RealPage is a private equity-owned company that helps landlords set rents for apartments. Recent antitrust litigation puts the company right at the intersection of economics, data science, public policy, and whether the rent is too damn high.
RealPage has been accused of price collusion, specifically rent-fixing. The company website states that it offers its users ”true performance data no one else has,” and specifically has services to “maximize revenue and occupancy”. Millions of apartment units are managed by landlords using RealPage, granting the company access to billions of nonpublic data points about rents, which it can use in machine learning models to generate “algorithmically driven” price recommendations for all of its users in turn. A ProPublica investigation of RealPage found examples of RealPage executives and blog posts urging landlords to be okay with lower occupancy rates in an attempt to get higher rent (and higher profits), and former RealPage employees told ProPublica that landlords follow as much as 90% of recommendations.
From a behavioral economic lens (namely endowment effect), landlords likely will increase their prices if the algorithm suggests a higher price, but will not adjust downwards when a lower price suggestion is given. From a data science perspective, the ML recommendation models get reinforced through this feedback: given a True North metric of “% of interactions where the landlord accepts suggested price” or something similar, the algorithm will naturally attune towards higher price recommendations. When these suggestions are almost always followed, you have “algorithmic collusion”. After all, if large groups with market power mailed all of their current rent prices to one guy, waited for that guy to mail them back updated prices they should charge for each unit, and then changed prices accordingly, we’d reasonably call that collusion; the veneer of an “algorithm” makes no difference in analogy.
On the US public policy side of things, RealPage is getting sued by state attorneys general for allegations of collusion, and the DOJ may soon follow (in a March 2024 brief, the FTC pointed out that price fixing by algorithm is still price fixing). Antitrust law is an important lever for societies to wield when a market-distorting entrant appears. At the same time, public policy is also grappling with broader housing shortages in desirable areas. Housing stock that’s unoccupied is part of the problem (RealPage might be exacerbating things by encouraging landlords to wait longer and get the “right price” instead of going for higher occupancy). There is also not enough housing even at 100% occupancy of current stock in top metro areas, and mismatches between available supply (luxury apartments) versus the needs of a functional city (decent apartments for service workers and young adults just entering the workforce that don’t eat up over half of their paycheck).
There are things that public policy cannot easily accomplish. Part of the issue with RealPage’s collusion is that individual renters have little market power of their own. At best, tenants in a large apartment building might band together and demand lower rent, but if the building owner calls their bluff and evicts everyone, the tenants are unlikely to camp outside homeless until the owner relents. Perhaps public policy can strengthen eviction protections, but too many tweaks risks distorting the market further, and public policy can’t magically create interim housing for people to use and call the building owner’s bluff in turn. The next-best negotiating option would be to threaten to move to a similar nearby building owned by someone else that’s charging lower prices, even though the hassle of moving apartments reduces some credibility to all but the most minimalist renters. When the RealPage algorithm recommends both buildings increase prices and better match each other, that small opportunity for the renter gets taken away.
It remains to be seen what will happen with RealPage (or any other price-fixing collusion/market concentration going on in the rental market), but the outcome will impact the biggest item in millions of Americans’ budgets. With rent cost increases driving a lot of overall inflation in recent times, the breakup of collusion could bring some much-needed relief.
Andrew Jabara 