DOJ files antitrust lawsuit against RealPage — ProPublica

The Justice Department and eight states on Friday sued the maker of rent-setting software that critics blame for the rapid rise in rents in apartment buildings across the country.

The civil suit, filed in federal district court in Greensboro, North Carolina, accuses Texas-based technology company RealPage of participating in an illegal price-fixing scheme to reduce competition among landlords and thereby increase prices – and therefore profits. It also claims that the company has taken over the market for such price-fixing software and effectively monopolized it.

“RealPage has built its business on thwarting the natural forces of fierce competition,” Assistant Attorney General Jonathan Kanter said Friday at a news conference with senior department officials. “It’s time to stop this illegal behavior.”

The antitrust lawsuit is the latest — and most dramatic — development following a 2022 ProPublica investigation that examined RealPage’s role in helping landlords set rent prices across the country, an arrangement that legal experts say could lead to cartel-like behavior. Since then, senators have introduced legislation to ban such practices, tenants have filed dozens of ongoing federal lawsuits and the San Francisco Board of Supervisors has sought to ban landlords from using similar algorithms to set rents.

Justice Department officials said Friday that their lawsuit is the result of a nearly two-year investigation into the company. In addition to traditional methods such as reviewing internal records, their investigation also involved data scientists who dug into computer code to understand how those algorithms set prices.

RealPage’s software allows landlords to share confidential data and charge similar rents, officials said.

“We’ve learned that the modern machinery of algorithms and AI can be even more effective than the smoke-filled rooms of the past,” Kanter said, referring to artificial intelligence. “You don’t need a PhD to know that algorithms can facilitate coordination between competitors.”

The case is central to the Justice Department’s efforts to boost antitrust enforcement under the Biden White House. Officials said they are also reviewing similar information sharing in other industries, including meat processing. “Training a machine to break the law is still breaking the law,” said Deputy Attorney General Lisa Monaco.

But experts say prosecutors face challenges applying the more than 100-year-old Sherman Antitrust Act to situations where competitors rely on new technologies to coordinate prices.

RealPage, which is owned by private equity firm Thoma Bravo, did not immediately respond to ProPublica’s request for comment. The company has previously denied any wrongdoing. In a statement posted on its website in June, the company said its landlord clients were free to accept or reject its advice and that the software’s impact on the national rental market was less than critics portrayed.

“RealPage uses data responsibly, including limited aggregated and anonymized nonpublic data where accuracy supports pro-competitive uses,” the company said in a statement. The company had previously announced that it would fight antitrust proceedings.

The Justice Department’s lawsuit does not name landlords as defendants, unlike complaints filed by tenants accusing some of the nation’s largest landlords of price-fixing through RealPage. In May, the FBI raided an Atlanta landlord involved in the lawsuits. The landlord said he was not a target of law enforcement. Justice Department officials declined to answer a question about why their lawsuit did not name landlords, and Kanter said he “cannot comment on further investigations.”

The Justice Department’s more than 100-page lawsuit quotes RealPage executives and landlords talking about the impact of the software. The lawsuit alleges that the company’s software helps landlords realize that “a rising tide lifts all ships” if they all raise their prices or fail to lower them during a downturn.

“I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms,” ​​one landlord commented on the product, according to the lawsuit. “This is classic price fixing.”

Justice Department officials said the software has a “significant” impact on the housing market. It is used to set rent for more than three million apartments across the country, Kanter said, and draws on competitive information from more than 16 million apartments. Americans spend more on housing than on any other expense, officials said.

“Americans should not have to pay more rent just because a company found a new way to cooperate with landlords and break the law,” Attorney General Merrick Garland said at the press conference.

ProPublica’s report found that in one Seattle neighborhood, 70% of all multifamily properties were managed by just 10 property managers – and every single one of them used pricing software sold by RealPage. The company claimed its software could help landlords “outperform the market by 3% to 7%.”

Justice officials alleged that RealPage “monitors” landlords’ compliance with its recommendations. The software has an “auto-accept” setting that allows landlords to automatically accept the suggestions. “This effectively allows RealPage to determine the price a tenant will pay,” Garland said.

The states whose attorneys general have joined the federal lawsuit are North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington.

Housing costs have now become a political issue in the presidential campaign as candidates travel the country making their arguments.

Last week, Democratic presidential candidate Kamala Harris criticized landlords’ use of price-fixing software to set rents.

“Some commercial landlords work together to set artificially high rents, often using algorithms and price-fixing software,” she said. “This is anti-competitive and drives up costs.”