A group of renters in the U.S. has come forward, claiming that their landlords are utilizing software to impose inflated rent hikes. According to tenants at Portside Towers in New Jersey, which was purchased by Equity Residential in 2019, the management started significantly increasing prices after providing concessions during the COVID-19 pandemic. Allegedly, the software being used by the landlords removes empathy from the equation and enables them to charge whatever the program recommends. This has sparked a class-action lawsuit involving RealPage and 34 co-defendant landlords, with the U.S. Department of Justice expressing interest in the case due to potential violations of the Sherman Antitrust Act.
The Argument Against RealPage
The attorney general of Washington, D.C. filed a complaint against RealPage, alongside 14 landlords managing over 50,000 apartment units, stating that the company is facilitating a housing cartel. The complaint alleges that RealPage allows landlords to share sensitive data, leading to artificially high rents in a significant portion of the local rental market. By following RealPage’s directions, landlords are forced to charge what the software dictates, rather than making independent decisions based on market conditions. Brian Schwalb, the Attorney General of the District of Columbia, described these arrangements as antitrust violations.
RealPage defends its revenue management products, emphasizing that they use anonymized and aggregated data to provide pricing recommendations for approximately 4.5 million housing units. The company claims that implementing its tools can increase landlord revenues by 2% to 7%. According to Jeffrey Roper, a former RealPage employee and the creator of YieldStar, using their system will surpass the performance of manual analysis. The software optimizes prices, occupancy rates, and lease lengths to help property managers maximize their portfolio’s yield. Another tool developed by RealPage, called AIRM, considers credit, marketing, and leasing efficiency. RealPage maintains that its landlord customers are not obligated to follow their pricing suggestions and charges a fixed fee for each apartment unit managed with its software.
Miami-based private equity firm Thoma Bravo acquired RealPage in 2021 for $10.2 billion. In court filings, Thoma Bravo has asserted that it should not be held liable for the alleged acts of its subsidiary, as outlined in the class-action complaints. Renters became aware of the utilization of revenue management software in real estate through a 2022 ProPublica investigation. Equity Residential, the parent company of Portside Towers, experimented with Lease Rent Options between 2005 and 2008 before RealPage acquired the product in 2017.
Battle for Price Control
Tenants residing in properties owned by Equity Residential are embroiled in multiple legal disputes over pricing practices. One of these disputes involves a decision made by a local housing authority in Jersey City concerning the prices set for the Portside Towers property. Equity Residential affiliates have filed a lawsuit in federal court, challenging the decision on the grounds that it could lead to substantial refunds for tenants. Both Equity Residential and other defendant landlords have declined to comment on the ongoing litigation against RealPage.
The Rental Market Landscape
According to Redfin, asking rents in the U.S. decreased to an average of $1,964 per month in December 2023, signaling a decline from previous highs. Markets such as Atlanta and Austin, Texas, where home construction is booming, have experienced price drops. However, experts believe that landlords in well-located areas along the U.S. East Coast still possess considerable pricing power due to the limited rates of homebuilding.
The utilization of software by landlords to impose inflated rent hikes has attracted scrutiny and led to legal disputes. While RealPage defends the benefits of its revenue management tools, allegations of antitrust violations have been raised by both tenants and government entities. The resolution of these cases will determine the future landscape of the rental market and the extent to which landlords can rely on software to dictate pricing decisions.
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