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US sues RealPage, claims rental-pricing algorithm used by landlords is illegal

Rental-pricing software —

AG: Landlords use RealPage algorithm "to align their rents."

US Attorney General Merrick Garland speaking at a news conference while standing behind a podium.

Enlarge / US Attorney General Merrick Garland speaks during a news conference in Washington, DC, on Friday, August 23, 2024.

Getty Images | Bloomberg

The United States today sued RealPage, alleging that the software maker distorts competition in rental housing by helping landlords collectively set prices.

"To ensure they secure the greatest value for their needs, renters rely on robust and fierce competition between landlords. RealPage distorts that competition," said the lawsuit filed by the US government and eight state attorneys general. In a press release, the Justice Department said that "RealPage's pricing algorithm violates antitrust laws."

Attorney General Merrick Garland delivered remarks on the lawsuit. "When the Sherman Act was passed, an anticompetitive scheme might have looked like robber barons shaking hands at a secret meeting," he said. "Today, it looks like landlords using mathematical algorithms to align their rents. But antitrust law does not become obsolete simply because competitors find new ways to unlawfully act in concert."

RealPage's commercial revenue management software "enable[s] landlords to sidestep vigorous competition to win renters' business," the lawsuit alleged. "Landlords, who would otherwise be competing with each other, submit on a daily basis their competitively sensitive information to RealPage. This nonpublic, material, and granular rental data includes, among other information, a landlord's rental prices from executed leases, lease terms, and future occupancy. RealPage collects a broad swath of such data from competing landlords, combines it, and feeds it to an algorithm."

Using that sensitive data, "RealPage provides daily, near real-time pricing 'recommendations' back to competing landlords," the US said. The US alleges that these "are more than just 'recommendations'" and that "RealPage monitors compliance by landlords to its recommendations."

AG: Landlords “outsource their pricing decisions”

The US asked for a court order declaring "that RealPage has acted unlawfully to restrain trade in conventional multifamily rental housing markets across the United States." The requested order would prohibit RealPage from continuing its allegedly anticompetitive practices and provide "relief necessary and appropriate to restore competitive conditions in the markets affected by RealPage's unlawful conduct."

RealPage recently argued that its software "benefits both housing providers and residents," and "makes price recommendations in all directions—up, down, or no change—to align with property-specific objectives of the housing providers using the software." Landlords don't have to follow the recommendations, the company says.

The US said RealPage takes a more direct role in setting prices. RealPage "reviews and weighs in on landlords' other policies, including trying to—and often succeeding in—ending renter-friendly concessions (like a free month's rent or waived fees) to attract or retain renters," the lawsuit said. Garland alleged that "a large number of landlords effectively agree to outsource their pricing decisions to RealPage by using an 'auto accept' setting, which effectively permits RealPage to determine the price a renter will pay."

The RealPage algorithm "can serve as a mechanism for communication," Diana Moss, director of competition policy at the Progressive Policy Institute, a public policy think tank, was quoted as saying by The New York Times. "That is as approachable and actionable under US antitrust as any form of communication we've seen in past cases in the non-digital era."

The lawsuit was filed in US District Court for the Middle District of North Carolina. Six landlords in North Carolina provided information to the Justice Department. The states joining the lawsuit are North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington.

Software eliminates “guessing game” on prices

Garland said the investigation preceding the lawsuit took nearly two years. The lawsuit quoted landlords describing how they use RealPage:

One landlord observed that RealPage's software "can eliminate the guessing game" for landlords' pricing decisions. Discussing a different RealPage product, another landlord said: "I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term. That's classic price fixing." A third landlord explained, "Our very first goal we came out with immediately out of the gate is that we will not be the reason any particular sub-market takes a rate dive. So for us our strategy was to hold steady and to keep an eye on the communities around us and our competitors."

The lawsuit said that "RealPage frequently tells prospective and current clients that a 'rising tide raises all ships.' A RealPage revenue management vice president explained that this phrase means that 'there is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the industry down.'"

The US and states allege that RealPage violated Section 1 of the Sherman Act by unlawfully sharing information for use in competitors' pricing, and by entering into vertical agreements with landlords to align pricing. RealPage is further accused of violating Section 2 of the Sherman Act through monopolization of the commercial revenue management software market.

RealPage, which is also facing a ban on its software in San Francisco, said the lawsuit is "devoid of merit and will do nothing to make housing more affordable."

"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," RealPage said.

Source: arstechnica.com

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