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The Federal Bureau of Investigation (FBI) conducted an unannounced raid on the nationwide rental company Cortland Management on May 22, intensifying its investigation into an alleged rent-fixing conspiracy that may already affect millions of Americans.
The surprise raid was reportedly part of a criminal antitrust investigation by the U.S. Department of Justice (DOJ) into RealPage, a $9 billion software company that recommends rent increases on millions of housing units across the United States.
According to RealPage blog posts, Atlanta, Georgia-based Cortland, which owned nearly 85,000 housing units as of June 2022, used RealPage's algorithm to “ensure consistent provider pricing for its communities from Arizona to Georgia.”
RealPage's impact is most evident in Atlanta, where software-based pricing influences more than 80% of rents. Since 2016, rents in the city have increased 80% – and higher vacancy rates have not driven prices down.
Multi-family housing. Photo credit: Getty Images
The problem with RealPage, according to several lawsuits filed in California, Arizona, New York and other states over the past two years, is that the company's algorithm increases rental prices not according to demand but in response to data collected from landlords.
The landlords “were not competing at all,” Arizona Attorney General Kris Mayes said in a lawsuit against RealPage announced in February.
“They colluded with each other,” Mayes said.
According to the Arizona lawsuit and other lawsuits filed, landlords provided RealPage with detailed information about rental prices, lease terms, amenities, move-out dates and occupancy rates.
“Using this sensitive data, RealPage gave competitors instructions on which units to rent, when, and at what price,” Mayes explained. “This was not a fair market, this was a rigged market.”
Related: Attorneys General sue RealPage and landlords over ‘astronomical’ rent increases: ‘This was not a fair market’
RealPage's reach is undeniable. A lawsuit in Washington, DC, found that 60% of the area's residential homes set their prices using RealPage. In Phoenix, Arizona, 70% of the housing units were owned or managed by companies that used the company's software.
According to a 2020 blog post, RealPage's algorithm has been used in over 16 million rental units in the United States.
“That's a very large portion of the total inventory in the country, considering there are about 22 million investment-grade apartments in the U.S. today,” said Tracy Saffos, industry director at RealPage, in the same post.
Related: Where are rents falling the most in the US?
RealPage's impact on tenants was palpable – even to the company's executives.
When asked what role RealPage's technology played in rising apartment rents, company CEO Andrew Bowen said the software was “the reason why.”
“As property managers, very few of us would be willing to manually increase rent by double digits in a single month,” Bowen said.
Although RealPage told CNBC that its landlord clients were not required to implement the rent increases recommended by its algorithm, a 2022 ProPublica investigation found that landlords accepted 80-90% of the algorithm's suggestions.
According to the lawsuit filed against the company in Arizona in February, RealPage sent “rate consultants” to meet in person with landlords and review their application of recommended rates.
Over the last ten years, rental inflation exceeded overall inflation by 40.7%.
Related topics: CPI report: Rising rents and gas prices keep inflation high
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