DOJ accuses RealPage of helping landlords raise rents

WASHINGTON (AP) — The U.S. Justice Department sued real estate software company RealPage Inc. on Friday, accusing it of running an illegal scheme that allowed landlords to coordinate to raise rents.

The lawsuit, filed by attorneys general in states including North Carolina and CaliforniaThe lawsuit alleges that the company violates antitrust laws through its algorithm that landlords use to get recommended rental prices for millions of apartments across the country.

Rents across the United States have seen Big rise in 2021 and 2022Although its growth has slowed since then, it remains stubbornly high for many renters, in part due to a massive shortage of housing supply.

Justice Department officials allege that RealPage is another reason rents are rising because the algorithm allows landlords to price their listings and avoid competition that would keep rents low.

“Americans should not have to pay more rent just because a company found a new way to conspire with landlords to break the law,” Attorney General Merrick Garland told reporters.

In a statement, RealPage said the DOJ’s allegations are “baseless and will do nothing to make housing more affordable.”

“We are disappointed that after many years of education and cooperation on antitrust issues related to RealPage, the Department of Justice has chosen this moment to pursue a lawsuit that seeks to sacrifice pro-competitive technology that has been used responsibly for years,” the company said.

In an interview with The Associated Press, Dom Beveridge, a veteran revenue management expert who is not involved in the lawsuit, offered a detailed and vociferous defense of revenue management software, saying prosecutors fundamentally misunderstood how such products work.

“If it were true that the software enabled price-setting, I would be 100 percent on the side of the lawsuits — but that’s simply not what the software does,” said Beveridge, who briefly worked at RealPage when the company acquired his company’s software in 2017. “These algorithms are only functionally capable of optimizing one feature at a time. They can’t say, ‘I’m going to take feature A, B, and C and collectively figure out what they should do together,’ which is the claim being made.”

Property managers have an incentive to maximize revenue, which means maintaining high occupancy rates, rather than restricting supply, as critics have argued, he said. Rather than being like Uber’s “peak pricing,” Beveridge said, revenue management tools help apartment managers align their inventory like a game of Tetris, thereby maximizing the supply that is already available.

RealPage has been audited after ProPublica Investigation 2022 Investigations into the company’s practices have suggested it may be responsible for some of the rapid rent increases. RealPage has since 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.

RealPage isn’t the only company offering an algorithmic tool to help property managers set prices. But the lawsuit says the company is by far the largest in the industry, controlling 80% of the market.

Using data to help property managers set their rents isn’t new or illegal on its face. But officials say RealPage is different.

According to lawsuits filed last year by the attorneys general of Arizona and Washington, D.C., RealPage uses not only publicly available data, but also confidential data that RealPage customers have agreed to share privately to help RealPage set the highest price.

Authorities say this amounts to illegal cartel-style price-fixing. But this time, instead of cartel members meeting in a “smoke-filled room,” prices are set by artificial intelligence, they say.

The Justice Department points to statements by RealPage executives about how their product maximizes prices for landlords. “There’s a greater good in everyone succeeding than trying to compete against each other in a way that actually degrades the entire industry,” one executive said.

RealPage notes that property owners are free to reject 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 consultant who can “prevent property managers from acting on emotion.”

Beveridge alleged that property managers’ adherence to RealPage’s algorithm isn’t actually very high — the plaintiffs said that about 40-50% of rentals that are ultimately posted fall within 1% of the algorithm’s recommendation.

“It’s a lot like flipping a coin,” he said. “You want people to accept about 90% of your recommendations because most price recommendations are really small.”

The case is the latest example of the Biden administration’s aggressive enforcement of antitrust laws.

The Justice Department filed a lawsuit against Apple in March. And in May announced a wide-ranging lawsuit. Against Ticketmaster and its owner, Live Nation Entertainment. Investigations have also been opened. On the roles Microsoft, Nvidia, and OpenAI have played in the AI ​​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 is a temptation for courts to turn a blind eye to 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 agreeing to set prices. I think it’s very important that our courts treat the use of these software algorithms as if they were any other form of price fixing.”

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Rico reported from Atlanta.