Illustration: Brendan Lynch/Axios
A lawsuit filed in D.C. on Wednesday alleges that some of the city's biggest property managers are colluding to artificially raise rents — and it's not just a D.C. phenomenon.
Why it matters: The lawsuit could illuminate one factor behind the surge in rental prices across the U.S. The lawsuit alleges that rather than competing on price, big landlords are effectively outsourcing pricing decisions to an algorithm that uses data from them and their top competitors. The result is higher rents across the board.
Driving the news: D.C. Attorney General Brian Schwalb is suing 14 of the city's biggest landlords, which he dubbed a "cartel," for allegedly inflating rent costs based on calculations from RealPage Revenue Management Software.
- "By demanding unlawfully high cartel rents, Defendants have inflicted real harm on neighborhoods across the District," the antitrust lawsuit claims.
- "Every dollar of increased rent that the cartel illegally squeezes from District renters contributes to widening wealth gaps, forces hardworking residents to forgo other uses of their money, and pushes residents out of a District whose housing they increasingly cannot afford."
The other side: RealPage will "vigorously defend" the case, said Jennifer Bowcock, the company's senior vice president for communications. She said the lawsuit is wrong in its facts and application of the law.
- "In seeking to draw a causal connection between revenue management software like ours and increases in market-wide rents, this copycat suit repeats the inaccuracies of predecessor cases."
How it works: RealPage's software estimates the supply and demand for housing and generates a price that maximizes landlord revenue, according to the lawsuit.
- The landlords being sued all agreed to use RealPage-generated rents, the lawsuit says. They upload their demographic and geographic information to RealPage's database and also help in the recruitment of new landlords to the system.
- The software company actively "polices" landlords to ensure that they comply with the rent cost it generates, the lawsuit alleges. Failure to impose the RealPage rents could lead to landlords being expelled from the organization, according to the suit.
- RealPage's software has set the rent at more than 30% of apartments in multifamily buildings in D.C. and 60% of units in large multifamily buildings, per the lawsuit. The percentages are even higher for the broader D.C. metro area.
Between the lines: The data landlords are providing to RealPage would otherwise be private to each company, but now it's being used to help those landlords and their competitors set their prices, the lawsuit asserts.
- "RealPage's dominant market position stems directly from its unrivaled access to proprietary data," the lawsuit contends. "RealPage possesses not only a massive amount of data, but also extraordinarily detailed data."
- "It pushed up pricing across the board," a former RealPage director said, according to the lawsuit.
Zoom out: Renting has become increasingly more expensive for Americans, due in large part to a shortage of available units.
- There were 49.5 million rental units in the U.S. as of 2022, according to data from the U.S. Department of Housing and Urban Development.
- RealPage in 2020 said its software served 19.7 million rental units of all types in the U.S. — more than a third of all rental units nationwide.
- Yes, but: Landlords aren't just increasing rents because of the software they're using. They're passing on their own rising costs to renters, and capitalizing on the fact that demand for housing is outstripping supply.
State of play: U.S. Senators Amy Klobuchar (D-Mn.), Richard Durbin (D-Il.) and Cory Booker (D-N.J.) in a letter last November asked the Justice Department to investigate "anticompetitive concerns" around RealPage.
- The Wall Street Journal reported last month that the DOJ is investigating RealPage and is considering taking enforcement action.
- Lawsuits have previously been filed in federal courts in Tennessee and Washington against RealPage and Yardi Systems, another company that offers similar services, per the WSJ.
What they're saying: One of the property management companies, William C. Smith & Co., had not received official court papers as of Wednesday afternoon, company vice president of public relations and corporate initiatives Don Montouri told Axios.
- Another company, JBG Smith, does not comment on active litigation, a spokesperson said.
- Representatives of the 12 other property management companies named in the suit did not respond to requests for comment prior to publication.
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