A national antitrust case centered on a controversial algorithm began in federal court in Nashville this week. Plaintiffs argue that the algorithm, created by software company RealPage, is used by landlords and property management companies to artificially shrink housing supplies and drive up rents across the nation.
The algorithm uses data from real estate companies to help landlords set prices to maximize profits.
It works like this: If you have three apartments at $1,000 a month, and you rent out all three, you make $3,000 a month; but, if you price those apartments at $2,000 a month, and are only able to rent two of them, you make $4,000 a month. So, you would make more money, even if one of your apartments remained vacant.
RealPage’s algorithm helps you figure out how much to charge to make as much money as possible, explained Tennessee State University professor Ken Chilton.
“It takes all the data and aggregates it and says, ‘No, you should be charging $1,300 a month instead of $1,100.’ So in a way, it acts as OPEC, being the cartel that sets the prices,” he said.
It’s a kind of market-wide coordination that — without this kind of tech — was not previously possible and has contributed to higher rents and more vacancies.
“That doesn’t help you as someone who is trying to make a living in this town, trying to carve out an affordable lifestyle,” Chilton said.
Now, plaintiffs in this new lawsuit argue that the use of this algorithm amounts to collusion and price-fixing. The lawsuit comes after the Department of Justice launched a probe into the use of the algorithm, which was sparked by an investigation from ProPublica.
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