RealPage: Cartel mastermind?
President Biden: “We’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents...”
WSJ: "The legal heat on RealPage and apartment building owners is part of a government effort to police business practices it deems anticompetitive and that result in higher prices for consumers."
The AZ Attorney General couldn't have been clearer in its recent suit against RealPage:
"Defendant RealPage, Inc. and the landlords entered into a price-fixing agreement..."
"RealPage promises that by joining up, participants can 'continually outpace the market in good times and bad.'"
"'Outpace' is code for charging higher prices than what would be charged in a market untainted by collusion. This is price fixing, and it is illegal."
---- Guilty? ----
The economics of antitrust are complicated.
Who knows if RealPage is technically guilty?
But what is the underlying concern?
...that a shady consortium hurts tenants by charging above-market rents.
Biden summarized it perfectly: “We’re cracking down on big landlords who break antitrust laws by price-fixing AND DRIVING UP RENTS..."
---- Pricing power? Quick case study ----
As far as lawsuits go, the RealPage suits are relatively interesting. And the AZ suit, in particular, is uniquely specific.
For example, it included maps of every property that used RealPage's software.
We randomly zoomed in on a pretty big neighborhood...
88 properties with 3,500 units immediately NW of Arizona State University.
[Sidenote: This was the first neighborhood we picked, no cherry-picking.]
We looked at how those RealPage properties (54% of the stock) performed over the last 24 years with respect to rent growth.
Then we compared that to the relative performance of non-RealPage properties.
Having read the damning indictment, we were surprised by the findings from the last 24 years...
-- RealPage properties outperformed half the time.
-- Non-RealPage properties outperformed half the time.
-- RealPage properties underperformed in 9 of the last 12 years.
-- RealPage significantly outperformed in 2021 (+13% vs. +9%).
-- Asking rent growth was 99.4% correlated (RP vs. Non-RP).
-- The cumulative difference in rent growth was less than 1%.
Advantage to RealPage customers: None?
---- More questions than answers ----
This exercise leaves us with more questions than answers, including...
1. Do RealPage algorithms lead to above-market rent growth?
2. Is coordination alone an illegal act?
3. ...or is illegality triggered when renters are hurt by artificially high rents?
4. Would a broader analysis yield different results (it very well could)?
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