Alleged Rent-Fixing of Apartments Nationwide Draws More Legal Scrutiny. Lawsuits contend that software company enables landlords to set prices illegally.
The Wall Street Journal dated April 15, 2024.
The headline looks like the big, ugly landlord is again taking advantage of tenants who otherwise have nowhere to go for help. It assumes that tenants cannot take care of themselves, and deserve help. But when I read the article, I didn't see that. Instead, I see a headline that creates unnecessary negative headlines for property owners. Click here to read the article and decide for yourself.
Here is what I read from the article:
Software company RealPage allows owners of rental properties to subscribe and get a comprehensive analysis of current pricing on properties like their rental property. It is designed to help optimize rents.
The plaintiff (Department of Justice) says that this software recommends to landlords how much they should increase rents. (It does not say that if a rental market softens in any area, it will likely also recommend rent decreases.) The point is, that if the software only recommends increases, then during soft rental periods, customers of this technology would experience high vacancy rates because the recommended pricing would not be sensitive to market drops.
The lawsuit is intended prevent landlords from using information to make business pricing decisions. The accusation is that the technology provider RealPage is setting prices.
Here is what is not written:
Because property ownership is not a monopoly and ownership of rentals is heavily fragmented, it is nearly impossible to price-fix rental rates. An excellent example of this is the largest owner of single-family houses, as of January 30, 2024, is Invitation Homes. It holds 83,502 homes in its portfolio. Invitation Homes is followed by Progress Residential (81,716) and Blackstone (61,964). There are 132 million single-family homes in the United States. For a moment, if you roll the top three owners together, their aggregate ownership of 227,182 would represent two-tenths of one percent (0.2%) of all homes in the U.S. This share is far from the definition of a monopoly. My comment is especially true considering that the 0.2% is distributed among 210 Designated Market Areas (DMAs) in 50 states. Remember, the number used in my hypothetical calculation is a complete exaggeration. These companies have not merged.
While the article touches on a supply shortage, there is no assignment of higher rents being tied to supply and demand rather than price fixing. If more rental properties existed, especially in major markets, rents would not rise as much. If there were too many rentals, prices would drop. A good example is large market office properties. Because vacancy rates are high (too much supply), rents have dropped dramatically over the last few years.
A pricing tool helps make rental rates more competitive. Landlords do not want to overprice and have their property sit unleased. With this tool, landlords can match pricing to demand quickly, for less cost. This will result in quicker absorption (use by tenant), less vacancy.
It's disheartening to see the government and courts attempt to dummy down data available to business owners (landlords) to solve an economic problem. It will make the industry less efficient. Or more likely, another tool will be invented to help industry become equally productive. Until potentially that tool is beaten down as well.
Investment property owners, I know how tough it is for you to generate an acceptable risk-adjusted rate of return on your property. Let's hope this concludes without merit, and that you can continue to use technology to properly price and operate your business.