Seattle landlords accused of conspiring to raise apartment rents
Several of the largest property management companies operating in Seattle conspired to drive up rents and decrease competition, three lawsuits filed this month allege.
The cases, filed in federal court in Seattle, focus on the use of RealPage software, which gathers information about rental units and rent prices and uses an algorithm to recommend how much landlords should charge.
The complaints claim that by exchanging detailed and “competitively sensitive” information, RealPage and the landlords have illegally created a “cartel” to set prices in violation of antitrust laws.
The widespread use of RealPage has increased rents across the country and in Seattle neighborhoods such as downtown, Capitol Hill, the Central District, South Lake Union and Queen Anne, the complaints allege.
The lawsuits, filed on behalf of tenants, cited an investigation by the nonprofit news outlet ProPublica that was published in October and detailed the use of RealPage in Seattle and other cities. ProPublica found, for example, that 70% of large apartment buildings in Belltown were run by 10 property management firms that all used the software in at least some of their buildings.
Two of the three complaints filed in Seattle focus on traditional market-rate rentals, and the third focuses on student housing. The complaints name RealPage along with nearly two dozen property ownership and management companies based all over the country. The companies include Equity Residential, Avenue5 and Greystar, which claims to be “the nation’s largest apartment operator,” among others.
Each case seeks class-action status on behalf of people who have rented from the named companies in recent years.
RealPage, Greystar and most of the other named companies did not respond to requests for comment. One student housing company, Campus Advantage, said in a statement it “strongly disagrees with the unsubstantiated allegations in the lawsuit and intends to vigorously defend against the claims.”
The cases are part of a new front in antitrust disputes because of the use of an algorithm, said University of Washington law professor Douglas Ross, who specializes in antitrust law.
“There’s nothing new or different about saying a group of people got together to raise prices … The way in which they allegedly have agreed to raise prices is interesting,” Ross said. “That helps set this case apart.”
According to ProPublica and the legal complaints, RealPage uses an algorithm to recommend rent prices based on detailed information about rental sizes, prices and vacancies it collects from various large landlords and property management companies. The company promises to help property managers and owners maximize their revenue.
Multiple competing rental companies rely on a single entity, RealPage, to set rents “in contrast to a healthy and functioning competitive market,” the complaint alleges.
Without the software, landlords independently set their rents in hopes of competing with other rentals and may even offer deals like “first month free,” the complaints allege.
The Washington Multifamily Housing Association, which represents large landlords in the state, declined to comment. Sean Flynn, executive director of the Rental Housing Association, which represents landlords with fewer properties, said he wasn’t aware of any of his group’s members who use the software. “They don’t even try to sell [RealPage] to our people,” Flynn said.
Vacancy rates and other details about rental properties have long been “closely held secrets in the industry because people are competing,” Flynn said. His group has avoided collecting rent data from its members for fear of appearing to fix prices, he said.
RealPage and large landlords are able to maintain a “cartel” because tenants face high costs to switch apartments and because it’s difficult and expensive for competing landlords to quickly match the market share of those companies working with RealPage, the complaints allege.
In Seattle, renters will find “few realistic and low-cost alternatives” to renting from a company using RealPage, one of the filings noted.
Steve Berman, the attorney bringing two of the cases, said his firm has heard from “hundreds” of tenants living in buildings managed by the named companies since filing the first case.
“We’ve just been inundated with people telling us their stories, their belief the rent is too high and the hardship that has caused,” Berman said.
Proving antitrust claims can be difficult, Ross said.
Plaintiffs challenging the use of the algorithm could win by showing that competing landlords together entered into a price-fixing agreement. In the absence of an explicit agreement, though, they would need to show that each landlord knew others were using the program “and was willing to use RealPage only because so many of its competitors were using RealPage,” leading to higher rents, Ross said.
Proving that Seattle rents climbed because of the use of RealPage will be a challenge, too, given other factors such as Seattle’s huge population growth and slim supply of housing over the last decade. “That would be a real battle,” Ross said.
The outcome of the cases could be months away. Private antitrust lawsuits typically settle rather than go to trial, Ross said.