Department of Justice Accuses Six Of America's Largest Residential Property Owners Of Price Fixing

The U.S. Department of Justice is investigating six of America's largest residential landlords for their alleged involvement in a price-fixing scheme. The DOJ believes their combined use of rental software algorithms and sharing of sensitive data constitutes an uncompetitive practice that forces tenants to pay exorbitant rent amounts.

 This prompted the Department of Justice and 10 states, including Colorado, North Carolina, Tennessee and California, to file an antitrust case to stop the practice. The landlords' use of RealPage, property management and accounting software with a proprietary algorithm that suggests market rents, is at the center of the issue.

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The data the DOJ believes the landlords are sharing includes but is not limited to: 

·      Lease renewal rates and associated prices

·      How often tenants agree to pay the rental price recommended by the algorithm

·      What concessions (e.g., one month free, gift certificates) are being offered

·      Forecasts of rental rate expectations for future quarters. 

 It's no secret that high home prices and a lack of inventory are pushing millions of Americans into becoming permanent renters. Theoretically, that gives corporate landlords and real estate investment trusts (REITs) even less incentive to lower rents. Those spiraling rents consume more of Americans' take-home pay, leaving them unable to save for emergencies; something that often leads to eviction.

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According to Princeton University's Eviction Lab, families with children are at the highest risk of eviction, with 1.5 million evictions occurring annually. The landlords being sued by the Justice Department include: 

·      Greystar Real Estate Partners LLC

·      Cushman and Wakefield LLC

·      LivCor LLC (Owned by Blackstone)

·      Camden Property Trust

·      Cortland Management LLC

·      Willow Bridge Property Company LLC

 They have all been added to an existing antitrust action against RealPage, Inc. According to the DOJ, these landlords control an estimated 1.3 million rental units across 43 states. The DOJ also announced that one unnamed company in the case is already cooperating with prosecutors and working on a settlement limiting the company's ability to set rents using algorithms.

 Doha Mekki, the acting Assistant Attorney of the DOJ's antitrust division, said in a press release, "Today's action against RealPage and six major landlords seeks to end their practice of putting profits over people and make housing more affordable for millions of people across the country." Realpage denied any wrongdoing and vowed to continue defending itself.

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The company released a statement to the AP saying that less than 10% of landlords in the U.S. employ its software. It also claimed that landlords who use RealPage accept their algorithm's price recommendation less than 50% of the time. Jennifer Bowcock, RealPage's senior VP of communications, believes the company is being punished for issues beyond its control and unfairly blamed for America's housing crisis.

"It's past time to stop scapegoating RealPage – and now our customers – for housing affordability problems when the root cause of high housing costs is the undersupply of housing," Bowcock said. It's worth noting that a more pro-business DOJ led by the incoming Trump Administration may decide to drop the investigation entirely. In any case, residential real estate investors should closely monitor this situation. It certainly has the potential to affect their returns. 

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