The FWD #213 • 775
Why did the FBI raid a property management office in Atlanta?
Let’s face it: most of our work is not very exciting. We sit behind computers all day, occasionally throw some dirt around with a golden shovel, and attend a tax credit conference or two. For the team at apartment company Cortland Management (which owns over 3,000 units in Arlington), that routine was quickly upended when the FBI showed up to raid their Atlanta office in June.
Why would the FBI target Cortland, one of the largest multifamily property owners in the country? The answer is alleged price fixing — but not by Cortland directly. Investigators are instead looking into a newly popularized algorithm they believe enables illegal price fixing in the rental market. The U.S. Department of Justice and the Federal Trade Commission have identified RealPage as the likely culprit.
RealPage isn’t the only property management software that has adopted this new technology. Yardi, used by millions of landlords, is also in court defending its practices. We previously reported on this story in 2022.
What is price fixing and why is it illegal?
The basis of a theoretical free market is competition. If you and I have hamburger shops across the street from one another, we cannot meet in a dark room and both agree to raise our prices from $2.50 to $3.50, thereby each making more money per burger. That’s price fixing, and it’s been illegal since the Sherman Antitrust Act was passed in 1890.
So we have to compete. Sometimes that might mean I find a way to sell my burger for $2.49 to compete with you on price. Maybe a third burger slinger comes to town and throws in a free soda. That’s the idea, at least.
But lately the FTC, FBI, DOJ, state attorneys general, and state legislatures across the country are sounding an alarm over price fixing in residential real estate. They accuse landlords of colluding with each other to raise prices by as much as 20% in one year, rather than competing with each other in a fair market.
What are RealPage and Yardi?
Every property management company uses computer software to keep track of leases and send out rent bills. RealPage and Yardi are two of the most popular programs. In the nation’s top 40 major real estate markets, RealPage alone sets the rents for between 30% and 60% of all apartments.
You might be thinking, okay, what’s the big deal? Companies use computer algorithms to set prices all the time. But here’s the kicker: these programs’ algorithms don’t just use publicly available data to do this — they use private data sourced from other users. On top of that, their end-user license agreements (that thing you never read and just hit “Agree”) stipulates that users must share that data. The software strongly encourages users to follow its suggestions, and discourages negotiating with tenants. Essentially, RealPage and Yardi force their users to collude, creating de facto cartels.
The software also discourages users from lowering rents when they see their vacancies rise. RealPage reassures landlords that if they can stomach a vacant unit longer than they usually would, and all the RealPage landlords do it together, a tenant will have nowhere to turn. Rents go up across the board, and tenants have no choice but to pay up. Competition is eliminated. Landlords (and RealPage and Yardi) win. If an image of Don Corleone is flashing through your head right now, you’re not alone.
Who is looking into this?
ProPublica first alerted the public to the existence of these price-fixing businesses in a 2022 investigation. Legislators at both the federal and state level are now looking at ways to outlaw the algorithms.
In March 2024, the Federal Trade Commission published its stance and a joint legal brief with the Department of Justice on the illegality of this business. They note, “Efforts to fight collusion are even more critical given private equity-backed consolidation among landlords and property management companies. The considerable leverage these firms already have over their renters is only exacerbated by potential algorithmic price collusion.”
Attorneys general in North Carolina, Arizona, and the District of Columbia have filed suits. Senator Ron Wyden (D-OR) and Representative Becca Balint (D-VT) introduced the “Preventing Algorithmic Facilitation of Rental Housing Cartels Act” and Senator Amy Klobuchar (D-MN) introduced the “Preventing Algorithmic Collusion Act” early this year.
Breaking up the virtual smoke-filled rooms of price fixers is necessary and overdue. But even on a level playing field, prices will continue to rise unless we build our way out of the housing shortage that got us here in the first place.