WASHINGTON (AP) — The Justice Department filed an antitrust lawsuit Friday against real estate software company RealPage Inc., accusing it of an illegal system that allows landlords to coordinate on rent increases.
The lawsuit, filed jointly with attorneys general in states such as North Carolina And Californiaalleges that the company violates antitrust laws with its algorithm, which landlords use to determine recommended rental prices for millions of apartments across the country.
Rents in the US recorded a enormous increase in 2021 and 2022and although their growth has now slowed, they remain high for many renters, partly due to a huge housing shortage.
Justice Department officials claim that RealPage is another reason for high rents because its algorithm allows landlords to match their prices and avoid competition that would otherwise keep rents low.
“Americans should not have to pay more rent just because a corporation found a new way to conspire with landlords and break the law,” Attorney General Merrick Garland told reporters.
Attorney General Merrick Garland speaks to reporters about an antitrust lawsuit against real estate software company RealPage during a press conference at the Justice Department, Friday, Aug. 23, 2024, in Washington. (AP Photo/Mark Schiefelbein)
In a statement, RealPage said the Justice Department’s demands were “baseless and would do nothing to make housing more affordable.”
“We are disappointed that after many years of investigation and cooperation on the antitrust issues surrounding RealPage, the Department of Justice is now bringing 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 revenue management expert who is unrelated to the lawsuit, delivered a detailed and vocal defense of revenue management software, saying prosecutors fundamentally misunderstood how such products work.
“If it were true that the software enabled price fixing, I would support the lawsuits 100% – but that’s just 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 functionally only capable of optimizing one property at a time. They can’t say, ‘I’m going to take properties A, B and C and figure out what they should do together,’ which is the allegation.”
He stressed that property managers have incentives to maximize revenue, which means keeping occupancy high rather than constraining supply as critics have claimed. Rather than acting like an Uber “top-of-the-line pricing exercise,” revenue management tools help property managers align their inventory like a game of Tetris, actually increasing available supply, Beveridge said.
RealPage came under scrutiny after a 2022 ProPublica Investigation Insights into the company’s business practices suggest it may be responsible for some of the skyrocketing rent increases. Since then, RealPage has drawn the ire of Democratic lawmakers, including Senator Amy Klobuchar of Minnesota, who introduced a bill in February that would ban companies from using algorithms to collude and fix prices.
White House national economic adviser 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 violations of the law, and it continues to support fair and vigorous enforcement of antitrust laws to prevent illegal collusion.”
RealPage isn’t the only company offering an algorithmic tool to help property managers set pricing, but according to the lawsuit, the company is by far the largest in the industry, controlling 80 percent of the market.
Using data to help property managers set their rents is nothing new and, on its face, illegal. But authorities argue that RealPage is different.
According to lawsuits filed last year by the attorneys general for Arizona and Washington, D.C., RealPage uses not only publicly available data but also confidential data that RealPage’s customers have agreed to share in confidence to help RealPage’s software determine the highest price.
This would be tantamount to illegal price-fixing like in a cartel, say the authorities. Only this time the cartel members are not meeting in a proverbial “smoke-filled room” but the price-fixing is being carried out by an AI, they say.
The Justice Department points to RealPage executives’ own statements that their product maximizes rates for landlords. One executive said, “It’s better for everyone to be successful than for us to try to basically compete with each other in a way that puts the entire industry under pressure.”
RealPage has noted that landlords are free to reject the pricing recommendations generated by the software, but the Justice Department claims that doing so often requires a series of steps, including speaking with a RealPage pricing consultant, which can “discourage property managers from acting on emotion.”
Beveridge argued that property managers’ compliance with the RealPage algorithm was actually not very high. About 40 to 50 percent of the rents ultimately posted were within 1 percent of the algorithm’s recommendation, prosecutors said.
“It’s basically a coin flip,” he said. “You want people to accept about 90% of your recommendations, because most of the price recommendations are really low.”
The case is the latest example of the Biden administration’s aggressive antitrust policies.
The Justice Department sued Apple in March and in May announced a comprehensive lawsuit against Ticketmaster and its owner Live Nation Entertainment. have also initiated investigations into the roles that 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 corporate concentration.
“There is a temptation for courts to ignore this harm because algorithms tend to obscure the existence of an agreement between competitors,” Hepner said. “It’s not as simple as an email between competitors setting prices. I think it’s very important that our courts treat the use of these software algorithms as if it were another form of price fixing.”
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Rico reported from Atlanta.
