A recent lawsuit filed by the Justice Department alleges that real estate company RealPage used its technology to enable landlords to conspire to raise rent prices, stating that RealPage’s software uses landlord data to artificially inflate rent prices across the United States and stamp out competition in the market.
In a press conference last Wednesday, U.S. Attorney General Merrick Garland announced that the Texas-based company’s illegal price-fixing practices increased rents even higher than they would be if landlords were pricing them competitively by using nonpublic data from landlords to train RealPage’s algorithm for pricing recommendations. According to one Justice Department official, this created a “vast scheme to subvert the competitive process.”
The Justice Department’s lawsuit alleges that RealPage has violated the Sherman Act, which was filed on behalf of the Justice Department in addition to the attorneys general of California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee, and Washington.
The Sherman Act is a criminal law, but criminal prosecutions are typically limited to intentional and clear violations, like when competitors fix prices, and may be prosecuted by the Department of Justice. While most enforcement actions are civil for individuals and businesses who violate this law, the penalties can be severe.
At the heart of the lawsuit is RealPage’s commercial revenue-management software that landlords can use to price housing. The Justice Department alleges that the company contracts with participating landlords who then share confidential information on things like rent prices and lease terms that RealPage can use to train and run RealPage’s algorithmic pricing software—generating price recommendations to contracted landlords based on their and their competitors’ confidential information. This process allows landlords to align on rent prices rather than compete with one another.
“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,” Garland said. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents. Using software as the sharing mechanism does not immunize this scheme from Sherman Act liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them,” Garland states, adding, “The rent is too damn high, and this is one of the reasons why.”
The Sherman Act forbids any unreasonable monopolization, attempted monopolization, or conspiracy to monopolize, which the suit accuses RealPage of doing.
“RealPage has unlawfully maintained its monopoly over commercial revenue management software for multi-family dwellings in the United States, in which RealPage commands approximately 80% market share. Landlords agree to share their competitively sensitive data with RealPage in return for pricing recommendations and decisions that are the result of combining and analyzing competitors’ sensitive data. This creates a self-reinforcing feedback loop that strengthens RealPage’s grip on the market and makes it harder for honest businesses to compete on the merits,” according to the lawsuit.
According to the Justice Department, the company’s practices harm millions of Americans, with Deputy Attorney Lisa Monaco stating, “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. Today’s action makes clear that we will use all our legal tools to ensure accountability for technology-fueled anticompetitive conduct,” she said.
During a time when rent prices are already high, causing concerns for many renters, this lawsuit brings further focus to the rise in corporate landlords—companies that own large numbers of rental units—and higher rental rates.
“It is not far from our minds that all of this collusion is occurring against the backdrop of…a concentration of corporate landlords,” one official said of the complaint, “of people being evicted at higher rates when their landlords are corporate landlords who can afford to use this kind of software.”
The Justice Department said RealPage’s software is used to manage three million rental units across the U.S., most in southern states.
