Imagine, that as a shop owner at a flea market, you are given a suggested price by the organizers of the market at which to sell your item. As more shops join the flea market, that price rises and you earn more and more profit, despite less customers buying your item. Now, imagine that this is happening in rental markets across the country.
Rising rent prices and affordable housing (or lack thereof) has been a hot button issue over the last few years. The primary solution offered seems to be a simple one: more supply. Most outlets report that the rising demand of housing is not being met, driving up prices and pushing the population into high levels of housing insecurity. Yet, there are plenty of empty housing units in the U.S; growth of households was much slower than housing production from 2000 to 2020, resulting in a 3.3 million unit surplus.
A more realistic reason that may partially account for the unaffordability is rent hiking. Specifically rent hikes by landlords who use prices suggested by RealPage, a software company that offers landlords tools to manage their tenants and properties.
This is the primary driver for the Department of Justice’s (DOJ) lawsuit against the company, which was filed in August of 2024. The DOJ was joined with eight states as plaintiffs. The complaint outlined how the data collection practices of RealPage violate antitrust laws. But the investigation ended in early December of the same year. With the investigation lasting less than four months, what urged the DOJ to pursue RealPage in the first place?
The DOJ posits that the rent prices suggested by RealPage’s pricing algorithm are pushing rent prices up and is doing so because of the company’s alleged collusive, anti competitive practices. What exactly makes something collusive, and does this describe RealPage?
Collusion happens when firms or sellers in the same market take actions in agreement with each other to give themselves an advantage in said market. This can result in prices that give such firms a higher profit than their competitors. The crux of the DOJ’s complaint was that the company gave landlords who joined RealPage an unfair advantage compared to those who did not, while also overcharging tenants. The unfair advantage starts with the data the pricing algorithm uses.
RealPage’s algorithm is trained by an unprecedented level of private proprietary data, which includes “what renters are willing to pay” to live in a certain place according to RealPage themselves. Their algorithm suggests prices for many large apartment buildings in the Washington-Arlington-Alexandria Metropolitan Area: a whopping 90%. A ProPublica investigation discovered that in a single Seattle neighborhood, of the ten landlords that owned 70% of the apartments, each one used RealPage’s pricing algorithm.
An anticompetitive dynamic flourishes in a market where a property management software company has such a large share of the market.
The algorithm optimizes rent prices based on the data and puts occupancy rates in the backseat. It calculates just how high to push rent prices so that even when a certain number of tenants can no longer afford to live there, the remaining tenants are still paying enough to maintain or exceed previous revenues. This is evidenced in the District of Columbia Attorney General’s complaint, which was filed against not only RealPage, but fourteen landlords who use its service in November of 2023. Based on an October 2022 report of a RealPage using-property manager, their revenues increased by about 4.6% per “despite occupancy levels decreasing.” So, instead of the landlords competing for tenants by lowering their prices, they are better off by joining RealPage, offering up their proprietary data, and taking the suggested optimal price for their revenues regardless of occupancy levels.
Another concerning aspect of the company is the ways RealPage maintains control of their clientele of landlords’ ability to set prices independently. The attorney general’s complaint reveals how difficult it is for a landlord to deviate from RealPage’s prices. “Overrides”, otherwise known as an attempt by a landlord to use a price different from the suggestion given by the pricing algorithm, often result in “outreach from a RealPage Pricing Advisor”, who then discourages the override. Acceptance of an override is rare, as over 90% of the prices suggested by the algorithm are taken by landlords, likely not due to choice, since deviations due to natural disasters or some other emergency are typically the only kind to be accepted. The fact that there are RealPage employees who have “persuade landlords to use RealPage’s price even when they don’t want to” in their job description is demonstrative of the control the company seeks over rental market prices.
What’s most damning of the collusive nature of RealPage is its desire to recruit more and more landlords to use its service. Video recorded testimonials from landlords within RealPage encourage other landlords and property managers to join the service; claims that “‘it’s what everyone in the industry is doing’” and that they’ve “‘achieved results that are beyond anything we could have imagined’” are made to efforts to bring in more landlords and, by extension, more data to better train the algorithm. Why would competing property managers encourage their rivals to join a service that boosts profits unless they didn’t actually want to compete?
The exact reasoning behind dropping the DOJ federal lawsuit has yet to come to light, but this evidence is hard to dismiss. RealPage has a huge share of the nation’s property managers using its service, strong incentives to grow the number of landlords feeding its algorithm, a strict adherence to “suggested” prices, and actively recruits more landlords to use the tool with testimonials by their current users. As their clientele of property managers make gains in their profits thanks to the prices facilitated by the company, RealPage grows their profits along with them. All signs point to RealPage acting as a third party to get landlords to agree on prices rather than actually compete, and there are still ways to address this. Despite the case being dropped on a federal level, there are still plenty of private and state level lawsuits that are still open. This may be the closest the U.S. gets to addressing one of the contributing factors to its affordable housing crisis in the near future.
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