WASHINGTON (AP) — The Justice Department filed an antitrust lawsuit Friday against real estate software company RealPage Inc., accusing it of an illegal scheme that allows landlords to coordinate to hike rental prices.
The lawsuit, filed alongside attorneys general in states including North Carolina and California, alleges the company is violating antitrust laws through its algorithm that landlords use to get recommended rental prices for millions of apartments across the country.
Rents across the U.S. saw a huge spike in 2021 and 2022, and though their growth has since tapered off, they remain stubbornly high for many tenants, thanks in part to a huge lack of housing supply.
Justice Department officials allege that RealPage is another reason for the high rents since the algorithm allows landlords to align their prices and avoid competition that would otherwise keep rents down.
“Americans should not have to pay more in rent simply because a company has found a new way to scheme with landlords to break the law,” Attorney General Merrick Garland told reporters.
In a statement, RealPage said the Justice Department’s claims were “devoid of merit and will do nothing to make housing more affordable.”
“We are disappointed that, after multiple years of education and cooperation on the antitrust matters concerning RealPage, the DOJ has chosen this moment to pursue a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years,” the company said.
In an interview with the Associated Press, Dom Beveridge, a longtime expert in the revenue management field who is not connected to the lawsuit, gave a detailed, vociferous defense of revenue management software and said prosecutors have fundamentally misunderstood how such products work.
“If it were true that the software enabled price-fixing, I would 100% be on the side of the lawsuits — but it's simply not what the software does," said Beveridge, who briefly worked for RealPage when his company's software was acquired by the firm in 2017. "These algorithms are only functionally capable of optimizing one property at a time. They can’t say, ‘I’m going to take property A, B and C and figure out collectively what they should do together,’ which is the allegation being made.”
He emphasized that property managers are incentivized to maximize revenue, which means keeping occupancy high, rather than constraining supply, as critics have alleged. Rather than being like an Uber “surge price,” revenue management tools help apartment managers align their inventory as if it were a game of Tetris, thereby actually increasing the supply available, Beveridge said.
RealPage came under scrutiny after a 2022 ProPublica investigation into the company’s practice suggested that it could be to blame for some of the rapid increases in rents. Since then, RealPage has drawn the ire of Democratic lawmakers, including Sen. Amy Klobuchar of Minnesota, who in February introduced a bill to bar companies from using algorithms to collude and fix prices.
White House National Economic Advisor Lael Brainard said the White House had no comment on the lawsuit, but added that President Joe Biden's administration “has made clear that no one should pay higher prices because of corporate lawbreaking and continues to support fair and vigorous enforcement of the antitrust laws to prevent illegal collusion.”
RealPage is not the only company that offers an algorithmic tool to help property managers set prices. But the lawsuit says the company is by far the biggest in the industry, controlling 80% of the market.
The use of data to help property managers set their rents isn’t new or, on its face, illegal. But officials argue that RealPage is different.
According to lawsuits filed in the past year by the attorneys general for Arizona and Washington, D.C., RealPage doesn’t just use publicly available data — it uses confidential data that RealPage’s clients have agreed to privately share to help RealPage’s software to determine the highest price.
That amounts to cartel-like illegal price collusion, authorities say. Only this time, instead of cartel members meeting inside a proverbial “smoke-filled room,” the price-fixing is done by AI, they say.
The Justice Department points to RealPage executives' own words about how their product maximizes prices for landlords. One executive said, “There is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.”
RealPage has noted that landlords are free to reject the price recommendations generated by its software. But the Justice Department alleges that doing so often requires a series of steps, including a conversation with a RealPage pricing adviser who can “stop property managers from acting on emotions.”
Beveridge argued that property managers' adherence to the RealPage algorithm is not actually very high — about 40-50% of the rents that ultimately get posted fall within 1% of the algorithm's recommendation, prosecutors said.
“That's essentially a coin flip,” he said. "You should want people to be accepting about 90% of your recommendations because most price recommendations are really small.”
The case is the latest example of the Biden administration’s aggressive antitrust enforcement.
The Justice Department sued Apple in March and in May announced a sweeping lawsuit against Ticketmaster and its owner, Live Nation Entertainment. Antitrust enforcers have also opened investigations into the roles Microsoft, Nvidia and OpenAI have played in the artificial intelligence boom.
Among those celebrating the lawsuits against Realpage is Lee Hepner, legal counsel for the American Economic Liberties Project, an organization that advocates for government action against business concentration.
“There’s a temptation for courts to turn a blind eye to this harm because algorithms tend to conceal the existence of an agreement between competitors,” Hepner said. “It’s not as straightforward as an email between competitors agreeing to fix prices. I think it is very important that our courts address the use of these software algorithms as if it is any other form of price-fixing.”
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Rico reported from Atlanta.