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'The Indicator From Planet Money': The lawsuit that could shake up the rental market

LEILA FADEL, HOST:

Apartment prices are high nationwide, in large part due to limited supply. Another factor could be algorithms. That's according to more than 20 lawsuits filed against the company RealPage. Adrian Ma and Wailin Wong from The Indicator podcast explain how the cases challenge conventional thinking about collusion.

ADRIAN MA, BYLINE: One of the biggest ways the federal government tries to regulate the marketplace is through antitrust law.

WAILIN WONG, BYLINE: We've got Maurice Stucke. He's a law professor at the University of Tennessee who specializes in antitrust law.

MA: And Maurice says there are lots of ways parties can collude. But really, the classic version is the so-called hub-and-spoke model of collusion.

MAURICE STUCKE: It's your basic conspiracy. Imagine you're going to have a bank robbery. The last thing you want to do is bring all the conspirators into the room, and they would then say, you're going to do this, you're going to do that.

WONG: Maurice says if all the conspirators are directly connected with each other, that means if any one gets arrested, the rest become vulnerable. Smart co-conspirators would go through an intermediary - separate but together, like the hub and spokes of a wheel.

MA: And here's where we get to the lawsuits against RealPage, the company that makes that algorithmic price setting software used by landlords and property managers all around the country. Now, a key issue in these cases is whether RealPage's software is facilitating collusion between landlords, like whether real page is the hub and landlords are the spokes.

WONG: In recent years, a lot of property managers started using algorithmic pricing software like the one made by RealPage. Part of RealPage's secret sauce is that its pricing algorithm doesn't just factor in public information, but also private information - information provided by the landlords. And by private information, we're talking about the kind of info landlords generally want to keep hidden from their competitors - things like vacancy rates, what leases are expiring, what renters actually pay on rent as opposed to what's advertised. Armed with this data, RealPages pitch to landlords is trust the algorithm. Let us do the math. Our software will tell you the optimal price you should charge for any given unit. You'll make more money. Easy peasy.

MA: And in fact, RealPage says its software routinely helps landlords, quote, "outperform the market" by 2- to 5%. And this has made the software incredibly popular with property managers.

STUCKE: You have over 40 markets in the United States, whereby anywhere between 30- to 60% of the multifamily apartment units are using RealPage as their pricing algorithm.

MA: This popularity itself is not necessarily a problem, except those suing RealPage believe this software is essentially facilitating a price-fixing scheme, that the company makes a big deal about customers being disciplined, sticking to the software's recommended price. And it's alleged the company has even kicked customers off the platform for deviating too often.

WONG: And Maurice says that's particularly a concern in cities where RealPage is used by a high percentage of landlords.

STUCKE: Because it's no longer responding to the market, it now, in fact, becomes the market as more competitors are using them.

MA: We reached out to RealPage for comment, but it hasn't responded.

WONG: RealPage denies that it's violating the law, and it says that property managers are free to disregard its price recommendations. But as of a couple of weeks ago, a federal judge has said it will have to make that argument in court. Meanwhile, the U.S. Department of Justice says it's following the case.

Wailin Wong.

MA: Adrian Ma, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.

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