WASHINGTON — 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.
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 housing costs. 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. The company is also facing several lawsuits filed by state attorneys general.
And last week, in a speech in Raleigh, North Carolina, Democratic presidential nominee Vice President Kamala Harris pledged to crack down on “corporate landlords (who) collude with each other to set artificially high rental prices (by) using algorithms and price-fixing software.”
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.”
“Renters must be able to negotiate prices with landlords without the specter of collusion, to arrive at a fair deal for everyone involved. But RealPage has shut away those ingredients, changed the locks and thrown away the keys," said Deputy Attorney General Lisa Monaco.
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.”