Powerful interests, including a real estate tech company and private equity firms, are contributing to soaring rents.
The U.S. Department of Justice late Wednesday stepped into a massive antitrust lawsuit filed by dozens of tenants who are accusing a tech company’s apartment software of helping landlords collude to inflate rents.
The DOJ action comes after a ProPublica investigation last year found that Texas-based software provider RealPage used algorithms to recommend rents to landlords across the country to maximize profits — a practice that experts said may violate antitrust laws.
In throwing its weight behind plaintiffs in the price-fixing case, the Justice Department waded into a fraught corner of federal antitrust law that could have a wide-reaching impact not only on the way businesses use technology to drive profits but also on the marketplace consumers confront.
In the past, collusion happened with “a formal handshake in a clandestine meeting,” they wrote.
“Algorithms are the new frontier,” federal prosecutors said in their filing. “And, given the amount of information an algorithm can access and digest, this new frontier poses an even greater anticompetitive threat than the last.”
After the first federal lawsuit was filed, RealPage said it “strongly denies the allegations and will vigorously defend against the lawsuit.” The company did not immediately return a request for comment on the justice department’s filing, which opposes RealPage’s efforts to have the case dismissed.
Antitrust enforcers have struggled to apply decades-old laws to new technologies such as RealPage’s rent-setting software, which have changed the way competitors interact with one another and with customers.
But, prosecutors said, whether firms use a software algorithm or human interactions to create the scheme “should be of no legal significance.”
“Automating an anticompetitive scheme does not make it less anticompetitive,” the DOJ said.
As described in federal lawsuits filed by tenants, RealPage invited concerted action among landlords, including the sharing of nonpublic data with the software, with the purpose of raising rents, prosecutors wrote in their memorandum. The arrangement is still price-fixing regardless of whether competing landlords ever communicated with one another about prices, prosecutors said.
“Put simply, RealPage allegedly replaces independent competitive decisionmaking on prices, which often leads to lower prices for tenants, with a price-fixing combination that violates” federal antitrust law, prosecutors wrote.
Not every use of an algorithm to set price violates federal law, they noted, but it is “unlawful when, as alleged here, competitors knowingly combine their sensitive, nonpublic pricing and supply information in an algorithm that they rely upon in making pricing decisions, with the knowledge and expectation that other competitors will do the same.”
The DOJ intervention increases the legal pressure facing RealPage, a private equity-owned venture.
Tenants around the country filed dozens of federal lawsuits alleging violations of antitrust law by scores of big landlords — including some that provide student housing — after ProPublica’s investigation into RealPage in October 2022. The story revealed how landlords share proprietary data with RealPage. Legal experts said the arrangement could facilitate cartel-like behavior among landlords if they used the software to coordinate pricing.
Those lawsuits were consolidated in federal court in Nashville, Tennessee.
Together, the federal lawsuits and another filed in the District of Columbia Superior Court in early November 2023 described an elaborate system set up by RealPage to push landlords’ employees to adopt the software’s suggestions.
Twelve witness accounts, rental price and occupancy data, economic evidence and investigations “confirm the anticompetitive conduct” in the rental housing market, the federal lawsuit says.
In one news release, Realpage offered its property management clients the ability to outsource daily rent-setting and revenue oversight. “We believe in overseeing properties as though we own them ourselves,” the company said in a presentation that plaintiffs’ lawyers referenced in the lawsuit.
The lawsuit quoted one unnamed witness, a RealPage pricing advisor, saying that some pricing advisors told property management employees that they had to follow the software’s recommendations. A leasing manager at a RealPage client said, “I knew [RealPage’s prices] were way too high, but [RealPage] barely budged” when the manager asked to deviate from the suggested rent.
An update to the software tracked not only clients’ acceptance rate, but also the identity of the landlords’ staff members who had requested a deviation from RealPage’s price, the lawsuit said. Compensation for some property management personnel was even tied to compliance with the company’s recommendations, it said.
As a result, RealPage’s system hiked rent prices above competitive levels, the lawsuit alleged. Another witness, a former RealPage executive directly involved in the software’s creation, “expressed dismay with the way RealPage has enabled lessors to collectively raise rents at record pace,” the lawsuit said. The witness said the practice of setting rental rates centrally and consistently raising them had “bastardized” the company’s original supply-and-demand model.
After the company purchased its main software competitor in 2017, RealPage’s reach doubled — to comprise more than two-thirds of all revenue management use nationwide, according to the complaint. About 50 big landlords are named as defendants in the suit.
In a response to the accusations in the federal lawsuit, lawyers for RealPage and other defendants called the allegation that the software company and landlords had formed a conspiracy “implausible.” They said the complaint doesn’t show direct evidence of such an agreement, like “smoking gun” documents or recorded phone calls. “In sum, Plaintiffs have not alleged a plausible horizontal price-fixing conspiracy,” the response said.
The response accused tenants’ lawyers of trying to “create the false impression that users must obtain approval from RealPage before rejecting the software’s recommendations.” RealPage attorneys pointed to a company FAQ that said output from the software “may be followed, modified, or ignored by an apartment provider.”
It also said the fact that defendants held meetings and participated in online user groups and trade associations “does not imply collusion.”
The DOJ filing comes after the District of Columbia’s attorney general, Brian Schwalb, announced earlier this month that his office was also suing RealPage and 14 of the biggest landlords in the city “for colluding to illegally raise rents for tens of thousands of DC residents.”
In the broader Washington, D.C., metropolitan area, more than 90% of large apartment buildings — meaning those with 50 or more units — use RealPage’s revenue management software to set rents, Schwalb’s lawsuit contends. The complaint, filed in District of Columbia Superior Court, said RealPage has become “the ‘Big Tech’ company of rental housing,” promising landlords it can boost revenue by 2-7% using its software.
“Increases of this magnitude translate to millions in wrongfully inflated rents in the last four years alone,” Schwalb’s complaint says. “Every dollar of increased rent that the cartel illegally squeezes from District renters contributes to widening wealth gaps, forces hardworking residents to forgo other uses of their money, and pushes residents out of a District whose housing they increasingly cannot afford.”
The Washington suit, whose defendants include one of the nation’s biggest apartment owners, Greystar, said the use of the software marked a departure from the traditionally competitive rental market, saying that when a former high-ranking manager at Greystar was asked whether landlords use the RealPage software to collude on raising rental prices, “he responded that of course they did—it’s the entire reason landlords used the software.”
Greystar could not be immediately reached for comment.
In a statement released to media outlets at the time, a RealPage spokesperson criticized Schwalb’s lawsuit, saying, “In seeking to draw a causal connection between revenue management software like ours and increases in market-wide rents, this copycat suit repeats the inaccuracies of predecessor cases.” The statement said the complaint and others like it are “wrong on the facts and the law.”
The Washington lawsuit alleged that the system was designed to police compliance of the cartel. It cited RealPage training documents that urged clients to have the “discipline” to enact the software’s pricing suggestions 90% of the time or more. Training documents encouraged regional rental managers to beware of “‘rogue’ leasing agents who too frequently override” the software’s recommended prices. Rejections would also often trigger outreach from a RealPage pricing advisor, the suit said.
In late October 2023, U.S. Sen. Amy Klobuchar, who chairs a Senate panel on antitrust policy, held a hearing on competition and consumer rights in housing that included the RealPage controversy.
In testimony, University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Department’s antitrust division, noted that in several instances, data showed property managers who used algorithms to set rent saw their revenues increase even as they let more apartments sit vacant.
“So one issue for you is can the antitrust laws effectively punish and deter this alleged anti-competitive behavior?” he said to the subcommittee. “The short answer is yes, if humans agreed among themselves to fix price, and RealPage’s pricing algorithm was then used to facilitate their collusion.”
But Stucke said that given the way opportunities for competitors to collude are changing with new technology, he urged reform to address gaps in the law. He recommended changes to the way the Federal Trade Commission considers antitrust claims and how the government reviews the mergers of firms that could reduce competition. He also said Congress should look at how it might enhance privacy laws to better protect renters whose landlords are using new technology.
Klobuchar, who has already proposed reform to antitrust laws, called Stucke’s comments “music to my ears.”