A class action lawsuit was filed in the U.S. District Court of the Western District of Washington against RealPage, Inc. and several real estate owners and management companies alleging violations of the Sherman Act through intentional data-sharing and collusion. The lawsuit is filed on behalf of students who leased student housing properties directly from any defendant or co-conspirator since January 2010.
“The housing markets in college towns were once historically competitive, with many lessors vying for a very specific space, and under fair circumstances, one would not expect to see rents increasing in college towns, as we have uncovered,” said Steve Berman, managing partner at Hagens Berman, the firm representing the proposed class of college students. “Housing is a basic human right, not a metric for companies to gamble for profit. RealPage’s algorithm allowed it and other defendants in our lawsuit to rig the rental market.”
In response RESPA News’ request for comment, the company stated, “RealPage is aware of the lawsuit. We strongly deny the allegations and will vigorously defend against the lawsuit. Regarding the letter sent by Brown to the FTC, RealPage is always willing to engage with our policy stakeholders to ensure they have the facts and appropriate context about RealPage.”
It declined to make any further comment about the litigation.
RealPage’s rent price optimization products have come under significant scrutiny after a report by ProPublica showed the two’s algorithm may have led to inflated rents and suppressed competition in the housing market. Sen. Sherrod Brown (D-Ohio) also wrote a letter to Federal Trade Commission Chair Lina Khan requesting a review of RealPage software known as YieldStar or Revenue Management.
“According to recent reports, the collection and use of rent data in price optimization software is allowing for anticompetitive and potentially unlawful collusion among competitors at the expense of consumers,” Brown wrote.
“The FTC’s mission to protect consumers and maintain competition in our markets has never been more critical. And this mission has become increasingly complex as technology advances change how entire industries operate. Approximately 44 million households in the United States – nearly 35 percent – rent their homes. Renters should have the power to negotiate fairly priced housing, free from illicit collusion and deceptive pricing techniques.
“Recent reporting raises serious concerns about collusion in the rental market, and the FTC should review whether rent setting algorithms that analyze rent prices through the use of competitors’ private data, such as YieldStar, violate antitrust laws.”
AI Revenue Management, formerly known as YieldStar, is an algorithm-based price optimization software that uses data analytics to suggest rent prices to landlords on a day-by-day basis. The algorithm uses data gathered from clients and private information on what nearby competitors charge to generate a price. While the price is only a suggestion, ProPublica found the suggested rate was adopted 90 percent of the time. The concern raised by using this software is potential price fixing resulting in higher rental prices across the country, as some of the nation’s largest housing managers use the product to make its pricing decisions.
“For both single-family and multifamily buildings, the demand for rental homes far outpaces supply,” Brown wrote. “Rental vacancy rates were just 5.6 percent at the end of 2021, the lowest vacancy rate since 1984. Yet, even in this tight rental market, there are reports that RealPage’s algorithm encourages property owners to keep homes vacant or push tenants out in order to maximize profits. ProPublica reported that, in 2017, Steve Winn, RealPage’s then-CEO, recognized on an earnings call that managers at one large property company found that when using RealPage’s software they could increase their profits by raising rents and leaving more units vacant. Intentionally holding units vacant, when there are so few homes available, decreases a consumer’s negotiating power and exacerbates the housing shortage.”
Brown voiced his concern about the use of competitors’ nonpublic data. While the advertised price of a unit is public knowledge, he stated, it is not always publicly known what a unit ultimately leases for once a rental agreement is executed. What troubled him about the ProPublica report was a former RealPage executive allegedly stating the data could give insight into how competitors within a half-mile or mile radius are pricing units.
“There’s no mistake about it. This is a calculated crime,” Berman said in a release. “Two to 7 percent increases may sound small, but they are designed to be just significant enough to be profitable but not too much to negatively affect the market’s ability to pay. We believe RealPage and its co-conspirators know exactly what they’ve done and have calculated precisely how much they can squeeze out of each college town’s rental market without breaking it entirely.”
The complaint stated prior to RealPage entering the student-rental market, lessors would act independently as they tried to maximize their occupancy and would offer rental incentives such as first month free with a one-year lease or giveaways. Lessors would use their own independent observations of the market to set their prices, which the complaint stated is characteristic of a competitive market. However, when RealPage was adopted, lessors changed their strategy from leasing for higher occupancy to leasing for higher revenues.
“RealPage and participating lessors adopted a new strategy: increasing prices notwithstanding market conditions and tolerating the lost revenue resulting from any unrented and empty housing units,” the complaint stated. “In a competitive market, this strategy would quickly fail – any units listed at prices exceeding the market price would stay empty, and the property manager would eventually go out of business. In the market RealPage and lessors created, each lessor had mutual assurances that other lessors would also keep prices high, leaving students with no choice but to pay what lessors demanded.”