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RealPage works by collating private competition data from all of their clients, running models to determine the highest possible vacancy rate for an area that will lead to the highest possible market rate, then telling their clients to set at that price and never offer discounts or reductions.

In a fair market, landlords with vacancies would want to fill them — they have tons of fixed costs and they can't leave money on the table like that. If you had trouble filling, you'd look at the market and adjust downwards, or offer better amenities, or do whatever you wanted to attract customers. The tension between demand and supply leads to market equilibrium.

RealPage tells its clients that if they all work together to set their prices higher than market equilibrium, hold out for far longer than they normally would want or what a free market would lead to, then the simple inelasticity of housing demand — everyone needs a home! — means that customers will eventually have to give in to the higher price in order to live their lives, and landlords will rake in the profits over time.

They use the data and actions of their clients working in concert in order to manipulate a fair market into a deeply unfair one which does not properly adjust to market forces.

Again, I have experience in this market so I have first hand experience.

I understand the cartel allegations here, but I think people are vastly underselling the competitive forces at play. If you are not filling your unit immediately, you are losing thousands of dollars a month.

Cartels break down because of the incentive to undercut (prisoner's dilemma). But in this case, it would be very, very profitable to undercut RealPage's prices and get your units filled before them. So their compliance and enforcement mechanisms of RealPage would have to be extremely robust to get corporations to willingly lose tens or hundreds of thousands of dollars a month to collectively collude on prices.

> If you are not filling your unit immediately, you are losing thousands of dollars a month.

This is false. If you have 100 units with monthly rents at: 100x$900 = $90000, 90x$1000 = $90000. 85x$1100= $93500. Of course we have no idea how many people will decide to not rent from you at different rates, but it should be obvious that the numbers can work out to it being better to not rent a few units if the price goes higher by enough as a result.

You are correct that a cartel has incentive to defect, but is it enough? You are correct that this is prisoner's dilemma, but it is a multiple round game which has very different incentives from a single round. You are better off in a single round defecting, but you are better off in repeated rounds if everyone plays with the cartel and so they are not defecting. (or at least not too much)

It’s enough if there’s enough inventory. The only reason it functions is because there’s not enough inventory in many of these markets.

> 85x$1100= $93500

And don't forget that you get to write off 15 empty units at the presumption of a $1100/mo rate. Or Airbnb them.

I worked for a public REIT that started using YieldStar when I worked there. Once they changed to YieldStar, all pricing came out of YieldStar. Rental quotes for prospects were only generated from YieldStar. Any deviation from the YS price had to be approved by the regional VP and they were not common.

They did this because RP was able to demonstrate that accepting a bit more vacancy in the very near term meant higher rents (thus higher renewals) which more than paid for the additional vacancy.

How are the forces being undersold here? A large-scale property management company can drastically influence the market without needing to fully capture it or even hold a majority.

Let's say of a given market, 30% of all units are owned by a large-scale property management company using this software.

If the prices of the 30% of those properties was artificially kept high, it would push renters to look at the 70% of other landlords whose prices were kept low as a result of not using this software, causing a demand on that part of the market.

As demand rises in the 70% of open-market-priced apartments, I would expect these property owners to see that there's a bump in demand and would understandably see this as an opportunity to nudge prices up a bit.

If your property only received 10 potential tenant candidates a month a year ago, and you're now seeing 14-15, you might be leaving money on the table.

Removing the cartel claim for a moment:

Say I'm at a farmers market with 4 produce stands. If one stand hikes their prices 40% for whatever reason, presumably people would start to consider visiting the other 3 produce stands.

Why wouldn't the other stands consider raising their prices with the increased attention?

What about the counter incentive, that lowering rents lowers valuations, which affects creditworthiness and financing by lenders?

> running models to determine the highest possible vacancy rate for an area that will lead to the highest possible market rate

In my view, holding units vacant intentionally in order to increase profit should be illegal. Vacancy taxes don't go far enough; landlords who do this should be forced to sell any units they've decided to keep vacant, or see their properties seized.

Optimizing profit around providing people shelter (or avoiding doing so) is evil.

That is very easy to cheat though. Two obvious ones: a different unit is held open every month; or these units are closed for remodeling. Until you get to long term 40% vacancy it is really hard to tell - and be careful not to kill rural small towns that no longer have demand and so apartments that will never be full anymore get torn down thus harming the few renters who remain (since it isn't worth replacing the building at current rents and many cannot afford the rent that a new apartment would need just to be worth building)

Allow up to 1 apartment or 3 separate units of house ownership per person. And only allow 1 unit vacant per apartment after the initial year after the construction, or multiple units up to 3 months per 5 years (must be simultaneous in all affected units with a tolerance of 15 days from either side to the simultaneity, no tolerance to the per-unit duration, or should be considered intentional vacancy) for maintenance and remodelling.

> While RealPage might command 80% of the market for this type of software, they only have 12,000 clients. There are over 5.2 million multi-family dwellings in the US.

This is pretty misleading.

"Greystar was the largest apartment manager in the United States, with over 726,826 units/beds..." - https://en.wikipedia.org/wiki/Greystar

That's one client. (And yes, they are a client. https://www.realpage.com/case-studies/greystar-optimizes-sub...)

> While RealPage might command 80% of the market for this type of software, they only have 12,000 clients. There are over 5.2 million multi-family dwellings in the US.

That reveals a startling statistic that 80% of the market is controlled by only 12,000 users. That's 433 units per user on average.

I think the better implication is that the vast majority of apartment owners don't bother paying for pricing software.

It's worth pointing out that third-party tools like 6Sense assess RealPage's customer base as much, much lower (around 6000 paying customers).

> I think the better implication is that the vast majority of apartment owners don't bother paying for pricing software.

I don't think there's anything so far to indicate this or that; there's still a reasonable possibility that 80% of the market is controlled by large property management businesses.

This is easy to look up. There are approx 300,000 property managers in the US.

Assuming RealPage isn't lying about their number of active customers, they would only account for 16% of the industry. Obviously the numbers could be skewed wildly but it's still far from a monopoly.

The allegation would be that they have a monopoly over rental pricing, in which case the relevant metric is the percentage of rental pricing they control, not what percentage of landlords use RealPage.

If Kroger, Walmart, and Safeway decided to collude, they’re probably less than a percent of grocery store brands. They are like 95% of the grocery supply, though.

There's two major companies in the area that rent out apartments.

I rented from one a few years back. In my unit, there were 12 apartments (I think). IIRC, four per floor, with three floors. I believe there were 8 to 12 units surrounding a common area in our "block". Then this "block" was a part of a larger group of complexes and in the area, they had five or six of these groups.

That's around 50 - 100 units.

They also had other locations. They probably manage at least 1000 units.

The other company manages fewer, but not by much.

If RealPage gets both of them, they've effectively set the prices for all apartments in the area.

> That reveals a startling statistic that 80% of the market is controlled by only 12,000 users. That's 433 units per user on average.

This conflates the market for this type of software with the larger housing market. Presumably, this software is only used by some large (probably mostly hedge-fund or REIT funds) apartment complexes. So, yeah, 80% of that market, but that's only a tiny amount of the overall market.

The DOJ chose that number (almost certainly out of a hat, because there's no way to actually identify all of them) of 80% in order to make it seem like it's a monopoly, but proving at trial that RealPage or its clients controls prices over more than a tiny fraction of the market will be incredibly difficult (actually impossible, because it's obviously not true).

However, given the DOJ's limitless funding to pursue this, clearly it's not after actually winning at trial; it's after a consent decree.

> While RealPage might command 80% of the market for this type of software, they only have 12,000 clients. There are over 5.2 million multi-family dwellings in the US.

Those statistics don't tell us enough to see if this is a problem, though. In the extreme case (obviously this is not true), everyone uses pricing software, so RealPage's 80% is 80% of all dwellings, and those 12,000 clients own 4.2M multi-family dwellings.

Also what matters is number of units, not number of multi-family dwellings. Owning a duplex does not give you the same clout over local rentals as, say, owning the only large (at say, 500 units) apartment complex does.

I generally agree with your assessment. As someone mentioned above though, I think the emails where RealPage is telling landlords not to lower prices are much more damning. It puts RP as the locus of collusion.

> they only have 12,000 clients

When you perform said Zillow or Craigslist search, do you settle for the higher end of the range of prices or the low end? Realpage only needs to manipulate a relatively small number of listings to have a huge impact in all rent prices.

The lower end! I usually undercut the market rate by ~$50.

My house rents for $2400 a month. If I leave it on the market for just a month I would lose more money than I would gain in 2 years at a higher rent! So the incentive is to get it rented out as quickly as possible and get it booked before the other guy.

So my incentive is to be just a bit lower than the other guy so mine goes first.

I will not deny that the market rate for housing is absurdly high, but it is still a market and incentives still matter.

That is because you only have one or a few units. When you have many units the numbers work out very different for empty units in exchange for higher rent.

> While RealPage might command 80% of the market for this type of software, they only have 12,000 clients. There are over 5.2 million multi-family dwellings in the US. It's only a monopoly in that they offer a very niche product. So I doubt the implication the justice department is making here - that RealPage is having a significant impact on market price through widespread collusion.

Well, given your only justification for your doubt is that you compared clients to multifamily dwellings, I gotta say, your doubt is pretty not founded in reality.

> Furthermore, housing is a market - nobody is "competing on merits".

Oof, bro.

"Competing on merits" is the entire justification for why free markets are important. If you're arguing that nobody is competing on merits, then that starts to sound like you're arguing that competition isn't working here.

> Realpage advertising that it gets the best dollar for its clients isn't that much different than your Schwab account letting you know you shouldn't sell your MSFT share for $50.

The difference being that Schwab doesn't have the pull to price-fix MSFT. In cases where a single coordinates to control 80% of shares of a stock and then price-fix it, that is, in fact, illegal.

> While I appreciate the breaking up of a potential cartel here, and this is a software I would never use, I would hold my breath if I was expecting a sudden change in the rental market because of this. Inventory is still fundamentally limited, and unless the DOJ bans all market research, the going rate is still the going rate.

I agree with you that housing prices are not likely to drastically change as a result of this, but my reason is that this isn't the only price-fixing mechanism in place.

Competition clearly isn't working for housing. Because it's not a competitive market. I am just skeptical to the extent it is due to pricing cartels.

It is a competitive market. However supply is often supply constrained (both by bad zoning and that some places are just better than others). The cartels only work because supply is constrained enough that they have power, if supply was less constrained the cartel could not raise prices as much (when supply is constrained you need less members in the first place).

I support looser zoning rules as reducing supply constraints is the only long term way out of high rents. However some places are better than others and there is a limit to how much looser zoning can reduce prices. (I wouldn't live in a tiny mud hut even if it was cheap and legal)

If we loosen zoning, and a half-dozen skyrises go up that are owned by a ~cartel~ group of friendly property developers, with X% of housing required to go to low-to-middle income households with a govt-required vacancy rate on that segment, do you think that would make rental prices go down?

Because we've run this experiment in Downtown Brooklyn for the last ten years, and rent has only gone very significantly up.

I think, at some point, you have to begin asking questions of the concept of nonresident landlordism and privately-owned massively-multifamily housing, rather than zoning, when changes to zoning don't actually make a difference to residents.

A half dozen isn't much. The real question is how would it be different. I contend it would have been worse but we cannot know.

I guess it was closer to a dozen if you add up all the smaller ones. City tower, the Death Star looking one, the Alexa looking one, the 3 or 4 medium sized ones on Gold St, the Brooklyner, the 5 or 6 medium sized ones on Hoyt, the One with the Apple Store, the three or four around Barclays Center.

We’re talking about residential space for 10s of thousands of people that completely changed the vibe of the neighborhood for better and worse.

You don’t need the counter factual to look at the prices they’re leasing for. Or to understand that the wealthy folk in these buildings look down at the cutesy brownstones and think to themselves “oh it’d be nice to live in one of those next!”. To realize that the influx of monied people and the accompanying influx of goods and services to pander to them induces top-end demand for the neighborhood and inflates rent.

The kind of high-density housing we build in this country does not deflate housing prices.

To clarify, it might be different if the neighborhoods surrounding this area were not majority owned by nonresident landlords, often the children of the original purchasers.

Increased supply solves pricing when you have a competitive and free market, but the point people in this thread are trying to make is that housing (especially in urban areas) is not at all a free and competitive market. Landlords can afford to let an apartment lay fallow. However, people not only need places to live, but they believe that they can’t afford (socially, career-wise, whatever) to leave a set of zip codes. It leads to rent being a one-way ratchet that dramatically outpaces wage growth and inflation.