Arizona's New Data Shows How Price-Fixing Software Raises Rent

State and federal enforcers say: "If it looks and quacks like price fixing, it probably is."

Photo credit: nicolaspollock

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Last week, Arizona Attorney General Kris Mayes filed a lawsuit against RealPage, which leases price-setting software to landlords and property managers, and nine residential landlords in Phoenix and Tucson, alleging that they are colluding to fix the price of rental housing and ultimately raise rents across those markets. This marks the second attorney general case against RealPage, after District of Columbia AG Brian Schwalb filed one late last year.

Two days later, the Federal Trade Commission and Department of Justice released a joint legal brief in a case involving Yardi Systems, a similar corporation in the rental housing market. The FTC also put out a set of general guidance around algorithmic price setting entitled “Price fixing by algorithm is still price fixing.”

And there’s more. This week, the Colorado House of Representatives passed a bill that would outlaw RealPage’s business model, and the North Carolina attorney general announced his office is also investigating RealPage.

This set of legal filings, legislation, and investigations adds important data and context to the growing recognition that corporations are fixing prices across markets using centralized algorithms. And RealPage is taking center stage for a very good reason, as I’m going to show here.

I broke down this issue in a past edition of the newsletter, but as a quick refresher: RealPage (and other corporations like it) contract with landlords and property managers, who agree to share their data regarding rents, apartment sizes, and vacancies, etc. RealPage collates that data across the market and uses an algorithm to spit out suggested rents to all of the landlords who employ its services, setting common prices across the market.

As the Arizona AG put it in her complaint, “competitors have stopped using independent judgment to set prices and started working together.”

RealPage is the central player in the cartel, and enforces cartel membership by both making it difficult for individual landlords to deviate from its suggestions, and ultimately revoking access to its software from landlords who deviate too often, per the legal complaints. The same model RealPage and others employ in rental housing has also been used in agricultural markets and other consumer-facing products such as hotel rooms (and there are surely more).

The D.C. case against RealPage broke important new ground by showing that the “suggested” rents weren’t really suggestions at all, but enforced by RealPage itself. The Arizona complaint furthers the case with a couple of important items.

The first is the charts below, calculating RealPage’s effect on prices. There’s been plenty of anecdotal evidence from RealPage executives themselves, as well as some vibes-based conclusions, that RealPage’s coordination across the market must be raising prices — because otherwise what’s the point? — but these are the first bits of data really laying it out.

Per the complaint, RealPage clients control 70 percent of the multi-family apartment supply in Phoenix and 50 percent in Tucson, and that’s led to 12 and 13 percent rent increases in those cities, respectively, among RealPage clients. The first chart below is of the Phoenix market, and the second is Tucson, comparing the cost of apartments that are part of the cost-coordinating group with those that aren’t.

The complaint also says these numbers “may underestimate the true overcharge, as not every property using RealPage is included in the estimate.”

Again: There’s no point in using data-sharing software like this but for pushing rents higher than they would otherwise be, or at the very least coordinating to prevent some competitors undercutting the market independently or arresting drops in rent when the market falls, putting a parachute on falling rents, if you will. And with RealPage clients consolidating such large swathes of the market, the opportunity to simply rent from a non-RealPage client is small and shrinking, making it harder to for a renter to find an apartment that’s covered by one of the orange bars above.

Then there’s RealPage’s effect on renter turnover. One defendant in the Arizona case confirmed that using RealPage leads to increased turnover in the quest for ever-higher rents. Per the complaint, the defendant “acknowledged that adopting this pricing increased turnover rates by 15 percentage points — meaning tenants had to find new apartments because of these above-market price increases. But as the lessor defendant’s CEO observed, the ‘net effect’ of RealPage’s software ‘pushing people out’ was an additional ‘$10 million in income.’”

So more money for landlords and less available housing for renters, or at the very least more hassle from having to move multiple times as RealPage calculates ever-higher rents.

RealPage and the other corporations like it have tried to argue that because there is no explicit agreement between clients to fix prices at a set point, what they’re doing isn’t price fixing. But as the FTC put it, “Competitors using a shared human agent to fix prices? Illegal. Doing the same thing but with an agreed upon, shared algorithm? Still illegal.”

They also argue that their business model isn’t price fixing because landlords retain some level of discretion — within the bounds of their contract and with the risk of losing their access to RealPage altogether, we now know. But the DoJ/FTC brief counters: “Although full adherence to a price-fixing scheme may render it more effective, the effectiveness of the scheme is not a requirement for per se illegality. Consistent with black-letter law, the violation is the agreement, and unsuccessful price-fixing agreements also are per se illegal.”

Now, what remains to be seen is if judges agree with those assertions, or if more blunt instruments such as something like the Colorado bill, or Oregon Sen. Ron Wyden’s Preventing the Algorithmic Facilitation of Rental Housing Cartels Act of 2024, are needed to short-circuit this problem. But what is clear at the moment is that the issue of algorithmic price-fixing is very much on the radar of antitrust enforcers and legislators, for good reason.

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— Pat Garofalo