Renters in California have filed a class-action lawsuit against Richardson-based RealPage, which has come under fire following a ProPublica report that investigated how its proprietary algorithm was helping landlords raise rents to record levels.
The story details how the use of RealPage’s YieldStar software is raising concerns that it’s hurting competition and inflating rent prices. It was published on October 15. The lawsuit was filed on October 18, and also names Dallas-based Lincoln Property Co., as well as seven other multi-family landlords: Greystar Real Estate Partners, Mid-America Apartment Communities, FPI Management, Equity Residential, Avenue5 Residential, Thrive Communities Management, and Security Properties. A check of the websites for each of the firms found that they account for about 236 of the multifamily rental properties in North Texas.
The class action suit, which lists California and Washington-based renters Sherry Bason, Lois Winn, Georges Emmanuel Njong Diboki, Julia Sims, and Sophia Woodland as plaintiffs, was filed in the Southern District of California on behalf of anyone who rented from properties that used RealPage’s software and services to set rental prices and manage lease renewals.
ProPublica reported that Greystar, one of the nation’s largest property management firms, was able to perform better than the markets it operates in by almost 5 percent when it used YieldStar to set the rent prices.
At the heart of the matter, the suit says, is that prior to RealPage’s dominance in the rental software market, competition drove pricing through a strategy called “heads in the beds,” which operates under the premise that having occupied units—even if you have to offer rent specials and reduced rates—is preferable to having units sit empty. That natural response to fill vacancies would keep rents at a manageable, more affordable level.
But RealPage’s software, the complaint alleges, worked in two ways to artificially inflate rent rates. It eliminated the market fluctuation that the “heads in the beds” strategy created and discouraged users from deviating from the pricing recommendations the company provided. Secondly, the suit says landlords are provided information on how to collude to stagger lease renewals by allowing units to sit vacant for lengths of time to keep rents higher and avoid over-saturating the market with available rental units. By doing that, it said, it would appear that fewer units were available and demand was higher, which in turn justifies a higher market rate for rent.
“While Lessors are able to reject the RealPage pricing through an onerous process, RealPage emphasizes the need for discipline among participating Lessors,” the suit says. “To encourage adherence to its common scheme, RealPage explains that for its services to be most effective in increasing rents, Lessors must accept the pricing at least eighty percent of the time.”
If a user wants to offer a rent rate different from what the software recommends, they are required to explain why to RealPage, the complaint alleges.
“Today’s lawsuit plausibly alleges that Lessors of rental units have coordinated to drive rents up to unprecedented levels, exacerbating the nation’s affordable housing crisis,” the plaintiffs’ attorney, Gary I. Smith Jr., said in a statement. “We look forward to vindicating our clients’ rights in this important federal antitrust litigation.”
In a statement to Bloomberg Law, a RealPage spokesperson said that the company will “vigorously defend” itself in court. “RealPage strongly denies the allegations,” the statement said. “Beyond that, we do not comment on pending litigation.”