Federal Lawsuit Claims Richardson-Based Company Is Driving Up Rent Prices

The federal lawsuit against RealPage likens companies that use its services to members of a cartel.
The federal lawsuit against RealPage likens companies that use its services to members of a cartel. Tuomas Lehtinen/Getty
Renters have filed a federal lawsuit against the Richardson-based software company RealPage, alleging its services have artificially increased rent prices.

Specifically, the suit alleges the company is violating the Sherman Antitrust Act of 1890, which prohibits actions that restrict interstate commerce and competition in the marketplace. The lawsuit was filed in U.S. District Court in the Southern District of California on behalf of renters who live in multifamily properties owned by landlords who use RealPage’s services. Part of what the renters hope to get out of the suit is a ruling that could prohibit some of RealPage's business practices, which they claim are illegal. The lawsuit was filed by the San Diego law firm Berger Montague PC.

As detailed in the suit and a recent investigation by ProPublica, RealPage uses an algorithm to help landlords increase rents to their maximum profitability. It collects information on pricing and supply levels to recommend daily prices for vacant units.

The company's services have attracted some big customers across the U.S., including Dallas’ Lincoln Property Company, which is named in the suit.

The lawsuit explains that until 2016, the largest landlords in the U.S. would price their units to be competitive with others in the area and to keep apartments full. Then, many agreed to use RealPage’s services to do the task and use its price recommendations, with the expectation that competitors would do the same.

When that happened, according to the lawsuit, landlords “replaced their independent pricing and supply decisions with collusion.”

The companies using the service can decline the recommended prices, but that happens only about 10% of the time. The suit claims RealPage stresses the need for discipline among its landlords and encourages its customers to accept the recommended pricing. It does so by telling them the services are most effective when landlords accept pricing at least 80% of the time.

RealPage’s services also permit landlords to coordinate supply levels to avoid competition on pricing, according to the lawsuit. When housing supply exceeds demand in competitive markets, prices in that market can fall as landlords compete to attract renters. To avoid this, the lawsuit claims, RealPage provides landlords with information that allows them to stagger lease renewals to avoid oversupply.

“As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.” – Andrew Bowen, RealPage

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This led to landlords leaving units unoccupied for periods of time “to ensure that, collectively, there is not one period in which the market faces an oversupply of residential real estate properties for lease, keeping prices higher,” according to the suit.

The result of such practices, the lawsuit claims, is similar to what would occur under a monopoly. According to the suit, “One Lessor said that the net effect of raising rents and ‘pushing people out’ of the residential real estate leases they could no longer afford, was '10 million in income.’”

The suit seems to have been prompted by the findings in a 5,000-plus word investigation into RealPage published by ProPublica earlier this month. It documented how RealPage’s algorithm, YieldStar, which is responsible for tracking and recommending prices, could artificially inflate rents.

The article included references from RealPage's own promotional material and statements that seem to suggest it knows it has an effect on rent prices and what that effect is. In one video, RealPage Vice President Jay Parsons noted that rents had shot up by some 14.5%, asking another RealPage executive how the company's services may have contributed to the increase.

“I think it’s driving it, quite honestly,” Andrew Bowen, the executive responded. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”

But if you asked RealPage, or one of its clients like Lincoln Property Co., their representatives would likely say there’s nothing to see here, they’re not doing anything wrong and that the whole situation has been taken out of context.

In a short emailed statement, Lincoln Property denied the allegations of the lawsuit, saying it “looks forward to the opportunity to bring the facts to the attention of the court.”

In an email to the Observer, RealPage said the ProPublica article “contains inaccuracies and is misleading; RealPage completely disagrees with its conclusions.”

The company said rents are determined by a number of factors, including supply and demand and property owners’ unique circumstances. RealPage added that the current housing supply shortage has contributed to high rents, and occupancy rates have been at an all-time high.

Aside from this, the company said its software is designed to be legally compliant.

“It focuses on the internal supply and demand dynamics at a particular property and does not consider or have any visibility into availability (supply) at competing properties,” the company said. “Revenue management is commonly used across many industries, and innovations in this area have been to the mutual benefit of both consumers and vendors.”

The company said the ProPublica article took details out of context, like the mention that RealPage discourages landlords from negotiating prices with tenants. RealPage claims the article ignores “the big reason why many housing providers prefer bottom-line pricing,” adding that “negotiating rent opens up the possibility of providing different renters with different pricing for the same housing unit, which can put housing providers squarely in violation of federal Fair Housing laws.”

The company said this is one of the reasons services like theirs exist. So, the company said, “We strongly deny the allegations and will vigorously defend against the lawsuit.”
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Jacob Vaughn, a former Brookhaven College journalism student, has written for the Observer since 2018, first as clubs editor. More recently, he's been in the news section as a staff writer covering City Hall, the Dallas Police Department and whatever else editors throw his way.
Contact: Jacob Vaughn

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