Arizona Sues Apartment Landlords for ‘Immoral’ Rent Price-Fixing Scheme Article originally posted on Phoenix New Times on March 4, 2024 Arizona Attorney General Kris Mayes filed a lawsuit Wednesday against software company RealPage and nine residential landlords, alleging they engaged in a massive conspiracy to price gouge at least 100,000 renters in Phoenix and Tucson. RealPage sets prices for apartment units based on an algorithm that maximizes profit, according to the lawsuit filed in Maricopa County Superior Court. Some 70% of multifamily apartment units listed in the Valley are owned, operated or managed by companies that have contracted with RealPage. In Tucson, it’s about 50% of units. “Renters are not dealing with a competitive market,” Mayes told Phoenix New Times at a press conference on Wednesday. “They are dealing with a monopoly that is engaged in anti-competitive price fixing.” With the use of RealPage software becoming widespread, the free market ceases to be free, fair or transparent, and landlords can effectively conspire to raise prices through the software’s algorithm, the lawsuit argues. Landlords using RealPage software charged 12% more compared with landlords who didn’t use it, Mayes’ office estimated. She said that number, based on a sample of 30,000 units, is conservative. The lawsuit makes Arizona the first state in the country to sue RealPage, which Mayes suspects is engaging in the same activities across the country. The attorney general in Washington, D.C., also filed a lawsuit against RealPage and local landlords in November 2023. ‘They knew what they were doing’ The antitrust lawsuit comes as housing costs, evictions and homelessness have skyrocketed in Phoenix since landlord use of RealPage software became more common in 2016. Between 2016 and 2021, rent soared by 80%. Last year, rent increased by about 10%. In October 2023, evictions reached a high not seen since the Great Recession in 2008. Mayes also noted that RealPage profit maximization moves the landlords’ focus from occupancy and instead pushes for rent increases — even if that means leaving units vacant. “It used to be landlords would be worried about vacancy rates, and they would be worried about being able to compete against the landlord next door,” Mayes said. “Now they don’t have to worry about any of that, because they’re all charging the same high rent. And they aren’t deviating from it because RealPage tells them not to.” If you’ve been in an apartment building in the Valley, and it seemed strangely empty, the lawsuit might help explain why so many units are vacant while evictions and homelessness are at all-time highs. Mayes said the scheme works because landlords agree to outsource their pricing authority to RealPage — rather than competing with one another. “This is a case where the software and AI were being used in what can only be described as immoral,” Mayes told New Times. “They knew what they were doing. They knew they could use technology to jack up their profits at the expense of Arizonans, and that is absolutely not OK.” Mayes wants RealPage and the landlords named in the lawsuit to pay restitution to renters who have been harmed by the alleged conspiracy. The attorney general is also asking the court for an injunction requiring the defendants “to stop their anti-competitive practices.” “Every dollar of increased rent that the cartel illegally squeezes from renters is money they would not have otherwise paid in the absence of the conspiracy,” the lawsuit reads. While only nine corporate landlords are named in the lawsuit, Mayes said the number is likely to increase during the discovery process. The landlords named in the lawsuit are Apartment Management Consultants, Avenue5 Residential, BH Management Services, Camden Property Trust, Crow Holdings/Trammell Crow Residential, Greystar Management Services, HSL Properties, RPM Living and Weidner Property Management. RealPage could not be immediately reached for comment on Friday. Hiding a conspiracy from the public Mayes called RealPage and landlords who engaged with the company “insidious” for attempting to conceal the alleged price-fixing conspiracy from renters and the public. A damning passage in the lawsuit alleges that RealPage taught its landlords how to avoid detection of the conspiracy, creating training materials that encouraged landlords to avoid mentioning the software and instead say units were being “priced individually.” “RealPage encouraged concealment to avoid detection,” the lawsuit reads. The attorney general also claimed RealPage put significant pressure on participants to ensure they adopted its prices. According to Mayes, this is called “policing the conspiracy” to make sure no one sets prices lower than other landlords. Mayes claimed RealPage policed the conspiracy in four ways: Employing pricing advisers whose job was to “monitor and report on weekly rents” and meet with landlords to ensure that properties were implementing the company’s set rates. Chilling landlords’ employees by tracking the identity of employees who request a deviation from RealPages’ rates, which can lead to them being fired. Threatening to drop landlords that reject RealPage’s set rates. Encouraging landlords to automatically accept RealPage’s prices. Mayes said the alleged conspiracy violates the Arizona Uniform State Antitrust Act and the Arizona Consumer Fraud Act, which she called “two statutes that have not been used nearly enough in this state.” “What could be more unfair, what could be more deceptive, than landlords who were using software and an algorithm to jack up the price of rents without telling renters that they were doing it?” Mayes asked during the press conference. “That is unfair under the law.” Mayes said the soonest renters could see relief is if the court tells landlords that they must immediately cease using the software to keep prices higher than in competitive markets. In an era of dawning artificial intelligence, the lawsuit could bring about a landmark case that challenges certain uses of AI and algorithms. “Given the involvement of Wall Street, of algorithms, of AI now in this space, I think it’s fair to ask a lot of hard questions about what’s going on out there,” Mayes said. “I think it’s important to challenge the use of this technology in this way to harm Arizonans.” Mayes also said she will encourage attorneys general across the country, whether Democrats or Republicans, to investigate RealPage and file similar lawsuits.