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POLITICO
Feds sue software company for enabling nationwide collusion on rent
By Josh Sisco and Katy O'Donnell,
4 hours ago
Updated: 08/23/2024 01:24 PM EDT
The Justice Department and a number of state attorneys general are suing a software company for allegedly facilitating a nationwide conspiracy among major landlords to fix prices of rent.
The DOJ and eight states on Friday filed suit against the software developer RealPage Inc., based in Richardson, Texas, over an alleged scheme to decrease “competition among landlords in apartment pricing and to monopolize the market for [software] that landlords use to price apartments.” The company "has built a business out of frustrating the natural forces of competition," according to the lawsuit.
The suit comes as the Biden administration faces voter concerns over the cost of living in the wake of the worst inflation in four decades.
“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,” Attorney General Merrick Garland said in a statement. “Everybody knows the rent is too damn high, and we allege this is one of the reasons why,” Garland added at a press conference.
“We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents,” Garland added in a statement. “Using software as the sharing mechanism does not immunize this scheme from [antitrust] liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them.”
The attorneys general of North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington joined the suit, filed in North Carolina federal court. The attorneys general in Washington, D.C., and Arizona have previously filed similar ongoing lawsuits.
“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," said RealPage spokesperson Jennifer Bowcock. "It is merely a distraction from the fundamental economic and political issues driving inflation throughout our economy — and housing affordability in particular — which should be the focus of policymakers in Washington, D.C."
Vice President Kamala Harris has also made bringing down housing costs a priority in her campaign for president, pledging last month to “take on corporate landlords and cap unfair rent increases.”
Home prices are at record highs and rents are up more than 30 percent since the start of the pandemic in March 2020, according to Zillow.
The White House in July released a proposal to eliminate a depreciation tax credit for two years for any landlord with more than 50 units who increases rent by more than 5 percent in a year — capping rent on roughly 20 million units around the country.
The case is the latest in a series of actions taken by the DOJ and its sister antitrust agency the Federal Trade Commission to crack down on corporate power across the economy. The Biden administration has filed cases targeting alleged monopoly power by Google, Amazon, Apple and Ticketmaster, as well as less well-known, but important companies in food, chemical and health care markets.
According to Friday’s lawsuit, RealPage works with competing landlords in cities around the country to facilitate the sharing of competitively sensitive information on rental prices and other leasing terms. It uses that information to “train” the company’s algorithmic pricing tools allowing landlords to collude on rents with their competitors, according to the suit.
The DOJ has focused heavily in recent years on so-called algorithmic collusion, saying that price-fixing via algorithm is no different than people gathered in a smoke-filled room.
The DOJ's Jonathan Kanter told reporters that in addition to lawyers and economists, the department had data scientists "interrogate the code so that we can understand how algorithms use sensitive information from landlords to recommend and set prices."
According to the lawsuit, RealPage has described its products as “driving every possible opportunity to increase price even in the most downward trending or unexpected conditions.”
“RealPage’s revenue management software is purposely built to be legally compliant, and we have a history of working constructively with the DOJ to show that,” Bowcock said. She referred to the acquisition of a competing software provider LRO as evidence for the firm’s working within the law. ”In fact, in 2017 when the DOJ granted antitrust clearance for our acquisition of LRO, the DOJ also analyzed extensive information about our revenue management products without objecting to them in any way,” she said.
RealPage also maintains that its share of the rental market in any given city is small. In San Francisco, for example, the company said its software is used in under 10 percent of rental properties. It also says landlords are free to reject its rental recommendations and do so about half of the time. While the company has acknowledged that some non-public information is used, it maintains it is anonymous to landlords.
The complaint focuses on RealPage’s revenue management service, YieldStar, which has roughly 80 percent of the market for such software, affecting prices on about three million rental units around the country.
While no landlords were named as defendants, the complaint makes it clear that they are also under scrutiny at the DOJ. And the DOJ also has an ongoing criminal price-fixing investigation of both RealPage and landlords, POLITICO first reported .
The lawsuit relies heavily on RealPage’s own documents and executive statements. One RealPage executive said of the software “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.”
The same RealPage executive described said that if enough landlords use the product they will “likely move in unison versus against each other.”
In describing a different RealPage offering, one landlord called it "classic price-fixing."
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