The District of Columbia filed a lawsuit against the region’s prominent landlords, accusing them of using price-setting technology to “artificially raise rents.”
On Wednesday, D.C. Attorney General Brian L. Schwalb announced a lawsuit against “14 of the largest residential landlords in the District” and property management software firm RealPage for “colluding to illegally raise rents for tens of thousands of DC residents.” The lawsuit alleges that the landlords collectively delegated the authority to set rent prices to RealPage, which allegedly used its centralized pricing algorithm to “inflate prices.”
An investigation by the Office of the Attorney General (OAG) found that RealPage’s algorithms were used to set rents for over 50,000 apartments across the district, thus violating the district’s Antitrust Act.
“RealPage and the defendant landlords illegally colluded to artificially raise rents by participating in a centralized, anticompetitive scheme, causing District residents to pay millions of dollars above fair market prices,” said Mr. Schwalb.
“Defendants’ coordinated and anticompetitive conduct amounts to a District-wide housing cartel. At a time when affordable housing in DC is increasingly scarce, our office will continue to use the law to fight for fair market conditions and ensure that District residents and law-abiding businesses are protected.”
RealPage’s technology uses statistical models to estimate the supply and demand for multifamily housing in specific geographic areas and recommends rental prices to maximize landlord revenue.
In Washington, more than 30 percent of apartments in multifamily buildings and roughly 60 percent of units in large multifamily buildings use RealPage for pricing. In the Washington-Arlington-Alexandria Metropolitan Area, RealPage is used to price more than 90 percent of large buildings, Mr. Schwalb said.
“This leaves many District residents with no choice but to pay RealPage’s inflated rents,” said the press release. The companies also use nonpublic and “competitively sensitive data,” it said.
The 14 landlords charged in the lawsuit are Avenue5 Residential, AvalonBay Communities, Bell Partners, Bozzuto Management Company, Camden Summit Partnership, Equity Residential Management, Gables Residential Services, GREP Atlantic, Highmark Residential, JBG Smith Properties, Mid-America Apartments, Paradigm Management II, UDR, and William C. Smith & Co.
Anticompetitive Scheme
The lawsuit highlights an alleged anticompetitive collaboration of landlords and RealPage.“To recruit more landlords to their cartel, Defendants have publicly advertised that landlords who participate in the scheme, agreeing to use RealPage’s RM Software to set rents, can boost revenue (i.e., rents) by 2-7 percent.
“Defendants achieve results like these by limiting market competition. Rather than pursue a ‘heads in beds’ strategy—i.e., competing on price to attract the most renters—Defendants have conspired to share information, limit supply, and drive up rents,” it said.
Under normal conditions, competitors would usually keep their pricing strategies confidential, especially if it offers them an advantage, the lawsuit said. But in this case, the defendants recruited more of their would-be competitors into their arrangements, “confident that their competitors will not dramatically undercut their prices,” the suit alleges.
The lawsuit noted that rising housing costs are a major challenge for Washington residents, with about 25 percent of all renters shelling out over 50 percent of their incomes on rent alone.
“Defendants’ anticompetitive agreement has exacerbated D.C.’s affordable housing crisis, forcing numerous District renters to overpay, month after month, for what is likely the single largest expense in their lives: rent,” it said.
In the lawsuit, the OAG is seeking to stop RealPage and defendant landlords from engaging in anticompetitive behaviors that it alleges artificially inflate prices, and also requests financial compensation for residents whose rents were allegedly unlawfully raised.
Regulating Rent
The D.C. attorney general’s case comes as there are mounting concerns that attempts to control rent prices could end up causing even more problems within the U.S. housing market.Ms. McCaughey pointed out that more regulation over rents can cause many landlords to walk away from the sector, thus reducing the supply of residential properties and actually raising rents.
The U.S. Supreme Court is currently mulling a challenge to the constitutionality of New York’s rental regulations. In New York, the Rent Guidelines Board regulates 44 percent of rental apartments, setting the maximum limit by which landlords can raise rents.
