Investigations Across US Look at Another Source of Rental Cost Rise

BY: ROBBIE SEQUEIRA - JULY 22, 2024

In the past two years, more than 30 lawsuits have been filed in federal and state courts alleging that companies such as RealPage and Yardi are equipping corporate landlords with software algorithms that allow competitors to collude on rent prices.

Algorithmic price estimates, in which landlords rely on complex data formulas to set rental rates, have become more popular in recent years. State and federal investigations, along with nascent pieces of legislation to crack down on the practice, could affect millions of tenants who have seen rents skyrocket in the past few years as private companies market their algorithms to corporate landlords.

According to a ProPublica investigation, the algorithms collect lease transaction data from across the country on actual rents paid, versus advertised rates, using it to churn out daily price estimates for vacant units. The results, which are then fed to corporate owners, could offer suggested rent increases that often are far higher than what landlords might try on their own.

The practice is creating an affordability crisis in housing as corporate landlords seek to “maximize profits off the backs of families who are just trying to find an affordable place to live,” said Liz Zelnick, director of the Economic Security & Corporate Power Program at Accountable.US, a Washington, D.C.-based watchdog group.

Several landlords familiar with RealPage’s YieldStar algorithm told Stateline that rents are often set based on factors such as occupancy as well as lease expiration and transaction data, but not renter demand or area incomes.

Both RealPage and Yardi deny any wrongdoing, saying their algorithm services use data responsibly and that apartment owners make their own decisions about rental rates.

In November, District of Columbia Attorney General Brian Schwalb, a Democrat, sued 14 of the city’s largest landlords in an antitrust lawsuit alleging that landlords colluded with RealPage to raise rents up to 7% across nearly 40,000 apartments in the District.

Shortly afterward, Accountable.US sent letters to the attorney general offices in nine states — Arizona, California, Colorado, Maryland, Massachusetts, New Jersey, New York, North Carolina and Washington — alerting them to possible price-fixing in their rental markets. The letters named corporations that were under investigation in D.C., tallied those companies’ rental units in each state, and urged law enforcement to probe further.

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It’s one of the first times we’re seeing federal regulators and states take on corporate greed in the rental housing space and hold these corporations accountable.

– Liz Zelnick, director of the Economic Security & Corporate Power Program at Accountable.US

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Some of those states have since taken action. Arizona Democratic Attorney General Kris Mayes in January filed a lawsuit against RealPage and nine apartment landlords. The complaint says that area landlords acknowledged that while they are “technically competitors,” RealPage helps them “work together … to make us all more successful in our pricing.”

And in North Carolina, Democratic Attorney General Josh Stein’s office confirmed to Stateline that officials are investigating RealPage over alleged antitrust concerns.

“It’s been encouraging to see,” Zelnick said. “You see some states saying, ‘Hey, we wanna start to cut down on some of these practices that obviously are hampering people’s ability to find a home.’

“It’s one of the first times we’re seeing federal regulators and states take on corporate greed in the rental housing space and hold these corporations accountable,” she said.

Rising rents raise eyebrows

While rents nationwide jumped by 30% from 2019 to 2023, wages in that same period didn’t keep pace, rising just 20%, according to an analysis from real estate companies Zillow and StreetEasy.

The dramatic increase in rents and subsequent rise in evictions coming out of the COVID-19 pandemic have shed light on the hurdles that renters — especially those with lower incomes — have faced for years.

“I wouldn’t say that the entire housing crisis is attributed to price-fixing and the ways in which corporations use them, but it certainly exacerbates the housing challenges renters face,” said Sarah Saadian, senior vice president of public policy and field organizing for the National Low Income Housing Coalition, which advocates on behalf of tenants. “This is something that had long been happening to renters on lower incomes.”

The worry is that software systems provide landlords with essentially non-market information that can be used to increase rents, she said.

“The concern there is that if many landlords are using that sort of software and concentrated in a particular housing market, it can certainly make the housing market unaffordable if every local rent is priced well above what people can afford,” Saadian said.

The state actions coincided with a federal probe into RealPage’s algorithm by U.S. Department of Justice antitrust investigators. That effort escalated with an unannounced raid in May of Cortland Management, a major corporate landlord based in Atlanta.

The DOJ is preparing to sue RealPage over alleged collusion and price-fixing within the rental housing market, according to reporting by Politico.

Last September, a Washington state resident filed a class-action suit in federal court against Yardi and 18 property managers, accusing them of using pricing software to fix rental rates. Yardi denied wrongdoing, saying in a statement, “there is nothing illegal about revenue management.”

Six of the largest publicly traded apartment companies — all of which are included in legal action on suspicion of alleged collusion — reported roughly $300 million combined in increased profits in the first quarter of 2024, according to an analysis by Accountable.US.

However, RealPage has denied the allegations in these lawsuits, arguing that scrutiny of their business practices began in October 2022, around the time the ProPublica story was published.

In response to questions, RealPage pointed Stateline to a lengthy statement it had posted on its website in June, saying customers that use the management software decide their own rents and can decline rent recommendations without penalty.

According to Competition Policy International, a company that reports on global antitrust issues, RealPage’s influence covers 70% of the nation’s multifamily apartment buildings and impacts 16 million units.

Legislative efforts stall

While state attorneys general are scrutinizing algorithmic price-fixing — which is illegal under the federal Sherman Antitrust Act — state lawmakers’ legislative attempts to weed out the practice in rental housing have stalled.

In Colorado and New York, there were bills to prohibit price setting or raising via algorithm.

The Colorado bill passed the House, but ultimately failed after suggested changes in the Senate became unpalatable to House members. In recent weeks, Colorado housing advocates have urged state Attorney General Phil Weiser, a Democrat, to open investigations into rental price-fixing, especially in its major rental housing hub, Denver.

“If that bill would have passed, this sort of price-fixing would have not been an issue,” said Zach Neumann of the Community Economic Defense Project, a Denver-based group that advocates for low-income residents. “My hope is that the sponsors behind that bill bring it back in the 2025 legislative sessions. … In the meantime, our goal is for the attorney general’s office to explore this issue, and if collusion and price-fixing is taking place, to root it out so the housing struggles many are facing aren’t further exacerbated.”

The New York legislation died in committee.

New Hampshire state Rep. Eric Gallager tried something a bit different with his bill. Gallager wanted to discourage the use of these algorithms by making any eviction against a resident unlawful if their housing provider had been price-fixing.

“I don’t think I was really able to get the committee to fully understand it properly,” Gallager, a Democrat, told Stateline. His bill failed to make it out of committee.

Saadian, of the National Low Income Housing Coalition, and other housing advocates argue that in the meantime, stronger state and local tenant protections such as eviction caps and anti-gouging laws can act as a safeguard against algorithmic price-fixing.

“That would prevent landlords from dramatically and egregiously raising rents,” Saadian said.

Robbie Sequeira is a staff writer covering housing and social services for Stateline.

Stateline is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.

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