Tenants in California have filed a class action lawsuit against Richardson-based RealPage, which has come under fire following a report by ProPublica that investigated how its proprietary algorithm was helping landlords raise rents to record highs .
The story details how the use of RealPage’s YieldStar software raises concerns that it harms competition and inflates rental prices. It was released on October 15. The lawsuit was filed Oct. 18 and also names Dallas-based Lincoln Property Co., along with seven other multi-family owners: 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 of each of the companies revealed that they represent approximately 236 of North Texas’ multifamily rental properties.
The class action lawsuit, which lists California and Washington-based tenants 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 leased properties that used RealPage software and services to set rental prices and manage lease renewals.
ProPublica reported that Greystar, one of the nation’s largest property management companies, was able to outperform the markets it operates in by almost 5% when it used YieldStar to price rents. .
At the heart of the problem, according to the lawsuit, is that prior to RealPage’s dominance in the rental software market, competition drove prices through a strategy called “head in bed,” which assumes that having occupied units, even if you have to offer rental promotions and reduced rates – it is better that the units remain empty. This natural response to filling vacancies would keep rents manageable and more affordable.
But RealPage’s software, according to the complaint, worked in two ways to artificially inflate rental rates. It eliminated the market fluctuation created by the “head in bed” strategy and discouraged users from deviating from the price recommendations provided by the company. Second, the lawsuit says landlords are given information on how to agree to stagger lease renewals by allowing units to remain vacant for long periods of time to keep rents higher and avoid oversaturating the market. with rental units available. By doing this, he said, it would appear that fewer units would be available and demand would be higher, which in turn justifies a higher market rental rate.
“While lessors are able to reject RealPage pricing through an onerous process, RealPage emphasizes the need for discipline among participating lessors,” the lawsuit states. “To encourage adherence to its common scheme, RealPage explains that for its services to be most effective in raising rents, landlords must accept pricing at least eighty percent of the time.”
If a user wants to offer a rental rate different from what the software recommends, they are required to explain why to RealPage, according to the complaint.
“Today’s lawsuit plausibly alleges that rental housing landlords coordinated to drive up rents to unprecedented levels, exacerbating the national affordable housing crisis,” said plaintiffs’ attorney Gary I. Smith Jr., in a statement. “We look forward to asserting our clients’ rights in this important federal antitrust litigation.”
In a statement to Bloomberg Law, a spokesperson for RealPage said the company would “defend itself vigorously” in court. “RealPage strongly denies the allegations,” the statement said. “Beyond that, we do not comment on ongoing litigation.”
Bethany Erickson is the Senior Digital Editor of Magazine D. She has written about real estate, education policy, the stock market, and crime throughout her career, and sometimes all at the same time. She hates lima beans and 5 a.m. and takes SAT practice tests for fun.