Are Seattle rents being artificially inflated via algorithm?
If you live in an apartment in Seattle, there's a good chance an algorithm is setting your rent.
Many of the largest property managers in the United States use the same service where data for 13 million rental units is collected and used to recommend prices.
Some tenants say that amounts to illegal collusion, and in a few places they're suing. That includes Seattle, where three lawsuits were filed in federal court last month.
The lawsuits are focused on a company with a software called RealPage.
In that software, landlords and property managers across the country can provide information about the apartments that they rent, including the rent they're charging and the size of those apartments. RealPage then uses an algorithm to recommend how much landlords and property managers should be charging for their apartment rentals.
By doing so, the software uses a plethora of information from competing landlords to recommend to other landlords how much they should charge.
The nonprofit news outlet ProPublica recently published an investigation that raised various concerns, including questions about antitrust and competition, and whether this amounted to landlords basically colluding with each other to set their rents as high as possible.
Those questions and concerns became the core of the three Seattle lawsuits.
Seattle Times business and real estate reporter Heidi Groover talked to Soundside about these lawsuits and says that it's a complicated issue.
"At the heart of it is whether these landlords and property managers using this software, and knowing that their competitors are using it too, and knowing that the algorithm is informed by their competitors, are effectively colluding," Groover said.
Douglas Ross knows a lot about how antitrust law is applied to tech. He's a professor at the University of Washington School of Law who specializes in antitrust and class action litigation.
The idea that companies get together to fix prices is not new. But Ross says the part of these cases that stands out is the use of an algorithm. The legal argument hinges on the role of RealPage software to aggregate data and make recommendations. This isn't people talking and making deals in smoke-filled rooms.
"For a number of years, people have been warning that as we move into having more and more reliance on algorithms, that the possibility for price fixing, without human intervention, is out there," Ross explained. "This is one of the very first concrete examples."
Of course, regulation often lags behind technological innovation. Ross said there is legislation in place to address allegations of modern-day algorithm-assisted collusion.
"Yeah. And it's called the Sherman Act, and it was passed in 1890," he said.
Professor Ross says we don't need new laws to deal with these things.
"The old laws that we've got on the antitrust books are broad, and really do a good job at anticipating what's going to come in the future," Ross explained. "The Sherman Act passed 130 years ago, says it it's against the law if competitors get together and agree on price. And in 1890, they didn't have computers, and they didn't have algorithms. "
For the plaintiffs, winning may be an uphill battle.
"The shortcut to win the case is to argue and show that there is an agreement among the landlords to fix rental prices," Ross explains. "They're going to have to show that the exchange of this information ended up setting rates above where they otherwise would have been."
Meanwhile, the defense's goal is clear: "Agreement? What Agreement?"
"The defendants are simply going to say, this is a 21st century way of improving the flow of information," Ross said. "And the defendants are going to say, there was no agreement among the landlords to follow whatever the recommended route was, from the algorithm."
These lawsuits are just getting started, and for antitrust cases, it could take years for them to see resolution.
Ross says the first step will be determining whether the case will even be granted class action status at all.
"There will be documents and depositions and testimony given," he explained. "During that period of time, the parties may try to settle it. And during that period of time, the defendants may try to persuade the judge to dismiss the case. If it doesn't settle, and it isn't dismissed, it would go to trial, but it's hard to imagine a trial happening in anything less than two years."
To hear the entire conversation, click the link above.