Lack Of Rental Price Discovery Is Never As Good As Egg Salad

DOJ Is Suing RealPage For Violating The Sherman Antitrust Act
RealPage Reportedly Pushed Rents Higher Through Collusion
The Company Pushed Rents Upward In Addition To Market Conditions

Earlier this month, I wrote about RealPage and the 2022 ProPublica study, which raised concerns about their impact on rental prices. Litigation against RealPage has been growing since 2022, and this week, the Department of Justice filed a lawsuit. I have found the statements RealPage issued in their defense a little embarrassing.

DOJ’s U.S. Attorney General Merrick Garland announced the suit, adding to the number of lawsuits by states. He talked about the violation of the Sherman Antitrust Act:

“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” Garland said. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents. Using software as the sharing mechanism does not immunize this scheme from Sherman Act liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them.”

Axios has been dogged in their reporting about the RealPage controversy if you want to catch up.

Some silly, indefensible quotes from RealPage bypassing the actual issue, as shared by Axios:

“Inflation, high interest rates, and a housing supply shortage have driven up rent prices in America,” Jennifer Bowcock, a RealPage spokesperson, told Axios.
“RealPage is designed to help property managers and renters find the right price to fill their units, keep occupancy rates high, and manage seasonal fluctuations in demand so that there are units available at the times prospective renters need them,” Bowcock said.
And my favorite: “When a rental unit is priced too high, it sits vacant and that doesn’t help anyone.”

On that last quote – if a unit sits vacant, the landlord reduces the rent, which actually helps tenants. To show how little they seem to understand the concept of collusion, they created a Twitter handle in July to defend against the “false allegations concerning its revenue management software.”

DOJ contends that RealPage:

Property managers are pressured by a “pricing advisor” to toe the line when they don’t raise prices as recommended.
“When data reveals peers are raising rents,” the DOJ says, the advice is to raise rents.
It almost always suggests an increase, according to the DOJ’s lawsuit.

Here’s a great Twitter thread that explains the DOJ’s position!

Why does DOJ see this as price collusion?

Simplistically, it is called price collusion by the DOJ because a bunch of landlords get together and share private information that is not available to the public. Before RealPage, landlords had no access to their competitors’ private rent data, their secret sauce for running their businesses. It’s interesting because attorneys for RealPage say that’s exactly why they are not colluding:

“But Stephen Weissman, an outside lawyer for RealPage, argued the information sharing is legal because the company aggregates rental data from numerous sources rather than showing specific rates at rival properties.”

I believe that’s precisely why RealPage is in the wrong – The public doesn’t see any of the private data to develop their understanding of market value. While landlords don’t see the data of their competitors, RealPage’s price recommendations use that private data to recommend pricing, yet the public can’t see it. The public cannot use the same price discovery as the landlord’s use of the algorithm. The RealPage software has created an opaque market that gives an unfair advantage to one side. I’m not suggesting RealPage had nefarious intent and was deliberately colluding. However, an argument can be made that their business model pressures their clients to rely on the software’s rent algorithm and even have specialists who call property managers when they don’t follow the software recommendations. I’ve read that their webinars also constantly push for higher rents.

That’s real additional pressure added on top of existing market conditions, and that’s not a fair and free market. The surge in national rents is not entirely RealPage’s responsibility by any stretch of the imagination, but it likely made the situation worse for tenants.

I keep hearing that landlords in NYC weren’t heavy users of RealPage software, but I can’t actually confirm it.

Housing Notes will be off for Labor Day! See you Tuesday. Here’s some egg salad to hold you over.