The US Justice Department has filed an antitrust lawsuit against RealPage, a property management software provider, alleging it enabled a collusion among landlords to inflate rents for millions of Americans. 

The complaint claims the Texas-based company and its competitors engaged in a price-fixing scheme by sharing nonpublic, sensitive information, which RealPage’s algorithmic pricing software used to generate pricing recommendations.

According to the lawsuit, the company replaced competition with rent coordination to the detriment of renters across the US, thereby monopolizing the market through its revenue management software which was used by landlords to maximize rent costs. 

“Training a machine to break the law is still breaking the law.”

Lisa Monaco, Deputy Attorney General

In the suit, the DOJ is joined by the attorneys general of California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee and Washington. The complaint alleges that RealPage violated sections of the Sherman Act, a federal antitrust law.

“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,” Attorney General Merrick B Garland said in a statement Friday.

Deputy Attorney General Lisa Monaco elaborated on the idea that designing technology to do the work of getting around the rules of competition is still unlawful activity. “By feeding sensitive data into a sophisticated algorithm powered by artificial intelligence, RealPage has found a modern way to violate a century-old law through systematic coordination of rental housing prices — undermining competition and fairness for consumers in the process. Training a machine to break the law is still breaking the law.”

The lawsuit marks the first time that the government has accused a company of working to systematically subvert the rules of free-market competition using mathematical algorithm.

Software and pricing data

RealPage obtains nonpublic rental price information from competing landlords who use the software. RealPage then allegedly feeds this information into its algorithmic pricing software, which landlords can use to get suggestions about their rent rates.

As alleged in the lawsuit, “these are more than just ‘recommendations,’” as RealPage also “reviews and weighs in on landlords’ other policies,” in which it attempts to end concessions and discounts for renters. Landlords can also “effectively agree to outsource their pricing function” to RealPage with an “auto accept” option that automatically adjusts their rents based on its algorithm.

“In a competitive marketplace, each landlord may independently decide to offer concessions so that it can better compete in enticing lessors,” the complaint alleges. “But, again, RealPage seeks to replace fully independent, competitive decision-making with collective action by ending concessions.”

Additionally, the DOJ claims RealPage maintains a monopoly in commercial revenue management software for multi-family dwellings, comprising about 80% of market share.

RealPage’s enormous market presence, its “unlawful agreements” with landlords, and the sensitive data it receives from those landlords give the company a competitive advantage, the lawsuit alleges.

In a statement, RealPage said the Justice Department’s claims were “devoid of merit and will do nothing to make housing more affordable.”

Scrutiny of algorithms

Word of a potential lawsuit first surfaced after a 2022 ProPublica report detailed how RealPage’s algorithm may have contributed to increasing rent rates across the country, exacerbating the effects of a well-documented housing shortage.

That report also detailed how RealPage became the nation’s dominant provider of such rent-setting software after federal regulators approved a controversial merger in 2017. It not only greatly increased its market share, it made it the absolute dominant player in some regions; in Seattle, 70% of all apartments were managed by just 10 firms, and every single one of them used RealPage’s pricing tool.

ProPublica quoted former employees of RealPage as saying the software discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate to raise rents and make more money.

RealPage’s software was perhaps destined to be scrutinized under Biden’s watch; the DOJ and FTC have been concerned about rising prices in some markets and corporate concentration in others.

The company’s algorithm calculates how demand for apartments responds to changes in price – what is known as price elasticity, and its data warehouse has access to actual lease transactions — giving it insight into the true rents paid, instead of simply those a landlord advertises.

The software also analyzes rent prices in the broader market. That data can provide insight into how competitors’ buildings located near the client — such as within, say, a half-mile or mile radius — are being priced, a former RealPage executive told ProPublica.

Anti-competition scrutiny

RealPage’s software was perhaps destined to be scrutinized more under Biden’s watch, as the DOJ and Federal Trade Commission (FTC) have been concerned about rising prices in some markets and corporate concentration in others. The authorities are looking to use rules meant to ensure competition is really happening.

It is problematic that a group of competitors (the landlord firms) all used the same outside firm’s algorithm to maximize prices across one market, causing harm to consumers. But antitrust cases often revolve around showing competitors colluding to tamper with pricing, and actual collusion to use the software could be tough to prove.

But there is also the fact that the company’s software relies on using and sharing nonpublic data among those competitors.

In 2018, the company agreed to pay $3m to settle an FTC complaint that it had failed to do enough to make sure personal information used in its tenant screening product was accurate. RealPage did not admit wrongdoing in its settlement agreement with the FTC.

It’s important to note that the DOJ’s complaint does not name property managers or owners as defendants.