If not % of rent then I can't understand why the company would want rents to be higher across the board.
The reason is that there is a fundamental principal vs. agent problem in the fee-based property management industry.
Usually an investor buys a building and then hires a separate corporation called a fee-based property management company to manage the property. The management company gets to keep 8-10% of the rents that come in exchange for doing all the management work. (there are situations where the owner and the manager are the same corporation but they are less common and are called owner-operators)
The fee-based management company and the building owner have different interests. The building owner wants to maximize net operating income, which usually means maximizing revenue. The fee based manager wants to maximize their earnings, which is the 8-10% of the rents minus paying for all the management work to happen.
On first glance you might think these are similar interests, but when it comes to choosing the price they are not the same. If a rental price is optimal, it takes a bit of work to rent it out. The housing unit will sit on the market for a little bit and be shown to a lot of people before you find someone willing to pay the price. If, on the other hand, the price is 10% below the optimal price, it will take very little work to rent out and will be taken by the first person who comes to look at it. In this case "little work" means the management company can save money by paying fewer staff members.
So, property owners want optimal prices and property managers want prices that are slightly lower than that.
Revenue management algorithm compliance is a solution to this principal agent problem. The building owner insists on it being used by the management company because he doesnt trust the management company to choose prices. He doesnt trust the management company to choose the price because they are motivated to lower the price in order to reduce their workload.
High price algorithm compliance is important to realpage because it is how the owner makes sure the manager is choosing prices that maximize the owners interests, rather than the management company's interest. And the owner is the person who chooses to enforce the pricing algorithm, and thus the true customer of realpage when it comes to revenue management algorithms.
Very interesting - I can't find anything about this on their website, but assuming that is the case I feel like this is the only explanation so far in this thread that makes sense. Other explanations in this thread (marketing, optimizing for all the customers) fall short to me because (as far as I can tell) there is no reward / punishment mechanism.
This is not to say that the effect isn't the same though, driving prices up. And the other quotes from internal documents certainly hint that there might have been some awareness of this as well.
Rental prices in the USA keep going up primarily due to a housing shortage.
Revenue optimization algorithms like realpage's do genuinely increase rents by about 2-5%, because without them fee-based property managers lower rents below market-clearing price in order to make it easier on themselves.
The increased rent that comes from using these algorithms is, in my opinion, not really anti-competitive. If you only used public information for the pricing algorithm, you'd get largely the same prices out of the system. In almost all rental markets, algorithmic pricing of any sort doesn't have high enough market share to see success by anticompetitive price-fixing, since most suppliers of housing don't use it.
Apartment rents are crazy high because there simply isnt enough housing, and we dont let people build enough dense housing near jobs. Going after Realpage, or blackrock, or landlords, or AirBnB is just trying to find a scapegoat, when the hard truth is we need to let people build more housing near where the jobs are.
I was under the impression this was quite common, though I have no evidence and would love to be shown otherwise!
I suppose only time will tell.
Corporate landlords use RealPage in Austin, Minneapolis yet rents fall there because of supply of new housing.
RealPage does impact rental prices, but only marginally, and the real impact to prices is from supply constraint + demand.
If there is enough supply, any realpage algorithm wont matter much because of market forces. Market forces trump everything
Unless a certain company interferes with market forces — aka the whole purpose of this lawsuit.
If you need a place to live, what’re you going to do, be homeless? They have enough of the market in some cities to impact the market in a way that distorts the prices for everyone. Market forces cannot operate when companies act anticompetitively
even if realpage disappears overnight, rent prices wont fall because the new construction is outlawed by the NIMBYs.
fix new construction via zoning reform if you want to actually help people
People aren't pool balls bouncing around on a table they are fully capable of serving their interests.
Its weird to argue against the obvious conclusion that price fixing increases price
We don't know how many housing units use Realpage pricing algorithms in 2024, but in 2017 when Realpage bought the tech, it was being used in 1.5 million rentals (https://www.realpage.com/news/realpage-to-acquire-lease-rent...) and there were 43 million rentals in the US, which means nationally they had less than 4% marketshare.
Obviously, cartel behavior (raising prices above market) does not work if you have 4% of the market. Perhaps their sales have gone up 20X in 7 years and they have enough market power for cartel behavior (doubtful)? Perhaps they have a low marketshare nationally, but they have a high marketshare in a few specific markets? Maybe, lets see what the DoJ says.
I think it's very much this. National market share is meaningless. I live in Northern Virginia -- some SFH that rents in another market is meaningless for someone looking for an apartment here. In this area, it seems very much that all large multi-unit apartment buildings use RealPage. Individually owned condos that are rented out exist, but of course their quantity is very tiny compared to the number of apartment towers/complexes. SFHs, likewise, are poor substitutes, because someone in the price range of a studio, 1 or 2 bedroom unit isn't going to rent a SFH and splitting a SFH brings problems of its own.
They’re also super glib about it online https://www.realpage.com/analytics/phoenix-apartment-rent-gr...
IMHO automated price raising should be considered problematic or at least suspicious.
It’s like complaining about a monopoly on lawn mowing. Owners can always choose to mow their own lawns if they don’t like the cost of hiring it out.
https://www.skadden.com/insights/publications/2023/04/quarte...
Forcing compliance ensures all of RealPage's customers get to raise their rents while retaining their renters, which means landlords are making a safe bet when using RealPage-- and the only downside is real people paying higher rent.
Suppose that you're a big landlord in some area, such that your submitted prices can affect rents for that property type across the area. You might be tempted to submit high prices, wait for your competitors to follow suit, and then reduce your actual rents to undercut them. They (the competitors) naturally wouldn't be happy with this. So RealPage has to be able to show people that they know their numbers are the actual ones.
Cartels generally don't tolerate a cartel member undercutting their prices. Cartels are effectively in a prisoner's dilemma situation:
* If no one defects (i.e. everyone sticks to the cartel price), the cartel members get the highest price, and get the most profits. * If one party defects and goes slightly below the cartel price, while everyone else stays loyal to the cartel pricing, the defecting party gets the most business at a price only slightly below the cartel price, and makes lots of profit. * If all parties defect, there is no cartel any more, and profits are reduced.
So cartel members do not want other cartel members to defect. Cartel organisers get paid because the value of the cartel is only there if defection (i.e. not sticking to the cartel price) is controlled - so it is also in the interest of the organisers to prevent this.