In a recent lawsuit filed in D.C., it is alleged that some of the largest property managers in the city are engaged in a coordinated effort to artificially increase rental prices.
This revelation has raised concerns within the confines of Washington, D.C., and across the United States, as it could shed light on one of the factors contributing to the surge in rental costs nationwide.
The lawsuit asserts that instead of competing on pricing, major landlords have delegated pricing decisions to an algorithm that relies on data from themselves and their top competitors. The result is an upward trend in rents affecting many.
Dubbed a "Cartel" of Major Landlords in D.C.
The lawsuit is being led by D.C. Attorney General Brian Schwalb, who is targeting 14 of the city's largest landlords, accusing them of inflating rent costs through calculations generated by the RealPage Revenue Management Software.
The lawsuit claims that by imposing unlawfully high cartel rents, these landlords are causing harm to various neighborhoods across the District.
The impact is especially harsh on hardworking residents who must allocate a significant portion of their income to cover these inflated rents, making it increasingly difficult for them to afford housing in the District.
RealPage, the software provider at the center of this controversy, has stated that it will vigorously defend itself against the allegations.
According to Jennifer Bowcock, the company's Senior Vice President for Communications, the lawsuit is based on inaccurate facts and an incorrect interpretation of the law. The case argues that RealPage's software estimates housing supply and demand and then generates prices that maximize landlord revenue.
A Systemic Approach to Artificially Raise Rents
The landlords involved in the lawsuit have not only accepted the rents generated by RealPage's software but have also shared their demographic and geographic data with the software, even assisting in recruiting new landlords into the system.
RealPage's software actively enforces compliance with the generated rent costs, and failure to do so could result in landlords being expelled from the organization.
According to the lawsuit, RealPage's software has impacted more than 30% of apartments in multifamily buildings within D.C. and over 60% of units in large multifamily buildings. These percentages are even higher for the broader D.C. metro area.
An Invasion of Privacy and Dominance in Data
One concerning aspect of this practice is that it involves sharing proprietary data among competing companies, data that would typically remain private.
RealPage's unrivaled access to this data has given the company a dominant market position, allowing it to push up pricing across the board, as a former RealPage director reported.
The Wider Rental Market Implications
While this lawsuit has unveiled disturbing practices among major landlords, it's essential to acknowledge that rising rents are not solely attributable to the use of software like RealPage.
Landlords are also passing on their increased operational costs to renters, taking advantage of the high demand for housing, which exceeds the available supply.
Government Investigation and Legal Action
U.S. Senators Amy Klobuchar, Richard Durbin, and Cory Booker have previously requested that the Justice Department investigate anti-competitive concerns related to RealPage.
The Wall Street Journal has reported that the DOJ is indeed looking into RealPage and is considering taking enforcement action. Lawsuits have already been filed in federal courts against RealPage and a similar company, Yardi Systems.
Some property management companies involved in the lawsuit, such as William C. Smith & Co., are yet to receive official court documents. In contrast, others, like JBG Smith, have declined to comment on the active litigation.