Renters filed a lawsuit (PDF) this week alleging that a company that makes price-setting software for apartments and nine of the nation’s biggest property managers formed a cartel to artificially inflate rents in violation of federal law. The lawsuit was filed days after ProPublica published an investigation raising concerns that the software, sold by Texas-based RealPage, is potentially pushing rent prices above competitive levels, facilitating price fixing or both. […] RealPage’s software uses an algorithm to churn through a trove of data each night to suggest daily prices for available rental units. The software uses not only information about the apartment being priced and the property where it is located, but also private data on what nearby competitors are charging in rents. The software considers actual rents paid to those rivals — not just what they are advertising, the company told ProPublica.
ProPublica’s investigation found that the software’s design and reach have raised questions among experts about whether it is helping the country’s biggest landlords indirectly coordinate pricing — potentially in violation of federal law. In one neighborhood in downtown Seattle, ProPublica found, 70% of more than 9,000 apartments were controlled by just 10 property managers, who all used RealPage pricing software in at least some of their buildings. RealPage told ProPublica that the company “uses aggregated market data from a variety of sources in a legally compliant manner.” The company also said that landlords who use employees to manually set prices “typically” conduct phone surveys to check competitors’ rents, which the company says could result in anti-competitive behavior. “RealPage’s revenue management solutions prioritize a property’s own internal supply/demand dynamics over external factors such as competitors’ rents,” a company statement said, “and therefore help eliminate the risk of collusion that could occur with manual pricing.”
The lawsuit said that RealPage’s software helps stagger lease renewals to artificially smooth out natural imbalances in supply and demand, which discourages landlords from undercutting pricing achieved by the cartel. Property managers “thus held vacant rental units unoccupied for periods of time (rejecting the historical adage to keep the ‘heads in the beds’) to ensure that, collectively, there is not one period in which the market faces an oversupply of residential real estate properties for lease, keeping prices higher,” it said. Such staggering helped the group avoid “a race to the bottom” on rents, the lawsuit said. RealPage brags that clients — who agree to provide RealPage real-time access to sensitive and nonpublic data — experience “rental rate improvements, year over year, between 5% and 12% in every market,” the lawsuit said. RealPage encourages property companies to have daily calls with a RealPage pricing adviser and discourages deviating from the rent price suggested by the software, the lawsuit said.