HTLJ
On May 22, 2024, the FBI raided Cortland Management’s headquarters in Atlanta, Georgia.[1] Cortland is a property management monolith, renting out over 85,000 units in thirteen states, and is currently under investigation for fixing the rent prices of their units via algorithm provided by RealPage, a software and consulting firm.[2] RealPage’s algorithm gathers market data and uses tactics such as limiting availability of apartments and hiking the prices to raise the market rent rate. RealPage is not simply a random organization either—it is owned by one of the biggest private equity firms in the United States—which raises further concerns regarding algorithmic price fixing.[3]
Price Fixing is an agreement among competitors to raise, lower, or stabilize prices; and it’s prohibited under the Sherman Act.[4] The Sherman Act falls under the legislative umbrella called Antitrust that focuses on preventing monopolies. The Federal Trade Commission Act (“FTC”), the Sherman Act, and the Clayton Act serve as the three pillars of Antitrust legislation. Under the Sherman Act, it is prohibited to fix prices, monopolize, or attempt to monopolize a market.[5] Moreover, under the FTC, the definition for price fixing includes price fixing by algorithm.[6] Thus, price fixing by algorithm violates antitrust legislation.
Rent is a huge industry. 34% of occupied houses are rented by tenants, 45,221,844 total units.[7] In 2021, there were 102 million renters alone, with the majority of the renters paying more than 30% of their income on their monthly rent payment.[8] Rent across the country is a financial burden on renters, and the Department of Justice is cracking down on corporate landlords’ attempts to continue to inflate costs.[9] In major civil antitrust litigation, RealPage is under fire for using pricing algorithms to encourage its clients—which encompass 70% of multifamily apartment buildings and sixteen million units nationwide—to hike up costs by limiting publicly available units and raising rates to reflect an artificially scarce inventory.[10] Additionally, in Atlanta, where Cortland is headquartered, 81% of multifamily homes are priced using this method, resulting in an 80% increase in rent since 2016.[11]
RealPage using algorithms to encourage landlords to limit disclosed inventory and set higher prices to cause price inflation falls under antitrust violation. Attempting to obfuscate responsibility by equating price hiking to a byproduct of using algorithmic software is not meaningful because an algorithm is a coded formula written into software.[12] An algorithm is only capable of what it is programmed to do, taking the input information, processing it based on its pre-determined criteria, and releasing an output to the user. When most large rental organizations are using the same algorithmic process, it ultimately results in higher rent prices and masks the true number of available units, forcing nearby landlords to comply with the standard being set by these competitors.
In Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, the court said that the test to determine if an organization is price fixing is not what the actual effect is on prices, but whether such agreements interfere with “the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.”[13] This means that by preventing the pricing of units by free market competition itself, the algorithm is infringing on the market and disrupting the competitive process. Organizations will need to adjust to the growing pains of implementing new age algorithms to streamline their quantitative analysis and reduce widespread usage of the same product in order to prevent another lawsuit like with Cortland and RealPage.
The United States housing market has been a primary subject of congressional concern for some time. Real estate is deemed a lucrative business venture, but with prices soaring in recent years—due in part to algorithmic price fixing—Senators have written to the FTC urging the review of price fixing algorithms as a market suppression tactic used by large entities, such as RealPage.[14] Real estate investment trusts (REITs), private equity, and banks have been taking advantage of the tumultuous housing market. For example, REITs bought nearly a third of all single-family homes sold in Texas in 2021.[15] This increased focus on real estate as an asset will continue to exacerbate antitrust concerns surrounding the real estate market, pressuring our legislative branches to act.
To solve this unfair manipulation of rent prices by algorithm, our legislatures need to embolden our current antitrust laws. In particular, any legislation must expressly address algorithms and attempt to future-proof the legislation so housing prices cannot become subject to such price increasing methods in the future. Ultimately, such legislation should lead to a reduction in the rapid inflation of current rental prices caused by algorithms.
[1] Leslie Shaver, FBI raids Cortland Office, Multifamily Dive (Jun. 6, 2024), https://www.multifamilydive.com/news/FBI-investigation-antitrust-suit-realpage-apartment-rents/718063/.
[2] Matt Stoller, Monopoly round-up: FBI raids Big Corporate landlord over nationwide rent hikes, Big by Matt Stoller (Jun. 3, 2024), https://www.thebignewsletter.com/p/monopoly-round-up-fbi-raids-big-corporate.
[3] Id.
[4] The Antitrust Laws, Antitrust Division, https://www.justice.gov/atr/antitrust-laws-and-you (last updated Dec. 20, 2023); Henry Liu & Staff in the Office of Technology, Price Fixing, Federal Trade Commission, https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/dealings-competitors/price-fixing (last visited Jun. 17, 2024).
[5] The Antitrust Laws, supra note 4
[6] Id.
[7] Ashley Kilroy, Renting Statistics 2024, Forbes (Feb. 14, 2024, 4:07 am), https://www.forbes.com/advisor/renters-insurance/renting-statistics/.
[8] Rent Statistics U.S., Self, https://www.self.inc/info/rent-statistics/#:~:text=There%20were%20over%20102%20million,of%20people%20renting%20in%202014 (last visited June 20, 2024); Kilroy, supra note 5.
[9] Stoller, supra note 2.
[10] Id.
[11] Id.
[12] Hannah Garden-Monheit and Ken Merber., Price fixing by algorithm is still price fixing, Federal Trade Commission (Mar. 1, 2024), https://www.ftc.gov/business-guidance/blog/2024/03/price-fixing-algorithm-still-price-fixing; Liu, supra note 4.
[13] Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 213 (1951).
[14] Khushita Vasant, FBI raids Cortland Management in Atlanta as part of US DOJ antitrust probe of rental housing market, MLex (May 29, 2024), https://mlex.shorthandstories.com/fbi-raids-cortland-management-in-atlanta-as-part-of-us-doj-antitrust-probe-of-rental-housing-market/index.html.
[15] Gabriella Ybarra, Investors bought nearly a third of all homes in Texas last year, Texas Public Radio (Jun. 14, 2022), https://www.tpr.org/business/2022-06-14/investors-bought-nearly-a-third-of-all-homes-in-texas-last-year.
