Millions of people across the United States are paying far more in rent than they can reasonably afford, with rental housing prices rising far faster than household income.
According to studies, while in the pre-COVID days, it was common to find a house that cost roughly three times a buyer’s annual income, things have changed drastically since the pandemic, with home prices rising a whopping 47% since early 2020.
Median home sales prices in 2023 were about five times the median household income, according to tabulations by the Harvard Joint Centre for Housing Studies.
High prices and high mortgage rates have “left homeownership out of reach for all but the most advantaged households,” says Daniel McCue, a senior research associate at the centre.
The study discovered that in nearly half of metro areas, buyers must make more than $100,000 to afford a median-priced home; in 2021, that was the case in only 11% of markets. In 2022, 22.4 million American households were spending more than 30% of their income on rent and utilities, up from 20.4 million in 2019.
Many of these households have been facing severe cost burdens, with an all-time high of 11.6 million struggling with housing costs that consume more than half of their income. In May 2024, the median US asking rent rose 0.8% to $1,653—the highest level since October 2022. That was the second consecutive increase following 11 months of decreases. Rents rose 0.5% on a month-over-month basis.
While several factors are driving the high cost of rentals, including increasing demand, a dwindling supply of low-rent units, the rising cost of capital to build new rentals, and regulatory barriers that further restrict the construction of multifamily units, the latest data shows typical asking rent is now costing $2,009 across the United States, according to the October 2024 rental market report from Zillow, a real estate website.
Robo Price-Fixing under the scanner
However, a surprising factor has emerged behind the rise in rental prices: landlords were found colluding with the help of technology. In August 2024, the Justice Department went after RealPage, accusing the company of selling software to landlords that allows them to collectively set prices—the illegal practice of price-fixing.
The civil suit found that the “unlawful scheme” was decreasing competition among landlords in apartment pricing and monopolising the market for commercial revenue management software that landlords use to price apartments. RealPage’s alleged conduct also deprived renters of the benefits of competition on apartment leasing terms and harmed millions of Americans.
“The complaint alleges that RealPage contracts with competing landlords who agree to share with RealPage non-public, competitively sensitive information about their apartment rental rates and other lease terms to train and run RealPage’s algorithmic pricing software. This software then generates recommendations, including on apartment rental pricing and other terms, for participating landlords based on their and their rivals’ competitively sensitive information. The complaint further alleges that in a free market, these landlords would otherwise be competing independently to attract renters based on pricing, discounts, concessions, lease terms, and other dimensions of apartment leasing. RealPage also uses this scheme and its substantial data trove to maintain a monopoly in the market for commercial revenue management software. The complaint seeks to end RealPage’s illegal conduct and restore competition for the benefit of renters in states across the country,” the Justice Department stated.
In the words of Roger Alford, a former official in the Justice Department’s Antitrust Division and a law professor, “The Federal Trade Commission defines price-fixing as an agreement, conspiracy, or combination among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold.”
According to him, any agreement that restricts price competition violates antitrust laws. Alford cited examples of price-fixing agreements, including commitments among competitors to hold rental charges firm, while either adopting a standard formula for computing prices or adhering to a minimum fee or price schedule.
“So, when competitors share proprietary, confidential current price information—directly or indirectly through an intermediary—to stabilise or control industry pricing, they have crossed the line into illegal collusion, according to the FTC. That is the case in major portions of the US rental market, the Justice Department argues,” he stated.
How RealPage crossed the line
In August 2024, the Justice Department and eight states filed a lawsuit in a federal court in North Carolina against RealPage, accusing the company of selling software to landlords that collects non-public information from competing landlords and uses that combined information to make pricing recommendations.
Landlords using the software were inputting the rental prices they wanted to charge, and the software was aggregating all the data from the company’s customers. The software’s algorithm was then making recommendations for what to charge. These “recommendations” were generally higher than the current market rate, and as most customers were taking the recommendations, it pushed prices higher in the market.
“Even if landlords retain some authority to deviate from the algorithm’s recommendations, it is illegal for competing landlords to jointly delegate key aspects of their pricing to a common algorithm, according to the Justice Department suit. The Justice Department declared that RealPage replaces competition with coordination. It substitutes unity for rivalry. It subverts competition and the competitive process. It does so openly and directly—and American renters are left paying the price,” Roger Alford explained.
“The case is unusual in that, unlike a typical price-fixing cartel, the landlords used RealPage’s algorithms to dramatically improve their ability to engage in price-fixing. Algorithmic price-fixing is typically easier and more effective than other types of cartel behaviour. The software can easily aggregate massive amounts of proprietary data, optimise cartel gains, monitor real-time deviations from cartel pricing, and minimise incentives to cheat,” he added.
Since 2022, RealPage and various property managers have been named as defendants in more than 30 class-action lawsuits alleging that the venture’s software is used to unlawfully fix rental prices. Federal courts, in Alford’s opinion, tend to be sympathetic to such arguments, as shown in the denial of a motion to dismiss the case in one of the private lawsuits filed against RealPage.
“In that case, the court held that a price-fixing agreement could exist as a matter of law. Landlords provided RealPage’s algorithmic system with their proprietary commercial data, knowing that RealPage would require the same from their competitors and would use all of that data to recommend rental prices to all of the company’s clients,” he added.
Some landlords reportedly seemed to be aware that by sharing confidential price information with RealPage’s software, they were facilitating the unlawful monitoring and raising of rental prices.
The Justice Department complaint quoted a landlord commenting on RealPage’s software, “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. That’s classic price-fixing.”
RealPage argued that its software “simply helps landlords make data-driven decisions” in a competitive market, claiming its tools are designed to reflect market conditions and optimise occupancy rates, rather than engaging in price-fixing.
What’s next?
In December 2024, RealPage reportedly received notice about the Department of Justice’s Antitrust Division closing its criminal investigation into pricing practices in the multifamily rental housing industry.
However, their trouble is far from over. An analysis from the White House Council of Economic Advisers discovered recently that American renters spent an extra $3.8 billion in 2023 because of pricing algorithms used by landlords.
While the report put hard numbers to the accusations against RealPage, it also agreed that, even if these algorithms were pushing up rents, they wouldn’t be the primary driving force behind rising housing prices, since the country is experiencing a broader housing affordability crisis.
Now, it remains to be seen whether the Biden administration pursues the charges against RealPage or if it addresses the bigger picture: increasing demand, a dwindling supply of low-rent units, the rising cost of capital to build new rentals, and regulatory barriers.