Landlords' possible civil and criminal violations of our federal antitrust laws must be exposed and remedied. "Affordable housing" is a bad joke, and an illusory one when landlords collude.
Not word of response from our incurious, passive, corporate-funded St. Johns County Commissioners whenever I've raised this issue.
Wonder why? As JFK's friend, the late great economist and Ambassador to India John Kenneth Galbraith, said it best, "the [free} market is a snare and a delusion."
Landlords Used Software to Set Rents. Then Came the Lawsuits.
Antitrust cases contend that use of RealPage’s algorithm, which lets property owners share private data, amounts to collusion.
Imagine a system that lets big landlords in your city work together to raise rents, using detailed, otherwise-private information about what their competitors are charging.
Such a system is already underway, according to a series of lawsuits filed by tenants and prosecutors across the country. The plaintiffs argue that real estate software from a company called RealPage is being used by apartment owners to increase rents.
Through the Texas-based company’s YieldStar product, plaintiffs say, landlords share rental pricing data and occupancy rates — information the company funnels through algorithms to spit out a suggestion for what landlords should charge renters. Those figures are often higher than they would be in a competitive market.
In a vast majority of cases, landlords adopt the suggested prices, passing the costs on to tenants, the plaintiffs assert. RealPage, owned by the private equity firm Thoma Bravo, advertises its software to landlords as a tool that can help them outperform the market by 3 to 7 percent.
RealPage has denied that it facilitates collusion through its software. In a statement on its website in June, the company blamed “a host of complex economic and political forces,” including an undersupply of rental housing units, for rent increases nationwide.
A company spokeswoman, Jennifer Bowcock, said by email that the lawsuits were based on a fundamental misunderstanding of how revenue management software works. The software often recommends rent reductions, she added.
The use of the RealPage software in setting rents was the subject of a ProPublica investigation in 2022. Antitrust experts say the allegations in the lawsuits, if substantiated, paint a clear-cut picture of violations of federal antitrust law, which prohibits agreements among competitors to fix prices.
“There’s an emerging view that these exchanges of confidential business information raise significant competitive concerns,” said Peter Carstensen, an emeritus professor at the University of Wisconsin focused on antitrust law and competition policy. The use of algorithmic software, he added, “speeds up the coordination and makes it possible to coordinate many more players with really good information.”
The legal skirmishes are arising after a period in which rent increases have been a driver of unusually strong inflation. Annual rent growth nationally peaked at nearly 16 percent in early 2022, according to data from Zillow.
The pressure on RealPage began in late 2022 with lawsuits on behalf of tenants in cities including Seattle, Albuquerque and Austin, Texas, seeking class-action status. Then Attorney General Brian Schwalb of the District of Columbia sued the company and 14 of the largest landlords in the district, the first such lawsuit by a public agency.
The Justice Department has not taken legal action against the company. But its antitrust division filed a brief in November in support of the renters’ case. That brief underscored federal agencies’ interest in the issue, and their position that using an algorithm to fix prices is unlawful.
Property owners and managers subscribe to RealPage’s software “with the explicit and common goal of increasing rents,” renters’ attorneys contend in a lawsuit in federal court in Tennessee, where several cases were consolidated last year. RealPage, they contend, effectively enforces compliance with the software’s recommended prices, requiring approval to diverge from the suggested price.
One leasing manager cited in the litigation reported that when her property started using RealPage in 2021, rents for the building’s standard two-bedroom units were raised about 27 percent, without any improvements. That is well above average annual rent increases in metropolitan areas, which are typically in the single digits.
RealPage’s customers have publicly attributed revenue increases to its software. According to RealPage’s website, the former chief executive of the Texas-based property management company Pinnacle said his firm’s revenue rose by 4 percent at the height of a recession in 2009.
“The tool, frankly, really helped us fight through that, not just as a company but as an industry,” Rick Graf, the Pinnacle executive, said in the video on the site. A spokesman for Pinnacle’s parent company declined to comment.
The District of Columbia lawsuit, filed in November, pulled back the curtain on the ubiquitous nature of RealPage’s software: In the district, about 60 percent of units in large buildings are priced using it, the complaint states. That figure jumps to 90 percent in the broader Washington metropolitan area.
“It’s a housing cartel, and that housing cartel is resulting in already high market rents in our city being even higher,” Mr. Schwalb, the district’s attorney general, said in an interview.
Among the landlords sued by Mr. Schwalb’s office was Greystar, the largest apartment owner in the United States, according to data from the National Multifamily Housing Council.
Greystar did not respond to a request for comment.
After the District of Columbia filed its lawsuit, Attorney General Kris Mayes of Arizona did likewise in February, accusing RealPage and nine landlords of illegally conspiring to raise rents for hundreds of thousands of renters in the Phoenix and Tucson areas. In March, Attorney General Josh Stein of North Carolina began an antitrust investigation into RealPage.
And the Justice Department, beyond its brief in the tenants’ litigation, has signaled broader scrutiny of big landlords. In May, the Federal Bureau of Investigation executed a limited search warrant at the Atlanta headquarters of the real estate management firm Cortland in connection with a Justice Department investigation into potential antitrust violations in the multifamily housing industry.
“We are cooperating fully with that investigation, and we understand that neither Cortland nor any of our employees are ‘targets’ of that investigation,” the company said. Cortland is a defendant in the tenants’ litigation, but it is unclear how the RealPage software is factoring into the federal inquiry, if at all.
A Justice Department representative declined to comment.
The government has a legal advantage over private attorneys in that it can use civil investigative demands to “pop open the hood” of RealPage’s software, analyzing how its algorithm works before going to court, said Sandeep Vaheesan, legal director at the Open Markets Institute, a research and advocacy group focused on antitrust issues.
Ms. Bowcock, RealPage’s spokeswoman, said property managers “find value” in its software. But there are signs that some customers are starting to worry about the legal threats. In February, Pinnacle and one other multifamily residential property owner, listed as defendants in the Tennessee federal court litigation, agreed to settle claims in that lawsuit that they inflated rental prices using RealPage’s software.
Although a federal judge in Tennessee let the tenants’ litigation move forward, none of the pending lawsuits has gone to trial. To prevail, they will need to present sufficient evidence of collusion, by way of RealPage’s software, to convince the courts to see the information exchange as illegal.
Some antitrust lawyers say those facts need to be fleshed out and tested in court.
“We’re fighting on a hypothetical battlefield right now,” said Douglas Ross, who teaches antitrust law at the University of Washington.
Danielle Kaye is a business reporter and a 2024 David Carr Fellow, a program for journalists early in their careers. More about Danielle Kaye
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1 comment:
Set by an algorithm that only considers those who make above 100K a year. All of this robbery and massive exploitation. They couldn't even possibly compensate for all the damage they've done to people's lives. I tell you in this county only there was slavery going on after 2020, as rent doubled and wages didn't cover it. For a minute, it was worse than slavery unless you owned a home free and clear.
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