The Division of Justice on Tuesday sued six of the nation’s largest landlords, accusing them of utilizing a pricing algorithm to improperly work collectively to lift rents throughout the nation.
The lawsuit expands an antitrust grievance the division filed in August that accused property administration software-maker RealPage of participating in unlawful price-fixing to cut back competitors amongst landlords so costs — and income — would soar. Officers performed a two-year investigation into the scheme following a 2022 ProPublica story that confirmed how RealPage was serving to landlords set rents throughout the nation in a means that authorized specialists stated might lead to cartel-like habits.
Collectively, the six landlords handle greater than 1.3 million flats in 43 states and the District of Columbia. Prosecutors have already negotiated a settlement with one in every of them.
“Whereas People throughout the nation struggled to afford housing, the landlords named in in the present day’s lawsuit shared delicate details about rental costs and used algorithms to coordinate to maintain the value of hire excessive,” stated performing Assistant Lawyer Common Doha Mekki of the Justice Division’s Antitrust Division. The go well with seeks to finish “their apply of placing income over individuals” and to make housing extra inexpensive.
The authorized motion is the most recent growth to observe ProPublica’s preliminary investigation. Since 2022, senators have launched laws looking for to ban using hire algorithms much like RealPage’s, and tenants have filed dozens of ongoing federal lawsuits. Cities across the nation, together with San Francisco, Philadelphia and Minneapolis, have additionally moved to bar landlords from utilizing related algorithms to set rents.
RealPage’s fashionable software program was accumulating nonpublic pricing info from a number of property managers and feeding it by means of a standard algorithm, which then beneficial an optimum hire stage to those that used it — in violation of guidelines that prohibit such coordination, federal prosecutors alleged. Additionally they accused the landlords of improperly speaking instantly about their pricing by means of calls, emails and participation in “person group” boards hosted by RealPage.
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The corporate pushes landlords to make use of an “auto-accept” characteristic on its software program, authorities stated, and makes it onerous for property managers to reject its options.
RealPage Senior Vice President Jennifer Bowcock referred to as the federal case “flawed” and stated the corporate is “dedicated to vigorously defending ourselves and our prospects in opposition to the DOJ’s accusations.” RealPage has already modified its software program to take away nonpublic knowledge, regardless of its view that its know-how was authorized and “pro-competitive,” she stated.
“It’s previous time to cease scapegoating RealPage — and now our prospects — for housing affordability issues when the basis explanation for excessive housing prices is the undersupply of housing, which we now have been saying from the start,” she stated.
Three of the landlords sued on this week’s motion appeared in ProPublica’s 2022 story, together with the nation’s largest landlord, Greystar, and Camden Property Belief.
Camden CEO Ric Campo advised the information group on the time that the condominium market in Houston, the place the corporate is headquartered, was so large and various that “it might be laborious to argue there was some sort of worth fixing.”
However when Camden adopted the nascent rent-setting know-how in 2006, the corporate discovered that its income grew although extra tenants had been shifting out.
“The web impact of driving income and pushing individuals out was $10 million in revenue,” Campo advised a commerce publication then. (He later stated that quote doesn’t replicate how he or Camden views renters in the present day.)
Neither Campo nor Camden responded to a request for remark.
Greystar, the most important supervisor and proprietor of leases within the U.S., stated in a press release that it was “upset” that the Justice Division added the corporate to the go well with.
“At no time did Greystar interact in any anti-competitive practices,” the assertion from the South Carolina-based firm stated. “We are going to vigorously defend ourselves on this lawsuit.”
ProPublica’s 2022 knowledge evaluation additionally discovered Willow Bridge Property Firm (previously Lincoln Residential) managed dozens of buildings in markets that had seen quick development in hire. The corporate didn’t instantly reply to a request for remark in regards to the Justice Division lawsuit.
One property proprietor and supervisor, Cortland, has already agreed to cease utilizing rivals’ nonpublic knowledge to coach or run pricing fashions beneath a settlement with federal prosecutors. The proposed settlement has been submitted to the court docket for consideration.
Atlanta-based Cortland manages over 80,000 leases in 13 states. A associated federal legal investigation that led to a Might 2024 search of its headquarters has been closed, a spokesperson stated.
The spokesperson stated the corporate is “happy” to announce the settlement.
“We consider we had been solely capable of obtain this end result as a result of Cortland has invested years and important inside assets into creating a proprietary income administration software program software that doesn’t depend on knowledge from exterior, nonpublic sources,” the spokesperson stated.
Income administration software program may help landlords handle rents “effectively” and keep away from discrimination, stated a spokesperson for defendant Cushman & Wakefield, which additionally owns defendant Pinnacle. The spokesperson stated that as a supervisor solely, the corporate doesn’t “set technique, pricing, or occupancy targets,” resolve which software program to make use of, or whether or not to just accept any software program’s suggestions.
The lawsuit additionally named as a defendant Blackstone’s LivCor. Blackstone didn’t instantly reply to requests for remark.
Along with naming landlords as defendants within the declare, it additionally added the attorneys normal of Illinois and Massachusetts as co-plaintiffs, bringing the entire variety of collaborating states to 10. The states embody the nation’s most populous — California, which has 17 million renters.
RealPage stated that “fewer than 10% of all rental housing items within the U.S. use RealPage software program to counsel rental costs, and our software program suggestions are accepted lower than half the time.”
However a White House report in December stated that quantity could possibly be larger. It stated RealPage and census knowledge counsel that as many as 1 in 4 leases nationwide use a RealPage pricing algorithm. And the corporate’s penetration is larger in some markets, it stated.
Utilizing fashions of what aggressive markets would seem like, researchers discovered that algorithmic pricing prices renters in items the place it’s used $70 extra a month, or 4% of hire, on common. In six main metro areas, the price exceeds $100 a month, the report discovered.
The report estimated the entire added value to renters from using such algorithms in 2023 to be roughly $3.8 billion.
RealPage stated that the evaluation is “riddled with flawed assumptions,” and that the White Home by no means contacted the corporate in regards to the report.
The destiny of the Justice Division’s lawsuit beneath the incoming administration is unclear. President-elect Donald Trump has nominated Gail Slater, a veteran antitrust legal professional and financial advisor to JD Vance, to guide the division’s antitrust division.