Corporate Rent Control in the Emerald City

20.5 minute read

Eleven companies, all large national rental property owners, are listed as co-defendants in the Seattle lawsuits. The vampire squid of the cartel companies is Greystar Real Estate Partners.

We are republishing this article from Seattle DSA member Tom Barnard. It first appeared in the South Seattle Emerald.

In Seattle, many of us encounter our actual landlord maybe once, if at all. Most corporate landlords hire a combination of software portals and property managers that handle rent, maintenance, fees, and anything else that empties your bank account. Often you don’t even know who actually owns your unit. You pay your rent; next year (or next month), you pay more rent, and you hope your income keeps up with it. When it doesn’t, you move. Your rent increase, affordable or not, is always blamed on that endlessly repeated fable you learned in Econ 101: the law of supply and demand. Like gravity, it’s presented as an eternal principle. What’s never talked about is what determines supply and demand: market dominance and bargaining power.

The Lawsuit

Back in November 2022, The Seattle Times broke a story about three lawsuits filed against a software firm called RealPage and several of its clients. The article stated, “The complaints claim that by exchanging detailed and ‘competitively sensitive’ information, RealPage and the landlords have illegally created a ‘cartel’ to set prices in violation of antitrust laws.” RealPage, according to the lawsuit, “includes a pricing algorithm … designed to aid landlords with driving rent up as high as possible.” The suit claims that leasing companies increase the price of Seattle rent to rates beyond what a “fair market“ price would be.

So how does this work? According to a ProPublica report, the YieldStar software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge. It then feeds its clients’ internal rent data into its pricing software, giving landlords an aggregated, anonymous look at what their competitors nearby are charging. RealPage then meets privately with landlords who are normally rivals to advise them on how far they can raise their rents, even if it temporarily creates a lower occupancy rate. (One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared with computer-generated pricing.)

Is there anything to this? “Machines quickly learn the only way to win is to push prices above competitive levels,” said University of Tennessee law professor Maurice Stucke, a former U.S. Department of Justice antitrust prosecutor. In covering the story, KUOW interviewed Douglas Ross, a professor at the University of Washington School of Law who specializes in antitrust issues. Ross pointed out, “The Sherman Act passed 130 years ago says it’s against the law if competitors get together and agree on price.” How this lawsuit will end up is unclear; private antitrust lawsuits often settle out of court.

Eleven companies, all large national rental property owners, are listed as co-defendants in the Seattle lawsuits, including the biggest corporate apartment owner and developer in Seattle, Greystar Real Estate Partners. Only two are based in Washington; most of these companies own thousands of units across the country. RealPage’s clients rent out over 22 million units worldwide in North America, South America, Europe, and Asia.

The Cartel in Seattle: Exorbitant Rents in a Concentrated Market

Where are cartel rents concentrated locally? The ProPublica report cited a prominent example in a Belltown neighborhood sandwiched between the Space Needle and Pike Place Market, where rental units are overwhelmingly owned by RealPage clients. Of the 9,066 market-rate apartments, cartel firms owned 70% of units and used RealPage’s software to set rents.

Belltown isn’t the only neighborhood where cartel holdings are concentrated. In Capitol Hill, a neighborhood transformed by the arrival of tech sector employment, a majority of the companies named in the lawsuit collectively own and manage over 4,800 units alone. South Lake Union, Ballard, and Queen Anne are other areas of high cartel ownership. Many of these companies’ units are at the top of the rental market, branding their properties as exclusive, amenity-laden apartments that claim various unique living experiences.

The vampire squid of the cartel companies is Greystar Real Estate Partners. In 2021, the National Multifamily Housing Council ranked Greystar the largest apartment manager and developer in the world, operating in 13 countries, with over 728,000 units. Not just a property management company, it offers investment advice for the uber-rich and redevelopment advice for landlords who want to squeeze higher rents from their properties. Greystar manages 59 buildings in Seattle alone, with a total of 12,900 units, alongside another 50 or so properties elsewhere in the Puget Sound region. 

Other landlords listed in the lawsuit as part of the cartel include: Thrive Communities (over 6,200 units), Equity Residential (over 4,800 units), Avenue5 Residential (over 3,800 units), FPI Management (almost 2,900 units), Essex Property Trust (almost 2,300 units), and AvalonBay (almost 1,100 units). The ironically named Thrive offers, as part of its portfolio, subsidized “affordable” rentals. Before we start handing out any humanitarian awards, consider its Midtown Square property, in the heart of the recently gentrified 23rd and Union Central District neighborhood. Its subsidized studio and one-bedroom units are for those with incomes between $58,900 and $70,000. Not exactly barista wages.

The true scale of the rental market share by all the cartel companies’ holdings in Seattle? Over 34,000 units, almost a fifth of the city’s roughly 183,000 units. That may not constitute a monopoly, but it’s easily large enough to affect overall prices.

Tilting the Market, Keeping the Churn High 

Given cartel landlords’ ownership size — few non-cartel companies are at that scale — that level of market power affects all other landlords’ pricing. As they compete for market share over what are often the most expensive rentals, they will peg their prices to nearly the same level as the cartel landlords. Even when renting less-attractive units, landlords look at how closely they can come to those higher-priced rentals. If large corporate units are going up 10% or so a year, then your midsize LLC-owned property or rundown slumlord has no reason not to do exactly the same thing. 

That’s exactly how you get constantly rising rents across the board. One study showed the Seattle metro region had the largest jump in rent prices between 2010 and 2019 in the country. For the Seattle-Tacoma-Bellevue area, the average 10-year increase in rent was almost 92%. Those rates were almost double the increase of almost 47% in median household income for the same period.

Rent hikes are continuing as landlords take advantage of the end of pandemic restrictions. The website Zumper calculated that over the past year, one-bedroom rents rose 10.4%. Current median rents for a one-bedroom are $1,995 and $2,750 for a two-bedroom.  

To spend no more than a third of your income for a one-bedroom apartment in Seattle, you’d have to make roughly $71,820 per year and $99,000 for a two-bedroom. The gap between that and actual affordability among Seattle renters was illustrated by one 2021 study that found there were more than 79,000 renter households in Seattle that were cost-burdened in 2019.

As renters at the bottom rung of the price ladder pay a greater share of their income in rent, almost any sudden increase can displace them from Seattle or tip them into homelessness. Real Change News reported on a recent survey by the Census Bureau that over 144,000 households in the Seattle metro area reported being behind on rent, and over 43,000 said they were very or somewhat likely to be evicted within the next two months. 

As cartel landlords use the software to keep rents as high as possible, you get the constant churn of tenants moving out and new tenants moving in. Landlords are just fine with that, as the churn grows their income stream even faster. What’s the only kind of tenant who’s more profitable than a long-suffering one, who’s willing to endure rent hike after rent hike? A new tenant, who has no idea what the previous tenant paid, and, therefore no way to tell just how much they’re about to be charged over what the last tenant paid.  

The reality is that in Seattle, we have rent control. It’s just corporate rent control. Large corporate firms own literally thousands of units, and collaborate in a cartel to raise rents as high as they can. National or even international firms who treat entire cities as shareholder investment vehicles use your few square feet of living space as a commodity, constantly rising in value. They’ll squeeze whatever they can out of you, and then when you can’t take it anymore, they’ll find a new person to squeeze. 

It does give you a new understanding of the word eviction. Just because the sheriff isn’t at the door with a notice to vacate or the landlord hasn’t taken you to court, you are still essentially evicted if you end up moving because you can’t pay the rent. 

A groundbreaking study of evictions by the Milwaukee Area Renters Study (MARS) asked over 250 questions to examine those economic evictions, producing the most comprehensive data set on eviction ever collected. It showed that people really didn’t equate being forced to move because they couldn’t keep up with rent increases as an eviction. When those were counted, a shocking finding was revealed: In the two years before being surveyed, more than 1 in 8 Milwaukee renters were forced to move, whether because of a formal or informal eviction, foreclosure, or condemnation. In a hyper-expensive market like Seattle, one can only imagine the number is even higher.

Matthew Desmond, who developed the study, noted the combination of racial and gender bias in his book Evicted: “Among renters, over one in five black women report having been evicted sometime in their adult life. … If incarceration had come to define the lives of men from impoverished black neighborhoods, eviction was shaping the lives of women.” He concludes, “Poor black men were locked up. Poor black women were locked out.” 

How Did We Get Here? 

The involvement of private equity firms like Greystar in real estate deals goes back to the 2008–09 Great Recession. A housing disaster for millions of Americans, more than 3.7 million households went through foreclosure. Private equity firms bought up thousands of these single-family homes at bargain-basement prices and turned them into rentals. Almost immediately, problems ensued. Housing advocates and renters said the companies charged exorbitant rents and fees, neglected repairs, and bullied tenants by aggressively threatening eviction.   

Meanwhile, Wall Street financiers, unable to continue to find buyers for mortgage-backed securities, invented its direct descendant — renter-backed securities. Investors’ income streams were now coming from the rent checks of thousands of ordinary tenants in single-family homes. The financial gold rush led to ordinary home buyers being frozen right out of the market, as institutional firms swooped into high foreclosure markets with buckets of cash, buying up entire neighborhoods. According to a 2018 report by consumer advocates, when investors and credit rating agencies were understandably spooked by the similarity between rent-backed securities and mortgage-backed securities, financial firms assured them that, unlike homeowners, renters could be easily pushed out and replaced. By pushing up the churn, they could guarantee a strong and steady flow of cash from our pockets to the buyers of their bonds. The rating agencies agreed with their logic.

From there, Wall Street firms started buying other types of housing — everything from senior residences, student housing, manufactured homes, and trailer parks, all the way to large apartment buildings. Federal housing agencies went right along for the ride, as private equity (PE) firms like Greystar were behind 85% of Freddie Mac’s guaranteed biggest apartment complex deals, and now may be the dominant form of financial backing among the largest owners of multifamily buildings. Americans for Financial Reform estimated that as of June 2022, homes owned by private equity firms were rented out to around 1.6 million families, including at least 1,071,056 apartment units, 275,468 manufactured home lots, and over 239,018 single-family rental homes.

This trend is only accelerating. While in 2011 just 44% of apartments sold went to private investors and real estate trusts, by early 2022, investors gobbled up a whopping 70% of apartments sold.

Private Equity Firms 

Within this overall trend, the market share of private equity (PE) firms is growing. PEs manage large-scale funds, similar to a hedge fund, as a pooled investment vehicle open only to the uber-rich, though some include large public pension funds. The strategy is to operate like a corporate version of a house flipper, buying existing apartment buildings, slashing costs, and hiking rents to boost income, then often selling the buildings several years later at a higher price. 

Private equity firms claim outsize returns, with profits that can reach 20% or more. This is a far higher percentage than a real estate investment trust (REIT) provides in earned income directly to investors. Unlike a PE firm, a REIT doesn’t require a lot of wealth to buy in, though institutional players do invest in them. REITs are required to be registered with the Securities and Exchange Commission (SEC), whereas private equity funds are not. It’s dark money from the high rollers that may never even see the properties owned. 

Where Do We Go From Here?

The combination of the lawsuits and the ProPublica reports has generated some response at the federal level. ProPublica recently reported that after its investigation last year, a group of senators sent a long letter demanding answers from RealPage on its software. They asked RealPage to provide data on how many clients use YieldStar to price their properties, the average annual percentage increase in rent for all clients, and where YieldStar has the highest market share. Given the dust kicked up, the Department of Justice’s antitrust division has opened an investigation.

However, given the extraordinary reach and assets of these companies, waiting for the feds to do something just feels like, well, waiting. And the time for waiting around for someone else to save us has come and gone. So how about we start with some work that can save ourselves?

First, the arguments against allowing local rent control have always boiled down to phony rhetoric about how rent control always interferes with the market’s normal supply and demand function that governs how many units are built. But this simplistic misleading story-line simply ignores the far bigger story of market dominance by giant corporations using a software algorithm to set continually rising rents. The real debate is not over some mythical “laws of the free market.” It’s a choice between corporate rent control versus allowing the people of Seattle to overcome that. We need the authority to implement our own rent controls to check spiraling profit-driven housing costs. It’s time to force our so-called representatives in Olympia to finally do their job: representing our interests. 

Second, thanks to the passage of I-135, Seattle now has the option of building publicly owned social housing on a large scale — housing controlled by the public and the tenants themselves rather than profit-driven, dark-money Wall Street investors. Add its top-tier environmental standards built by union labor, and we have the dream of non-commodity housing. But politicians don’t like what they can’t control, and neither do their deep-pocketed donors. It’s going to be a fight in the legislatures and likely at the ballot box to get the funding for social housing off the ground, as the usual arguments around reduced revenue get trotted out. We need to build strong public support for this new model among voters.

Last, we need a new model of tenant organization in Seattle, one by renters, for renters, that can provide education, agitation, and organization as a one-stop shop. Renters lack easily accessible information on their landlords, and on the real estate industry generally. They need ways to easily and quickly share information with each other about unilateral actions and sudden charges landlords take. Often it’s difficult to even identify who the real corporate owners are, or who the slumlords are. People need this information before they can properly decide how to respond. Renters also need access to quick, reliable legal advice, even when they’re not imminently going to court. The current network of nonprofits and government assistance leaves a large hole in tenants’ access to advice on problems with their leases, and identifying actionable legal violations by their landlords.

A properly funded and organized union of tenants could provide just such assistance, empowering people to fight back. Using the knowledge and experience gathered, such a group of organized tenants could push for specific policies, whether through legislation or initiatives, that would increase tenants’ power over the landlord class as a whole. This would be a significant improvement over the current patchwork of well-intended but fractured tenant advocacy organizations. There have been one-off victories led by housing advocates, but we need a tenant-led movement that can coordinate a long-term unified strategy.

There are ways to take on the dominance of corporate landlords. It’s a struggle we can win if we can engage each other as tenants, with our massive numbers, and wake up the residents who make up Seattle. Let’s get busy!