“I was without a shower in my apartment, and it was completely taped off for approximately seven weeks,” Arizona renter Justin Clark told AZFamily after suing the landlord of his $3,100-per-month one-bedroom apartment last year. Another renter, Kacie Gettinger, told reporters that the air conditioner in her $2,200-per-month apartment did not work at all in the scorching Arizona heat. Now, Arizona Attorney General Kris Mayes is suing the companies that own both apartments.
In her suit, Mayes alleges that nine of the state’s largest rental companies cheated renters by conspiring to charge them prices far higher than market value. The rental companies allegedly contracted with a third-party software company called RealPage for “revenue management,” which involves collecting data from subscribing rental companies and landlords, then “suggesting’ algorithmically generated rental prices for subscribing landlords to follow. RealPage, Inc. is the world’s largest property management software provider.
An algorithm is defined as a process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer. In civil cases against RealPage, plaintiffs have argued that its use of an “auto accept” feature for clients to automatically accept the algorithm’s price recommendations and “pricing advisers” who monitor landlords’ compliance constitute evidence of price-fixing.
While the lack of affordable housing in Arizona and beyond has shone a spotlight on this practice, algorithmic price-fixing is by no means limited to just this sector of the economy. Industries ranging from grocery stores to ride shares to restaurants have seen an increase in algorithm use to set prices.
“We have unfortunately seen here in Maryland and across the country a rise in some landlords using this AI-based software to basically get around our collusion laws so that they can set rents based off of proprietary, internal data, to be pushing up or jacking up rent prices,” Maryland state delegate Julie Palakovich Carr tells The Progressive.
Palakovich Carr is sponsoring legislation in the Maryland General Assembly that would ban algorithmic price-fixing for setting rents. She notes that under current federal law, it would be illegal for landlords to get together in person in a room to fix rental prices.
A December report by President Biden’s Council of Economic Advisers (CEA) reinforces Palakovich’s point. The report concluded that anti-competitive pricing in algorithm-utilizing buildings cost renters nationwide $3.8 billion in 2023. But because most current price-fixing laws were passed before computer algorithms were even invented, it is unclear how they would apply to this digital third-party process.
“While price-fixing is illegal under current law,” says Pat Garofalo of the American Economic Liberties Project, “there is some question about whether what is occurring here fits into current law or whether it needs to be updated, or whether we just need to send a really clear message to judges and enforcers that this should be considered classic price-fixing.” The American Economic Liberties Project advocates for corporate accountability and aggressive antitrust enforcement.
In August of last year, the Justice Department, along with state attorneys general in North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington, filed a civil antitrust lawsuit against RealPage Inc. for its “unlawful scheme to decrease competition among landlords in apartment pricing and to monopolize the market for commercial revenue management software.”
In addition to these civil suits, lawmakers in eighteen states have introduced anti-rent fixing legislation.
The CEA calculated the increases in monthly rent due to algorithmic price-fixing for different metro areas in 2023. In the Washington, D.C., metro area, rentals were estimated to have increased $112 a month due strictly to algorithmic price-fixing.
Critics of these efforts to regulate housing rental algorithms argue that civil suits and state legislative proposals are heavy-handed government regulations that interfere with the free enterprise system. But Garofalo disagrees: “The bills would reinject the competitive process into rental housing where it currently does not exist,” he says. “You actually need government intervention to prevent the formation of pricing cartels.”
Skeptics of this regulation also point out that the algorithms suggest a decrease in pricing in some cases, and that the software is geared toward reflecting supply and demand curves.
Palakovich Carr noted that RealPage’s product not only recommends rental prices, but also makes recommendations as to what rental vacancy rates should be maintained, thus padding landlords’ profit margins by keeping rental vacancies artificially high and supply low.
“There are cases where RealPage, in calls with investors, were touting about how some of their landlord clients were, in fact, jacking up and increasing their vacancy rates and it was boosting the company’s profits,” she says. “So at the end of the day, this isn’t just about the rents that the tenants are paying, but the availability of rental units on the market, especially when we have housing shortages.”
The Department of Justice’s lawsuit against RealPage contains several damaging quotes about the true intent of the software algorithms from people within the industry. “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term,” said one landlord quoted in the suit. “That’s classic price-fixing.”
With the filing of these civil suits, anti-rental price fixing legislation being introduced, and the passage of anti-rental price fixing legislation in San Francisco, Philadelphia, and Berkeley, California, there are some signs of hope for greater affordability in the future.
However, if none of these efforts come to fruition, that could be grim news for consumers.
“We are going to see the model [algorithmic price-fixing] take off in popularity,” says Garofalo, “especially if legislators can’t grapple with it in the urgent and immediate area of housing.”