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DOJ accuses real estate software company of helping landlords collude to raise rents
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The U.S. Department of Justice announced Friday that it is suing the real estate company RealPage, saying it engaged in a price-fixing scheme to drive up rents.
The attorneys general of eight states — North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington — have joined the Justice Department’s antitrust suit filed in federal court in North Carolina.
The Justice Department alleges that RealPage’s algorithmic pricing lets landlords of multifamily dwellings effectively collude and set rents above market rate, which "deprives renters of the benefits of competition on apartment leasing terms and harms millions of Americans.”
“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” U.S. Attorney General Merrick Garland said in a statement. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents."
According to the complaint, that information includes things like current rents, vacancy rates and lease expiration dates. Then, on a daily basis, the software uses the data and artificial intelligence to suggest what rent a landlord should charge. RealPage has pitched this software as maximizing landlords’ profits, and boasted that it lets them “outperform the market.”
RealPage did not respond to a request for comment. But in the past it has denied that its pricing software is anticompetitive, and said it lowers rents when demand drops and can help reduce vacancy rates.
Garland noted the lawsuit was brought under the Sherman Antitrust Act, a law passed more than a century ago when “an anticompetitive scheme might have looked like robber barons shaking hands at a secret meeting.” Landlords colluding through mathematical algorithms may be new, he said, but it violates the same bedrock principle of a free market fostering competition.
The DOJ also alleges the company has a monopoly, controlling about 80% of the U.S. market share for this kind of software. And while RealPage says its program offers only a recommendation for pricing, the complaint suggests it’s hard to reject.
“Landlords are encouraged to configure the product to automatically accept the RealPage recommendations,” says Eric Dunn, a tenants rights lawyer with the National Housing Law Project. “And if a property manager doesn't want to accept the recommendation, they have to put in an explanation,” which he says is then sent to a regional manager.
Dunn also sees a kind of peer pressure that can build up among landlords. The complaint describes RealPage holding online training sessions in which property managers chat with each other, and also says the landlords communicated directly in other ways. The company has boasted that landlords who coordinate instead of compete can “eliminate concessions” like offering lower rent or one month free. Instead, as RealPage has put it, “a rising tide raises all ships.”
In some markets across the country, half or more of landlords use RealPage’s pricing algorithm, housing experts say. Friday’s lawsuit isn’t the first to target the company’s software — there are some 20 other lawsuits nationwide.
In a recent and somewhat related case, hotels in Las Vegas were accused of sharing information via different pricing software and using it to artificially inflate room rates. A judge threw out that case in May, saying the plaintiffs had not shown the hotels made any agreement with one another to fix prices.
Some other pricing-software companies worry the DOJ lawsuit could hurt their reputations.
“AI is helping not just profit-seeking landlords, but operators and developers of affordable housing,” Vidur Gupta, CEO of Beekin, said in a statement responding to the suit.
Meanwhile, there is proposed legislation in Congress to limit the use of this kind of artificial intelligence.
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