s offices in Toronto, where they delivered 100 complaints from members who live in a building owned by Dream Unlimited.

The Breach also observed that Bureau officials showed up at an online Landlord and Tenant Board hearing in a case the tenant union had with Dream Unlimited.

The Board remained tight-lipped when questioned by The Breach.

“As the Bureau is required by law to conduct its work confidentially, we won’t be providing further details related to this matter. If we find evidence of activities that could raise concerns under the law, the Bureau will take action,” a spokesperson for the agency said.

According to Quaid, an investigation might start with the Competition Bureau, but in order to enact any sort of criminal penalty related to collusion or cartel behaviour, the public prosecutor needs to get involved.

The criminal charges related to price-fixing are conspiracy charges, which require proof that there was a plan to collude, but not that the plan was successful. 

“It doesn’t matter whether they had a crappy plan. What matters is, did they have a plan, and was that plan to fix prices,” Quaid said.

“These are really hard cases to investigate,” she said. “And they’re hard cases to build the evidence in. So the typical model is you want to rope in the conspirators to bring the evidence for you so that you can force everyone else to settle.”

If no cooperating parties are forthcoming, that could make the YieldStar investigation more difficult. 

“I think everyone felt that the penalties in that case were very weak,” Dent said of the bread price-fixing scandal. “However, there was a voluntary agreement there [with Loblaw and George Weston]. They basically turned into a witness and admitted the whole thing. And I don’t think that’s happening in this case.”

However, if a criminal case brought by the public prosecutor is successful and a company is found to have engaged in cartel behaviour, then the people affected—in this case tenants—can launch a class-action lawsuit to win back some compensation from the company. 

Tenants, independent media force action on price-fixing

“I think it’s definitely a step in the right direction, and long overdue,” said Chiara Padovani, co-chair of the YSW Tenant Union, of the Liberals’ public stance regarding the investigation. 

However, she expressed skepticism that the party that works closely with developers and corporate landlords is committed to making concrete changes that will improve things for tenants, noting that with an election coming up, the Liberals could be posturing on this issue to appeal to voters.

“I don’t believe the Liberal government really does have the best interests of tenants in mind,” Padovani added. “And it seems like from the policies that we’ve seen, they keep partnering with the same culprits of this housing crisis as if they’re going to fix it instead of making it worse. All of this is just one more example of how our government’s approach to housing has been completely off target.”

More laudable, to Padovani, was the NDP’s action on this front: on the heels of The Breach’s investigation, the NDP also wrote to the Competition Bureau. Padovani credited the NDP with responding quickly to both tenant organizing and reporting on the issue, and ultimately with pushing the Liberals to take a public stance.

Bonita Zarrillo, NDP MP for the riding of Port Moody–Coquitlam, told The Breach that the Liberals have been dragging their feet on holding landlords to account for months. 

Both the Liberals and the Conservatives have allowed mega-landlord Starlight to avoid scrutiny at the House Human Resources Committee since June, Zarrillo wrote in an email to The Breach. 

According to a market-research database consulted by The Breach, Starlight is one of at least 13 companies in Canada with more than $5 billion in revenue that have used the YieldStar software.

“After a summer of hearing from tenants, I moved to have a wider study on corporate landlords and A.I.,” Zarrillo told The Breach. “That too has been shut down twice by Liberals and Conservatives.”

Fear of investigation may have ‘killed’ YieldStar use in Canada

As the investigation unfolds, there are some potentially thorny questions that the Bureau will have to contend with as it looks to make a determination in this case. 

“Collusion” in this context has traditionally referred to people from different businesses gathering together to discuss fixing the price of a good or service—not to a computer program setting prices. 

“Can algorithms collude?” Bednar asked. “And do you need two algorithms? Do you need my algorithm negotiating with your algorithm to set a price? What are all the ways technology is able to use data to calibrate prices and sort of have them fluctuate or be tailored person to person?” 

For Padovani, the most important issue related to the Bureau investigation is that tenants are being mistreated by landlords, and it is important to examine the role this particular software has played in that mistreatment.

“In practical terms, this software is harming tenants, and our members who are tenants of landlords using the software are paying much more in their monthly rent than they otherwise would be,” she said. “And that’s a problem.”

According to Dent, concerns remain.

“We’re still very worried about other algorithmic software actors, specifically the program Yardi,” he said, referring to another A.I. software that has also been hit with antitrust lawsuits in the United States. Its use is less known in Canada than YieldStar.

“But I think this is like the first time where you’ve had this sort of invasive, dangerous technology, and we’ve gotten ahead of it before it takes root here.”

Dent believes it seems to have “effectively killed” YieldStar in Canada. 

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