The U.S. Department of Justice made a significant announcement on Friday, revealing that it has filed a lawsuit against RealPage, a Texas-based real estate software company. The lawsuit accuses RealPage of engaging in a price-fixing scheme that artificially inflated rent prices, ultimately harming millions of American renters.
Joining forces with the Justice Department in this antitrust suit are the attorneys general of eight states: North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington. This collaboration highlights the widespread concern over the alleged actions of RealPage and the impact they have had on the rental market.
RealPage stands accused of utilizing algorithmic pricing to enable landlords of multifamily dwellings to collude and set rents above market rates. This practice effectively eliminates healthy competition in the rental market, depriving renters of the benefits that come with a competitive leasing environment. U.S. Attorney General Merrick Garland emphasized the injustice of American renters being forced to pay more due to companies engaging in illegal schemes with landlords.
The lawsuit alleges that RealPage’s software allows landlords to share confidential and competitively sensitive information, such as current rents, vacancy rates, and lease expiration dates. Using this data, the software employs artificial intelligence to recommend rental prices on a daily basis. RealPage has marketed this software as a tool to maximize landlords’ profits and help them “outperform the market.”
Despite the serious allegations, RealPage has not responded to requests for comment. In the past, the company has denied that its pricing software is anticompetitive and has claimed that it can actually lower rents during periods of decreased demand while reducing vacancy rates. However, the Justice Department’s lawsuit paints a different picture, accusing RealPage of facilitating collusion among landlords through its software.
The lawsuit is grounded in the Sherman Antitrust Act, a century-old law designed to prevent anticompetitive practices and maintain a free market economy. While collusion through mathematical algorithms may be a new form of antitrust violation, it still undermines the fundamental principles of competition and fair market practices.
According to the DOJ, RealPage holds a monopoly, controlling approximately 80% of the U.S. market share for this type of pricing software. Despite RealPage’s assertion that its program merely offers pricing recommendations, the complaint suggests that landlords are heavily encouraged to accept these recommendations. Tenants’ rights lawyer Eric Dunn highlights the pressure placed on property managers to comply with RealPage’s pricing suggestions, noting that rejection of these recommendations requires an explanation that is then sent to a regional manager.
Furthermore, the complaint details instances of peer pressure among landlords, with RealPage facilitating communication and collaboration among property managers. By encouraging landlords to coordinate rather than compete, RealPage promotes the idea that a rising tide lifts all ships, leading to increased profits for landlords at the expense of renters.
In many rental markets across the country, a significant portion of landlords rely on RealPage’s pricing algorithm. The lawsuit filed on Friday is not the first legal action taken against the company; there are reportedly around 20 other lawsuits nationwide targeting RealPage’s software.
A related case involving hotels in Las Vegas sheds light on the potential implications of the DOJ lawsuit. In that case, hotels were accused of using pricing software to inflate room rates, but the lawsuit was ultimately dismissed due to a lack of evidence showing a concerted effort by the hotels to fix prices. This outcome underscores the challenges of proving anticompetitive behavior in cases involving sophisticated pricing algorithms.
Other companies in the pricing software industry are closely watching the developments of the RealPage lawsuit, as it could have far-reaching effects on their reputations and operations. Vidur Gupta, CEO of Beekin, emphasized the positive impact of artificial intelligence on affordable housing operators and developers, highlighting the broader implications of the DOJ’s legal action.
In response to concerns raised by the RealPage lawsuit and similar cases, there is proposed legislation in Congress aimed at regulating the use of artificial intelligence in pricing software. This legislative effort reflects a growing awareness of the potential risks associated with algorithmic pricing and the need for safeguards to protect consumers and promote fair competition in the rental market.