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 criticism 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 earnings — 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 approach that authorized consultants stated might end in 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 all them.
“Whereas People throughout the nation struggled to afford housing, the landlords named in right this moment’s lawsuit shared delicate details about rental costs and used algorithms to coordinate to maintain the worth of lease excessive,” stated appearing Assistant Legal professional Normal Doha Mekki of the Justice Division’s Antitrust Division. The swimsuit seeks to finish “their observe of placing earnings over folks” and to make housing extra reasonably priced.
The authorized motion is the most recent growth to comply with ProPublica’s preliminary investigation. Since 2022, senators have launched laws searching for to ban the usage of lease 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 comparable algorithms to set rents.
RealPage’s widespread software program was gathering nonpublic pricing info from a number of property managers and feeding it via a typical algorithm, which then really useful an optimum lease stage to those that used it — in violation of guidelines that prohibit such coordination, federal prosecutors alleged. In addition they accused the landlords of improperly speaking straight about their pricing via 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 solutions.
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 clients towards the DOJ’s accusations.” RealPage has already modified its software program to take away nonpublic knowledge, regardless of its view that its expertise was authorized and “pro-competitive,” she stated.
“It’s previous time to cease scapegoating RealPage — and now our clients — for housing affordability issues when the foundation reason for excessive housing prices is the undersupply of housing, which we’ve got 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 instructed the information group on the time that the residence market in Houston, the place the corporate is headquartered, was so huge and numerous that “it might be exhausting to argue there was some type of worth fixing.”
However when Camden adopted the nascent rent-setting expertise in 2006, the corporate discovered that its earnings grew despite the fact that extra tenants had been shifting out.
“The web impact of driving income and pushing folks out was $10 million in earnings,” Campo instructed a commerce publication then. (He later stated that quote doesn’t mirror how he or Camden views renters right this moment.)
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 “dissatisfied” that the Justice Division added the corporate to the swimsuit.
“At no time did Greystar have interaction 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 lease. 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 opponents’ nonpublic knowledge to coach or run pricing fashions below a settlement with federal prosecutors. The proposed settlement has been submitted to the courtroom for consideration.
Atlanta-based Cortland manages over 80,000 leases in 13 states. A associated federal felony investigation that led to a Could 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 in a position to obtain this consequence as a result of Cortland has invested years and vital inside sources into growing a proprietary income administration software program instrument that doesn’t depend on knowledge from exterior, nonpublic sources,” the spokesperson stated.
Income administration software program can assist 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 simply 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 overall variety of taking part states to 10. The states embrace the nation’s most populous — California, which has 17 million renters.
RealPage stated that “fewer than 10% of all rental housing models within the U.S. use RealPage software program to recommend rental costs, and our software program suggestions are accepted lower than half the time.”
However a White Home report in December stated that quantity might be increased. It stated RealPage and census knowledge recommend that as many as 1 in 4 leases nationwide use a RealPage pricing algorithm. And the corporate’s penetration is increased in some markets, it stated.
Utilizing fashions of what aggressive markets would appear to be, researchers discovered that algorithmic pricing prices renters in models the place it’s used $70 extra a month, or 4% of lease, on common. In six main metro areas, the price exceeds $100 a month, the report discovered.
The report estimated the overall added price to renters from the usage of 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 below the incoming administration is unclear. President-elect Donald Trump has nominated Gail Slater, a veteran antitrust lawyer and financial advisor to JD Vance, to guide the division’s antitrust division.
