The Fix Is In on Rent Prices

Or: How to challenge a potential rental housing cartel

Photo credit: Fort Belvoir Community Hospital

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The Washington, D.C., attorney general’s office recently sought approval from the city council to hire an outside law firm as part of an investigation “against identified targets in the housing industry for violations of antitrust laws.” The Washington City Paper later reported that said target is a corporation called RealPage, which sells software that landlords use to determine where to set their rental prices.

If this info pans out, and there’s no reason to believe it won’t, D.C. Attorney General Brian Schwalb will be the first state-level antitrust enforcer to launch a salvo in an increasingly important policy area: Corporate control of rental housing, and the potential collusion in which players in the industry engage.

Last year, ProPublica published an extensive look at RealPage, explaining how the corporation’s business model has the practical effect of creating a cartel in local rental markets. RealPage collects data from landlords across the market, which it then plugs into an algorithm that those same landlords use to set rents. A merger in 2017 with its main competitor, Lease Rent Options, or LRO, allowed RealPage to consolidate power over the industry and greatly expand its footprint in metro areas across the U.S.

It’s not hard to see how this collection of data becomes a form of soft price fixing: Instead of explicitly sharing prices with each other, which would be illegal, corporate landlords (or the big property managers with whom they contract) feed everything into a central repository, which spits out a suggested price based on everyone’s data, keeping rents high and ensuring that no one independently undercuts the market. While landlords have the option to disregard RealPage’s algorithm, they follow it about 90 percent of the time.

According to ProPublica, rents in cities where RealPage clients hold more of the market, such as Denver, Nashville, and Seattle, have seen higher rent increases than those with less RealPage concentration, such as as Chicago or Philadelphia. RealPage’s software also often explicitly suggests that landlords keep some units vacant, instead of lowering rents to get someone into them, as a way of keeping the overall market priced higher — which has the effect of not only forcing folks to pay more for housing but reducing the housing supply artificially.

The D.C. attorney general is not the only one looking into RealPage for potential antitrust violations. So is the Department of Justice, which last week announced its intention to explore joining a case involving a consolidated set of 20 private lawsuits against RealPage that is underway in federal court in Tennessee.

“Companies’ use of algorithms in price setting, often in an effort to increase pricing, has become more prevalent in the modern economy. As a result, the issues involved in this case are of increasing significance to the application of antitrust law across the economy,” DoJ said.

RealPage, for the record, says it can’t possibly be blamed for price fixing, because housing markets are large and complicated.

And to be sure, there are other issues driving up rent in major metro areas. For example, supply is constrained due to zoning restrictions, and developers — who are also often highly subsidized by either cities themselves or state housing programs, and are major political players in their own right — lean toward higher-end “luxury” apartments, rather than more affordable ones, especially those aimed at larger families. In my limited experience, municipal affordable housing requirements are little more than a joke.

Large institutional investors and private equity firms, meanwhile, are working to consolidate control over single-family housing rentals. And housing markets are increasingly plagued by junk fees that drive up the cost in ways that don’t show up in sticker rental prices.

There’s also simply general consolidation across the apartment industry that is resulting in increased prices. I’ve written before about academic work showing how corporate consolidation in housing markets raises rents. Fewer competitors inevitably leads to less competition, as well as coordination across properties that have common ownership or management, making it easier to keep rents high. Some advocates have called for limits on the percentage of a market any one owner can hold, for exactly these reasons.

Still, RealPage likely plays a role in all this, especially in those cities with more consolidated housing markets, where it’s easier for RealPage’s algorithm to have an effect. An antitrust case against RealPage, whether from the DoJ, the D.C. AG, or some combination of federal and state enforcers, would likely look a lot like a recent case DoJ filed against a corporation called AgriStats for fixing prices in meat processing markets. A similar case in Nevada is underway examining whether Las Vegas hotels are using software known as “Rainmaker” (which is a little on the nose, guys) to do for lodging what RealPage does for rents: Consolidate industry data and spit out a suggested price.

In the AgriStats case, one pork processing executive characterized the firm’s advice as always “Just raise your price.” In housing markets, it looks like the advice from RealPage amounted to “Just raise your rents.” I, for one, am eager to see what the D.C. attorney general finds, and hope more state enforcers get into whether and how corporate power is pushing up rents, as well as how algorithms like these are more generally empowering corporations to engage in soft collusion across the economy.

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SHAMELESS SELF-PROMOTION: I went on the Heartland Pod last week to discuss the Federal Trade Commission’s recent lawsuit against Amazon. You can give it a listen here.

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UPDATE: I’ve written a few times about efforts to ban junk fees, those ubiquitous “convenience” and “processing” fees that show up on bills for everything from concert tickets to rental cars to apartments to hotel rooms. There have recently been three positive developments on that front worth highlighting: The Federal Trade Commission proposed a rule eliminating “hidden and bogus” fees; California approved a new law banning “drip pricing” — the practice of being shown one price when choosing a product and then another at checkout — across a host of industries; and a Pennsylvania House committee unanimously approved a ban on junk fees in the lodging, food delivery, and ticketing industries.

That looks like progress to me.

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— Pat Garofalo