Arizona's Family Investigates Podcast: The High Price of Renting in Arizona

Welcome to the Arizona's Family Investigates podcast. I'm Morgan Lowe and joining me here is my colleague, Amy Cutler. Today, we are here to talk about the price of rent, more specifically, the high cost of rent. This is something we have heard time and again as reporters. Rents have increased at a much faster rate than normal inflation. And this is affecting families all over the valley, all over the country. Yeah, we hear people talk about how inflation has affected them. These prices are higher than inflation. As you said, it is frustrating for people because they're paying hundreds of dollars more each month, sometimes even a thousand or more dollars per month for the same home, the same apartment that they were paying just a couple of years ago, a lot less money for. And the explanation that we've heard for years is that this is a result of supply and demand. There is more demand for housing than there is supply. And that has caused prices to go up. But what we found when we started looking into this is that that is not the whole story. There are one point nine million housing units in Maricopa County, single family homes, apartments, mobile homes, just under 600,000 of them are occupied by renters. Everything looked great. Everything seemed great. People like Justin Clark, who moved to Phoenix in 2022. He was attracted to a brand new apartment complex in the downtown Phoenix area because of the location and the amenities. It was a one bedroom, one bath, and I believe it was around 740 square feet. And how much did they charge for that? So it came usually around to twenty one to twenty two hundred a month. And that's not cheap. No, especially coming from the Midwest. Soon after moving in, Justin says he noticed problems with the plumbing, a shower floor that would not stop leaking. He ended up without a working bathroom. I was without a shower in my apartment, and it was completely taped off for approximately seven weeks. This sounds like a nightmare. Understatement. Casey Gettinger has another nightmare story. It was very grand when I first came in. Brits Carlton Grand. In 2022, Casey and her husband moved into one of the newer apartment towers that fill in the new Phoenix skyline. Luxury living at a luxury price. Thirty one hundred dollars per month for a one bedroom apartment. Do you feel like you got the value for what you were paying for? No, I would just think that a building charging this month would have the money to put an AC in my building. She says the air conditioning did not work. How do you not have the staff to make sure that that I have AC? Both Casey and Justin say they thought by paying a little more in rent, they would get better service. Both say that is not how it worked out. It turns out the same large investment firm owns both of their apartment buildings. Graystar owns more apartments than any other company in the United States. It operates dozens in the Phoenix area, and it's just one of a growing number of institutional investors and private equity firms that have bought up and built rental units in our community. What has followed is a dramatic increase in rent. In 2018, the majority of renters in Maricopa County paid between five hundred and fifteen hundred dollars per month. In 2023, the majority paid between fifteen hundred and twenty five hundred dollars per month. We've seen it very clearly where a private equity firm buys a building and then immediately increases the rent. Definitely, that's their business model. Jordan Ashe is the housing director for an organization called the Private Equity Stakeholder Project. He studies the effects big investors have on the housing market. They see an opportunity to raise rents or to add on fees or to spend less on maintenance and repairs. Do you think that private equity has an outsized role in increasing rents in an entire community? Absolutely. One company's rents affect another's. Nine of the nation's largest landlords are now operating in the Phoenix area. And you might think that would spark some healthy competition for renters, maybe even reducing rent prices. But according to this lawsuit filed by Arizona's attorney general, Chris Mays, the opposite has happened. This is flat out cheating. Mays' lawsuit accuses the nine investment firms of using a software company called RealPage to artificially set rent prices higher than the free market would otherwise set them. It spits out a price and all of those landlords are asked to stick to that price. No one is allowed to go beneath it because that, of course, would ruin their scheme. They're agreeing behind the scenes to not drop their rents, even when they have vacancies. It's the modern day equivalent of a smoke filled back room deal between landlords where they're agreeing to to charge high prices. And we passed antitrust laws in the state and in this country for precisely this reason. In court documents, attorneys for RealPage state Mays' lawsuit advances an implausible theory and contains demonstrably false allegations. Justin Clark is also suing Graystar. In court paperwork, attorneys for Graystar write the delays in finishing the repairs to Justin's shower were due to Justin filing a complaint for alleged code violations. Casey now lives in a rental home with a local landlord. In your experience, you found that the local landlord who just has a couple of rentals is a better landlord. Completely because they they actually treat you like a person. I just want to point out that we did reach out to Graystar on multiple occasions to try to get their side of the story, to try to get comment from them. They did not respond to any of our questions. So the big question here is really are all investors the same or is there something specifically about these private equity firms that makes them different? Yeah, it's tough when you do a story like this, because you don't want to paint everybody in the same brush. What we have learned is that the business model for private equity, which just means it's a company with private money. It's not like a company that trades on Wall Street. These are private companies. The business model for them is to put some money into a business and then try to squeeze more profit out of that business and then sell it for more money. And and that business model tends to lend itself to raising rents pretty quickly. And so private equity really gets a lot of criticism with this rental industry, with the price of rents. And I can't say that they don't deserve some of that criticism, but pretty much anybody who has a rental unit is benefiting from this increase in rents, the higher price rent. You have a bunch of businesses in town that are charging more for a product. Everybody's going to charge more for the product. I think what we have seen in this investigation, though, is that what we have is a few companies and a few renters charging a lot more money for the product. And that price increase having a really bad effect on the rest of the community. I mean, think about it. All of a sudden, it's a thousand dollars more per month to rent a place. That's money that you could spend in on a movie. That's money you could spend going out to dinner, you know, spending your money at local businesses. And now this money is going, in many cases, to big investment firms that aren't even located here in Arizona. So they're not putting the money back in our community. And I think that that's from a big picture perspective. That's one of the biggest criticisms of the high price of rent. I thought it was interesting, too, because you'd think for existing buildings, you could see that maybe they, you know, they're not as quick to repair things or something like that. But in your story, we saw that this was a new building, new development that was going up, and they just weren't maintaining it to the standards that you'd expect. Yeah, it's that idea of squeezing more money out. And look, wealthy people, big investors are putting money in real estate because it makes money. It used to be 20 years ago that the business model for an apartment complex or for rental homes is that the business or the investor would buy the property, park the money there because they know is going to be safe and eventually it would increase in price. And and they would charge the rent just enough to keep the place up, maintain maybe the mortgage and take a little bit of profit. And then they really made their money when they sold the property later. But that business model seems to have gone out the window now. And the idea is that every month they can make a lot of money on this. And and there's a reason that businesses and investors are doing this. It's because it's a proven commodity. It's a proven profit maker. I just thought it was interesting when I think back to a few years ago when I was renting and I went from complex to complex, I found they were changing the price of the rent by the day, which was just interesting to me that there could be fluctuations and maybe there weren't huge swings. It was just 10 or 15 dollars. But the state AG, Chris Mays, got at that in that story. Yeah, what you're getting at is this real page program. And this attorney general, Chris Mays, has a real legal opinion about real page. We heard a little bit from her in our news story, but she had a lot more to say about this topic. So we're going to play an extended version of that interview now. OK, so why don't we start with like the basic question? How did your office get onto this idea that some of these businesses out there are increasing their rents? Artificially and maybe coordinating. How did this cross your radar? Well, we had a we had an attorney bring this to our attention and, you know, who had been investigating this, I think, for for a private potential private class action. And we started looking at it and, you know, quickly realized just how unbelievable the situation is and what we discovered and what we allege in our lawsuit is that nine of the biggest landlords in the state of Arizona are colluding with a software company called RealPage to artificially set high rents for literally tens of thousands, if not hundreds of thousands of Arizonans. And that is old fashioned price fixing using new technology. And it is illegal under both state and federal antitrust laws and our Consumer Fraud Act. When you read this, you get the idea that these companies are cheating. They are cheating. I mean, this is flat out cheating. You are not allowed under the law to collude with one another, to deprive Arizonans of lower rent. And the whole idea of a free market is that we have competition, right? That that we we assume in a free market that that companies will compete with one another. And as a renter, you have a right to assume that when you walk into a an apartment complex, that apartment complex is not colluding with the guy next door to set the same high price. What you ought to be able to assume in a free market economy is that both of those landlords are competing with one another. And that's not happening in Arizona. And that is a scandal. And, you know, it's just outrageous that we have we have seen the rise of these very powerful out-of-state corporate landlords who are now engaged in what is essentially cheating. That when you get to the bottom of it, really, really harms consumers and renters. And this is a state that where we have an increasing housing shortage, you know, and we have a lot of young people, people who are in the middle of their careers or people or folks who are retired, who who want to rent or have to rent. And they should not be subjected to this kind of collusion between landlords. They might tell you that we're using this company because we're setting a fair price. Is that what you've seen? No, no. And I mean, I mean, people there's a reason that this lawsuit is the one lawsuit that most people want to talk to me about. This has really resonated with Arizonans because Arizonans know that they're paying a lot in rent these days. You know, two thousand, twenty five hundred dollars, three thousand dollars a month just for an apartment, a two bedroom, a three bedroom apartment. And so it's something that people are feeling and seeing in their everyday lives. And no, they don't they don't feel like they're getting a fair deal. I think what they didn't realize was that there was a reason they weren't getting a fair deal. And it's that these corporate entities are engaging in collusion with one another to keep that rent high. And what they were doing and what they are doing is the they are using this software which has an algorithm and that algorithm collects data from all of these landlords about all of their units, about the location, about previous rents charged, about, you know, square footage, et cetera. And it spits out a price. And all of those landlords are asked to stick to that price. No one is allowed to go beneath it because that, of course, would ruin their scheme. And it's a scheme. They're agreeing behind the scenes to not drop their rents even when they have vacancies. Yeah, I mean, the algorithm and the agreement is the modern day equivalent of a backroom smoke filled deal. You know, it's the modern day equivalent of a smoke filled backroom deal between landlords where they're agreeing to to charge high prices. And we passed antitrust laws in the state and in this country for precisely this reason. And we passed consumer fraud laws to prevent that kind of thing. And so, you know, that's why we filed that lawsuit. And and I think that's why, you know, you have federal interest now in this as well, because these landlords are doing this in other states. When we've done stories on rent prices in the past, we get economists that will come on and they will say, this is the market. There's a shortage. So the prices have gone up. It seems to me like you're saying they left something out. They left a big chunk of the story out. This is this is not just about a housing shortage. Do we have a housing shortage? Sure. You know, we we need more. We need more apartments. We need more housing. We have a lot of people moving to Arizona. But we also have a lot of apartment units that are empty. Why? Because what's happening is these landlords would rather have those units be empty and still be able to charge everyone a very high rate than bring their rents down and have all of their units rented out. I mean, we we have a whole bunch of units, apartment units in Phoenix that are empty in these apartment complexes that are engaged in this scheme because for them, it doesn't really matter. What matters is being able to charge the highest rent possible. And that is outrageous. I mean, when you really think about it, this is truly one of the most outrageous schemes that that Arizona has ever faced. And this is outside the scope of of your lawsuit. But part of the problem here, it seems, is that some of these hedge funds or private equity groups that buy these places, they're not in it for the long term. They want to come in, make it as seem as profitable as possible and then sell at a higher price. It is is are we heading down a road where landlords aren't really viewing tenants as their clients anymore? Yeah, I that it really does concern me that more and more we have hedge funds and Wall Street firms that are owning large apartment complexes because I don't think that their business model is about keeping renters happy and serving renters or, you know, being in this business for the long term. It's about squeezing profits and that's not good for renters. And we're seeing this in other areas. We're seeing it in health care as well, where more and more Wall Street firms are buying up physician practices and hospitals. And, you know, especially when you're talking about apartment complexes and housing, I think, you know, when Wall Street firms and hedge funds are the owners, it takes it takes them into the territory of being willing to engage in the kinds of things that we that we are alleging with RealPage, which is price fixing. We're also concerned about the rise of junk fees. I think you see that a lot with with, you know, these large out of state corporate landlords, a willingness to do things that are really illegal, but they want to squeeze as much profit out of the business as they can and as quickly as they can. What are you asking for in this lawsuit? So we are asking for a number of things. Number one, we are seeking an injunction against the business model. We want to stop RealPage and these nine landlords from price fixing in Arizona. And then, of course, we want to get people's money back, as much of their money, as much restitution as we can possibly get for renters, because they were cheated. They were cheated out of the benefits of having a free market. I mean, if there's one thing that we are proud of in America and that we believe in in America collectively, it's in a free market economy. And these renters were deprived of the benefits of competition. And so what we want to do is get damages and restitution and get that back to renters to the degree possible. So we're asking people, if you have lived in one of these buildings, in one of these apartment complexes, if you or if you live there now, let us know, because we want to know who you are so we can get you your money back over time. Hopefully we win this lawsuit. You would think that if this company owns eight, nine, 10, 15 complexes in Phoenix, that they would provide good service because they have all these resources. You would think and again, you would think also that if you own multiple apartment complexes in the valley or in Tucson, that you would, number one, want to make sure that you're providing good services. Number two, you want to keep people in the building. And number three, you would want to keep the building as full as possible. And that's just that's not the case when when they're charging artificially high rent, right? See, they make their money by jacking up the rent. So Mays has filed a lawsuit. How long could it take to get this resolved? The court systems aren't exactly known for moving fast. Yeah, that's the frustrating part here is is people we've received emails as recently as this week from people saying we want to know what's the status. You're not reporting the status. This type of lawsuit with this many big money defendants is going to take a long time. I don't think that there is any idea that it's going to happen quickly. It could be years before there's any resolution. But there's also company in the legal realm here. Arizona was the first state to file a lawsuit against real page and some of these large landlords. But the United States Justice Department also filed a very similar lawsuit. In August, the Federal Trade Commission has looked into this. So there is gathering momentum looking at this and saying this could be illegal what they're doing. Chris Mays said that these companies are cheating. And and the idea is when you have, I don't know, 15 apartment complexes, they should be competing against each other for clients. They should be competing against each other for renters. And the result of that healthy competition is a better product and also sometimes a cheaper product. But what she and the Justice Department are alleging is that that's not happening right now. So I don't know when the legal system is going to come, you know, come around. And these companies may be forced to change the way they do business. But with this gathering momentum, they may end up just voluntarily changing the business model a little bit and adjusting the way they use real page. And I'm certain that that's one of the things that, you know, Attorney General Mays would like to see. Yeah. And for the average person who needs to rent a place, I'm sure they're interested in solutions. So what can be done right now or what should people know right now? That's the tough part here. So you hear from conservative lawmakers, you hear from the right, and they say this is a problem where it's too expensive to build homes. And so, you know, President Elect Donald Trump said he's going to open up federal land to be developed. I mean, you look at where Phoenix is. I'm not sure that's going to help us here. You hear conservative lawmakers say we need to make it easier for developers to develop land. Well, we do have a shortage in in some homes and a shortage in apartment complexes, but developers are putting in buildings and they are developing land. They're making a lot of money at it. So I don't know that that's the whole solution. But then on the left, you hear, well, we need affordable housing. That sounds like a great idea. But when you say affordable housing, most people think, OK, that's, you know, rental caps, you know, saying you can only increase rent a certain amount, you know, having the government tell people how much they can rent something for. And and and that isn't a very popular idea. And it's also I don't know that that's an idea that will really fix the problem. But one of the solutions that I have heard from people have been studying this is to adjust the tax incentives. Right now, one of the reasons that these companies buy up tons of homes or buy up a bunch of apartment complexes or buy property is because they get certain tax incentives for doing it. You know, your primary home, you get a big tax break mortgage. You can write that off. Your second home isn't as much of a tax break, but there are still tax breaks there. If there weren't, these companies wouldn't be investing billions and billions of dollars in that. So the idea is that maybe after a certain number of properties, they lose that tax incentive. So, you know, what that number is, we don't know. That number is probably not five homes or five buildings because regular people can have, you know, a few investment properties. But I tell you what, it's not nine thousand. And right now, Invitation Homes owns nine thousand homes in the Phoenix area. And so that's, you know, as a as a person who has a property, as as a person who lives in this community. To me, that seems like, OK, that is a solution worth looking at. But not one lawmaker is proposing that as something that we should do. And and that makes me scratch my head after looking into this story. But there are other solutions like that. I think at the end of the day, there's no one solution that's going to do something about this. But what I do know from talking to people out there is that this run up in pricing is not sustainable. It's not sustainable for families to spend 60 percent of their income on their rent because it just does not leave other money for them to spend, to live, to enjoy life. And so if if these businesses don't do something about this, then maybe it is time for lawmakers or policymakers to step in and do something. It just seems infuriating to hear Chris Mays say that some of these units might be sitting vacant because they would rather keep their prices high than reduce them and fill all of their units at a time when the demand for housing is so high. That is that is obscene. That sounds obscene. Now, that is what has happened over the past few years. But in the last year, there has been some stabilization. Rent increases appear to have stabilized just a bit. And some renters are getting better deals this year in the Phoenix area than they did last year. So, you know, the best advice, if you can, it can really pay off to shop around now and to negotiate with your landlord if you are thinking about renewing a lease. And one of the people that we interviewed in our story, she found a local landlord who has a couple of rental properties. And she said, this was great. The landlord treats me like a human being. I'm not just a number. And, you know, if you're paying your rent, somebody who lives in the community like that, they're probably going to spend the money in the community. And that's a benefit to everybody. Yeah, for sure. Especially when you you consider they were they already admitted they were paying more because they expected that with a luxury building, they would have certain amenities that that came with it. Yeah. Yeah. When we looked for people to interview for this story, I wanted to find people who were spending more than I thought, you know, a normal average Phoenix area family would be spending because I wanted to know, are you getting what you paid for? Do you feel like you're getting a benefit for this three thousand dollars a month? And that was shocking to me when they said, you know, we spent all this money because we thought we would be in a luxury place and we get all this benefits and we really didn't feel like we were getting what we paid for. It's just crazy. Yeah. Well, we're going to continue to cover this story. So look for more of our work on AZFamily.com and CBS5 and 3TV. And we will see you next time on the Arizona Spirit.