Thank You Captain Obvious

Phoenix, Arizona


TucsonIn news that should surprise no one, RealPage, whose software is intended to allow landlords to collude on rental pricing, results in increased rents.

RealPage claims that their software is to allow landlords to get a sense of the market rates, but it doesn't.

It allows landlords use RealPage as an intermediary to discuss rents so that they do not have to compete with one another:

Last week, Arizona Attorney General Kris Mayes filed a lawsuit against RealPage, which leases price-setting software to landlords and property managers, and nine residential landlords in Phoenix and Tucson, alleging that they are colluding to fix the price of rental housing and ultimately raise rents across those markets. This marks the second attorney general case against RealPage, after District of Columbia AG Brian Schwalb filed one late last year.

Two days later, the Federal Trade Commission and Department of Justice released a joint legal brief in a case involving Yardi Systems, a similar corporation in the rental housing market. The FTC also put out a set of general guidance around algorithmic price setting entitled “Price fixing by algorithm is still price fixing.”

And there’s more. This week, the Colorado House of Representatives passed a bill that would outlaw RealPage’s business model, and the North Carolina attorney general announced his office is also investigating RealPage.

This set of legal filings, legislation, and investigations adds important data and context to the growing recognition that corporations are fixing prices across markets using centralized algorithms. And RealPage is taking center stage for a very good reason, as I’m going to show here.

I broke down this issue in a past edition of the newsletter, but as a quick refresher: RealPage (and other corporations like it) contract with landlords and property managers, who agree to share their data regarding rents, apartment sizes, and vacancies, etc. RealPage collates that data across the market and uses an algorithm to spit out suggested rents to all of the landlords who employ its services, setting common prices across the market.

As the Arizona AG put it in her complaint, “competitors have stopped using independent judgment to set prices and started working together.”

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The D.C. case against RealPage broke important new ground by showing that the “suggested” rents weren’t really suggestions at all, but enforced by RealPage itself. The Arizona complaint furthers the case with a couple of important items.

The first is the charts below, calculating RealPage’s effect on prices. There’s been plenty of anecdotal evidence from RealPage executives themselves, as well as some vibes-based conclusions, that RealPage’s coordination across the market must be raising prices — because otherwise what’s the point? — but these are the first bits of data really laying it out.

Again: There’s no point in using data-sharing software like this but for pushing rents higher than they would otherwise be, or at the very least coordinating to prevent some competitors undercutting the market independently or arresting drops in rent when the market falls, putting a parachute on falling rents, if you will. And with RealPage clients consolidating such large swathes of the market, the opportunity to simply rent from a non-RealPage client is small and shrinking, making it harder to for a renter to find an apartment that’s covered by one of the orange bars above.

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RealPage and the other corporations like it have tried to argue that because there is no explicit agreement between clients to fix prices at a set point, what they’re doing isn’t price fixing. But as the FTC put it, “Competitors using a shared human agent to fix prices? Illegal. Doing the same thing but with an agreed upon, shared algorithm? Still illegal.”

Here is a suggestion:  Criminal prosecutions and civil forfeiture against companies that provide algorithmically driven illegal cartels.

Frog marching senior executives out of their offices in handcuffs, along with the VCs who fund them knowing full what what they are doing should have a deterrent effect.