Corruption at the Capital? So claims the Attorney General of the District of Columbia in a recent lawsuit calling out major players in the real estate game. He accuses them of setting up an illegal "rent-setting cartel" that rips off countless residents in the D.C. area.
If you live in D.C., you probably know that increasing housing costs are a particularly big challenge for locals. The city is occupied by majority renters, which only makes the rapid rent increases in recent years worse. About one-fourth of D.C. renters have to spend over half of their income on rent – which is way too much, according to the old rule that says you should spend no more than a third of your income on housing.
For those living in the nation's capital, rent is a high-stakes issue. And if you live in the area, and possibly elsewhere in the country, the litigation underway probably affects you directly, so let's take a look at the allegations.
RealPage's Revenue Rip-Off
Earlier this month, D.C.'s attorney general filed the civil complaint in D.C.'s trial court, against a company called RealPage and 14 residential landlords in the area. RealPage is a provider of property management software and data analytics to the real estate industry. The company's software is meant to help owners, operators, and investors optimize their real estate portfolios by improving operational efficiency, reducing costs, and maximizing asset value. Among the various tech services that RealPage offers to property owners and managers is software for "revenue management," i.e., overseeing rent prices. RealPage is considered a major player, part of "Big Tech" in the rental housing sector, and has a big market share largely due to its access to proprietary data.
The lawsuit alleges that RealPage and the landlords worked together to raise rents of D.C. residents through a pricing algorithm. Allegedly, RealPage created a software called "Revenue Management" to inflate the rent prices in the area. The software uses a centralized pricing algorithm to inflate the rent prices of tens of thousands of D.C. homes. The software launched in the early 2000s and has since been adopted by a large portion of the multifamily housing rental market both in D.C. and elsewhere in the nation. The result is that, in the last four years alone, the tenants ended up paying millions of dollars more in rent than they otherwise would have.
Landlords Get Greedy
Where do the landlords come in? According to the complaint, these landlords agreed to delegate the price-setting to RealPage, rather than competing among themselves on prices, as would be the case in a traditional market. In a truly competitive market, landlords would pursue a "heads in beds strategy," competing on rent prices in order to attract more renters. In such a case, they would keep their pricing strategies confidential, since that kind of information can provide a competitive edge. Bnstead, they allegedly entered into an anticompetitive agreement in order to all collectively drive up the rent and benefit.
How were these landlords so sure that a competing landlord wouldn't undercut the scheme by individually lowering their own rent prices? Well, according to the Attorney General, the landlords also agreed in writing to share their own data with RealPage, including rents that they charged. This data was fed into the Revenue Management software and allowed RealPage to see whether these landlords violated the price-fixing agreement by charging different rents than those set by the software. This results in a system where landlords are expected to set rents according to the algorithm and where RealPage can police this compliance. Apparently, in over 90% of cases, landlords have stuck to the agreed-upon rent prices.
Wide Impacts of the Scheme
Since the landlords named in the lawsuit are some of the biggest providers of multifamily housing in D.C., the impact of this alleged collusion is huge. The Revenue Management software has allegedly been used to set the rent prices in more than 90% of units in buildings with more than 50 units—more than 50,000 units throughout D.C.
Although this scheme would clearly affect residents of the Capital, it apparently has much further reach. According to the complaint, several major providers of multifamily housing throughout the rest of the country are participating in this cartel, as they have agreed to use the software. Furthermore, the defendants have allegedly tried to recruit more landlords to participate in the cartel by publicly advertising that using the Revenue Management software to set rents can boost rent prices by 2-7%.
Trial Soon to be Underway
The Attorney General accuses the defendants of violating the D.C. Antitrust Act by price-fixing. It asks the court to order the defendants to stop all such anticompetitive practices, with court-ordered monitoring to ensure compliance. He also asks the court to order monetary damages (three times the price that they've gained from D.C. renters) along with civil penalties and other relief.
We still have a long way to go before we see what comes of the lawsuit. More facts will be uncovered at trial, if the case doesn't settle. But if the allegations of the rent-fixing scheme are true, D.C. locals may be getting a tiny piece of the pie back, or at the very least, the sweet feeling of victory over greedy landlords.
Related Resources
- Things To Look for When Reviewing a Lease (FindLaw's Learn About the Law)
- Rent and Security Deposits (FindLaw's Learn About the Law)
- Commission Impossible: Lawsuits Question Legality of Buyer-Broker Fees (FindLaw's Law and Daily Life)
