Lawsuits Target Landlords Using Algorithmic Pricing Systems to Set Rents
In recent years, skyrocketing rents and home prices have been a major concern due to a severe housing shortage. However, several lawsuits filed across the country are now alleging that the algorithmic software used by big landlords to determine rents has artificially inflated prices.
The Texas-based company RealPage, which sells rent-setting software called YieldStar, is facing lawsuits along with its clients. The Washington, DC, attorney general, Brian Schwalb, recently sued RealPage and 14 of the city’s largest landlords, accusing them of illegally colluding to set rent prices above competitive levels.
The lawsuit alleges that RealPage and the landlords engaged in coordinated and anticompetitive conduct, forming a housing cartel and inflating rents by up to 7% for about 40,000 apartments across the city. Several legal experts believe that these actions may constitute antitrust violations.
Algorithmic Pricing and Collusion
RealPage’s software recommends rent prices based on nonpublic information it gathers from the real estate market. The software’s recommendations have resulted in rent increases, despite a decrease in occupancy rates. Experts argue that this is a telltale sign of collusion or tacit collusion, where companies indirectly cooperate to set higher prices.
The DC attorney general’s lawsuit also highlights other allegations, such as RealPage’s strict control over landlords’ adherence to its recommended rents. The complaint states that landlords were not allowed to reject the algorithm’s rental recommendations unless there were extenuating circumstances. Additionally, RealPage monitored the rents charged by its clients and disciplined those who didn’t follow its recommendations. This level of control and enforcement resembles a traditional cartel.
The Nationwide Impact
The misconduct alleged in the DC lawsuit isn’t an isolated incident. RealPage and its clients have been sued in several cities, including Seattle, New York, Boston, and Colorado. More than 20 of these lawsuits were consolidated in a federal court in Nashville last spring. Congress and the Department of Justice have also taken notice and begun investigations into RealPage.
Algorithmic Collusion: A New Challenge
Algorithmic collusion, where algorithms inadvertently act to raise prices, is a new challenge. Experts have been studying this phenomenon, and empirical analysis has shown that prices can rise above competitive levels when multiple competitors in a market use algorithmic pricing systems. If the allegations against RealPage are true, it could have significant implications not only for the housing market but also for other industries.
