- Some big landlords are using algorithmic pricing systems to set rents — and it might be illegal.
- RealPage, which sells rent-setting software, and its clients are facing a slew of lawsuits.
- The DC attorney general is the latest to allege illegal collusion to set artificially high rents.
You’re probably aware that a severe housing shortage has driven rents and home prices through the roof in recent years. Now, several lawsuits filed across the country contend that the algorithmic software some big landlords use to determine rents has artificially inflated prices.
The Washington, DC, attorney general, Brian Schwalb, earlier this month became the first top prosecutor to sue the real-estate tech company RealPage and 14 of DC’s biggest landlords, accusing them of illegally colluding to set rent prices above competitive levels. RealPage and one of its competitors, Yardi, have been sued by renters in other cities.
RealPage, a Texas-based company, sells software called YieldStar that recommends apartment rent prices to its clients — landlords and property managers — based on nonpublic information it gathers in a given real-estate market. The AG’s complaint says that RealPage and the landlords’ “coordinated and anticompetitive conduct amounts to a District-wide housing cartel.”
The complaint alleges that RealPage helped its landlord clients inflate rents by up to 7% for about 40,000 apartments — mostly in large, multifamily buildings — across the city.
One legal expert said that based on the accusations in the suit, the company and its clients may have committed antitrust violations.
“They’re promising higher prices by a small but significant amount, even though occupancy is going down,” Maurice Stucke, a law professor at the University of Tennessee and a former DOJ antitrust division prosecutor, told Business Insider. “Typically, that’s the telltale sign of collusion, whether actual collusion or what’s called conscious parallelism or tacit collusion.”
RealPage didn’t immediately respond to a request for comment, but the company has previously denied the allegations.
“In seeking to draw a causal connection between revenue management software like ours and increases in market-wide rents, this copycat suit repeats the inaccuracies of predecessor cases,” a company communications officer told Axios.
RealPage significantly expanded in 2017, when the company bought its largest competitor, The Rainmaker Group, which also made rent-setting software. The Justice Department — which sharply reduced its antitrust prosecutions under former President Donald Trump — declined to challenge the merger, despite it raising alarms with DOJ staffers. RealPage’s CEO at the time, Steve Winn, said the acquisition would allow the company to double the number of homes it set rent for.
ProPublica drew public attention to the company’s practices when it published an explosive investigation in October 2022, revealing how RealPage executives explicitly advertised its goal of inflating rents above market rates.
The company and its clients have since been sued in jurisdictions across the country, including Seattle, New York, Boston, and Colorado. More than 20 of these lawsuits were consolidated in a federal court in Nashville last spring.
Stucke said there were several notable allegations in the DC attorney general’s complaint. The suit says that RealPage wouldn’t allow landlords to reject the algorithm’s recommendation for rent, except in “extenuating circumstances such as a natural disaster.” This allegation is unusual, given that RealPage doesn’t have any market power over its clients, Stucke said.
Prosecutors also allege that RealPage monitors the rents that its clients charge and disciplines landlords who don’t adhere to its recommendations. “While RealPage sought to grow the cartel to maximize profits, it also understood the importance of universal adherence and was willing to expel an occasional cartel member to demonstrate its commitment to enforcement of the agreed-upon pricing scheme,” the complaint reads.
“If that’s the case, that’s very much like a traditional cartel,” Stucke said.
But discipline in the form of getting rid of a client is largely unnecessary because landlords used the RealPage-recommended rents more than 90% of the time, the complaint says.
Additionally, the suit says that rival landlords met with each other and encouraged competitors to use RealPage, another telltale sign of collusion.
“The interesting thing here is why would landlords seek to recruit their rivals to a platform, unless they’re expecting as a result of their joining this platform it’s going to help them further increase rents?” Stucke said.
Congress and the Department of Justice have also gotten involved. House and Senate lawmakers began raising concerns about RealPage and its effect on the real-estate market last year. Last fall, 17 Democratic House members urged the DOJ and the Federal Trade Commission to investigate RealPage. Soon after, Democratic senators sent a letter to the DOJ’s antitrust division urging it to investigate whether the company had created “a cartel to artificially inflate rental rates in multifamily residential buildings.”
In November last year, ProPublica reported that the DOJ had begun an investigation into RealPage.
Algorithmic collusion is relatively new. Stucke has been researching and writing about the phenomenon since 2016, but it’s only recently been widely understood and identified. Computer scientists and economists say that the algorithms could tacitly collude without any intentional intervention by people or any agreement to conspire to raise prices.
“When we first wrote about it, some people dismissed it as science fiction, that it’s unlikely to happen,” Stucke said.
But an empirical analysis published in 2021 concluded that prices can rise above competitive levels when between two and seven competitors in a given field use algorithms.
“If these allegations are true, then we have a real problem on our hands, and not just in housing but in many other markets,” Stucke said.
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