Justice Department preparing rental market collusion lawsuit

The Justice Department is gearing up to challenge what it says is collusive conduct in the rental housing market with a lawsuit against a software company that it believes allows large landlords to fix prices.

The DOJ is planning to sue RealPage Inc., a software company used by landlords across the country, according to two people with knowledge of the matter.

DOJ staff recently recommended a civil lawsuit against RealPage that would accuse the company of selling software that enables landlords to illegally share confidential pricing information in order to collude on setting rents. The recommendation escalates the investigation to the antitrust division's leadership, including Assistant Attorney General Jonathan Kanter. Also on the table for a complaint is the landlords’ ability to use the software to match vacancy rates, essentially restricting supply, at competing buildings in the same rental market, said the people, who were granted anonymity to discuss a confidential investigation.

The Biden administration has made cracking down on anti-competitive activity a cornerstone of its domestic economic agenda, and antitrust enforcers at the DOJ and Federal Trade Commission are key to that goal. High housing costs are a particular priority for the administration , with President Joe Biden in his State of the Union Address in March calling out rental prices, saying, “For millions of renters, we’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents.” Later that month the president was in Nevada , discussing actions to fight “rent gouging among corporate landlords.”

The Justice Department has also prioritized so-called algorithmic price-fixing, with multiple officials, including Kanter, saying the use of software to fix prices does not provide cover for illegal collusion.

RealPage and its landlord clients have been under investigation for at least the past two years, primarily as a civil matter, though the DOJ sent out criminal grand jury subpoenas earlier this year, POLITICO previously reported.

A civil case against RealPage could come by the end of the summer, the people said, though no final decision has been made.

The DOJ declined to comment.

RealPage’s software, including its YieldStar product, is used by landlords to estimate supply and demand for their listings, allowing them to maximize rents. The Richardson, Texas-based company employs statistical models and nonpublic data, much of it submitted by its property management clients, to make its estimates. The Justice Department is concerned that RealPage’s software is used as a shield for competitors to exchange sensitive pricing data that their rivals would otherwise not be able to access.

RealPage spokesperson Jennifer Bowcock said the company doesn't comment on rumors or speculation, but "The DOJ extensively reviewed [the acquisition of Lease Rent Options] and YieldStar in 2017, without objecting to, much less challenging, any feature of the products. RealPage’s revenue management products are fundamentally the same today as they were when the DOJ reviewed them in 2017."

But in a lengthy statement last month, RealPage sought to “correct factual inaccuracies that have been reported related to its revenue management software and its impact on renters.” The company said the allegations distract from a housing affordability problem in the U.S. It said landlords have full discretion over pricing and are never punished for declining the software’s recommendations. It does not recommend that landlords withhold vacant units from the market and says all data is fully anonymized.

The company and dozens of property owners and managers are already the targets of a class-action lawsuit brought by renters. There are also suits filed by attorneys general in Washington, D.C., and Arizona. The North Carolina attorney general recently announced that his office is also investigating.

When his office filed its case last fall, D.C. Attorney General Brian Schwalb said, “RealPage and the defendant landlords illegally colluded to artificially raise rents by participating in a centralized, anticompetitive scheme, causing District residents to pay millions of dollars above fair market prices.” He added, “Defendants’ coordinated and anticompetitive conduct amounts to a District-wide housing cartel.”

RealPage’s centralized pricing algorithm was allegedly used to set rents for more than 50,000 apartments, according to the D.C. complaint. The lawsuit describes RealPage as the “‘big tech’ company of rental housing.”

For their part, RealPage and the property companies have argued in court that the allegations do not support any agreement to fix prices. Among their arguments, the property owners and managers say there is no evidence of any conspiracy, beyond that they are all clients of RealPage.

However, a federal judge in Tennessee late last year declined to dismiss much of the case, saying it “unequivocally alleges that RealPage’s revenue management software inputs a melting pot of confidential competitor information through its algorithm and spits out price recommendations based on that private competitor data.”

And while the DOJ’s investigations are confidential, the department has weighed in on the class action to argue that price-fixing is illegal whether it takes place in a smoke-filled room or is done by an algorithm.

“Put simply, RealPage allegedly replaces independent competitive decision making on prices, which often leads to lower prices for tenants, with a price-fixing combination that violates” antitrust law, the DOJ said in support of the renters’ case.