The Department of Justice sued RealPage on Friday, August 23, 2024. The lawsuit alleges that RealPage’s software enables landlords to collude on rent prices.
Recent claims about rental pricing algorithms costing U.S. renters billions in excess rent fundamentally misunderstand how the rental market actually works. Having worked both in property management software sales at Yardi and in private equity real estate, I can offer unique insight into how rental prices are really determined.
The Reality of Rental Market Competition
First, it’s crucial to understand that the U.S. rental market is highly fragmented, with thousands of property owners competing in any given market. This structure makes price collusion practically impossible. Unlike a monopoly where one entity can dictate prices, rental markets are characterized by intense competition among numerous players.
The Role of Property Management Software
Several major companies provide property management software, including:
- RealPage
- Yardi
- Entrata
- AppFolio
Each of these companies uses its own proprietary algorithms to suggest market rents. Importantly, these are just tools – not mandates. Property managers and owners maintain full control over their pricing decisions.
The Human Element in Pricing
Good property managers don’t blindly follow software recommendations. Instead, they conduct thorough “market surveys” – a process that involves:
- Calling nearby comparable properties
- Speaking directly with other managers
- Analyzing local market conditions
- Assessing what renters are actually willing to pay
This hands-on research is essential for accurate price discovery, similar to competitive analysis in any other industry.
The Real Driver of Rental Prices
The fundamental truth is that supply and demand – not algorithms – determine rental prices. While it’s tempting to blame technology for high housing costs, the real challenges lie in local policy decisions that restrict housing supply. City councils and state representatives who make it difficult to add new housing inventory are the true drivers of housing affordability issues.
The Solution
If we want more affordable housing, the answer isn’t to attack property management tools – it’s to build more housing. Increased supply is the only reliable way to create more affordable housing options in any market.
Understanding these market dynamics is crucial for having productive conversations about housing affordability. While algorithms can help inform pricing decisions, they’re just one tool in a complex market driven by supply, demand, and thousands of independent decision-makers.