Last week, the Vanguard and other news entities reported that the US DOJ along with the California Attorney General, and the attorney generals of several other states filed a civil antitrust lawsuit on Friday against RealPage Inc. for its unlawful scheme to decrease competition among landlords in apartment pricing and to monopolize the market for commercial revenue management software that landlords use to price apartments.
“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” U.S. Attorney General Merrick Garland said in a statement.
While that is no doubt true – it seems important not to lose sight of the bigger picture.
RealPage put out a statement defending its business practices, denying that it reduces competition, and noting that landlords using the software “always have 100% discretion to accept or reject software price recommendations.”
Instead, it blames supply issues and other market factors for higher rental prices.
The San Jose Mercury News on Monday reported that in the lawsuit, the DOJ includes statements from landlords who admit to the software’s anti-competitive practices.
“I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term,” says an unidentified landlord in the complaint. “That’s classic price fixing.”
The Mercury News report notes that “approximately 70% of all multifamily units in the San Francisco area, and 66% of all multifamily units in the San Jose submarket…”
Moreover, the lawsuit accuses another fifty trade associations “of serving as “conduits of the cartel” by providing a venue for RealPage and their property owners to conspire.”
Tenants’ rights groups point out, as reported by the Mercury News, that this lawsuit proves what many have already believed for a long time.
“We have long known that corporate landlords play a significant role in inflating housing costs and creating our housing crisis,” said Merika Goolsby, state board member for The Alliance of Californians for Community Empowerment. “We are grateful to the Department of Justice for taking the necessary steps to rein in blatant corporate greed and hold bad actors like Real Page accountable.”
San Francisco proactively became the first city “to take action against companies like RealPage by banning the use of rent-setting algorithms.”
Moreover, Vice President Kamala Harris has “proposed a similar ban on algorithm-powered rent-setting tools.”
There is no doubt that such unfair competition should be addressed and ultimately rooted out and eliminated.
While RealPage is no doubt correct about market conditions, landlords are taking advantage of market conditions to line their bottom line. Just as you see oil companies and other large corporations taking advantage of market conditions to reap windfall profits – that’s what is happening here. And applications like RealPage make it easier for them to do that.
But underlying that reality is the fact that RealPage is correct that lack of housing production is the biggest driver here.
Scarcity allows for unscrupulous business practices to reward actors looking to capitalize on the bottom line.
And of course the people who are harmed the most by the massive increase in rental prices are those on the bottom of the scale, whose wages and earnings are not keeping up with the rise in housing costs.
As the Mercury News noted, “Rents have risen steeply across the Bay Area — in the last nine years, the median rent has risen 19% to $2,393 in the East Bay, 10% to $3,060 in San Francisco and San Mateo County, and 21% to $2,990 in Santa Clara County, according to real estate data company CoStar.”
It would seem this would also be a practice that could be alleviated with stronger tenant protection and rent control laws.
At the end of the day, in my view, however, these lawsuits and tenant protection and rent control laws can only go so far. What we really need is a less tight rental market and that requires more multiple family homes but also more opportunities for people to purchase their own home and open up the rental market to others.
In my view then, file the lawsuits, enforce the law, hold landlords and companies like RealPage accountable if and when they bend or break the law, but at the end of the day, the answer to these kinds of business practices is enough supply to move this out of the realm of the buyer’s market.
