Justice Department sues landlord software company RealPage

On Friday, August 23, the Justice Department filed an antitrust lawsuit against software company RealPage, which provides a service to landlords to set rent prices. It is not the first lawsuit against the company (states like Arizona and some cities have filed similar cases), and previous reports, such as a 2022 investigation by ProPublica, laid out how landlords and property managers used RealPage’s YieldStar software to drive up rents. YieldStar, the government argues, did much more than just make price recommendations; it enabled landlords across the country to collude to raise rents. It is one of the first major federal cases involving algorithmic AI, and could potentially affect other industries that rely on similar software to generate prices, such as hotels and airlines.

If you live in a metropolitan area where rents have skyrocketed in recent years, RealPage could be the reason, according to U.S. Attorney General Merrick Garland. Below, we explain what RealPage is, the alleged reasons for the rent increases, and what it could mean for your bills.

What is RealPage?

RealPage is a Texas-based company that offers “revenue management” software called YieldStar, which has a proprietary algorithm that the company says can help landlords set rent levels. Since 2004, when the software was developed, company executives and property managers who use the product have said the software has enabled landlords to drive rents ever higher, helping them “outperform the market” (which is also how the company markets itself to landlords). After a merger in 2017, RealPage became the dominant provider of this type of software—its competitors include Yardi, which is also embroiled in similar litigation, though not at the federal level. In 2020, the company said the software was used to manage 19.7 million rental units, including multifamily apartments and single-family homes. RealPage is owned by a private equity firm called Thoma Bravo, which also invests in other software and cybersecurity companies and was an investor in FTX.

How does the YieldStar algorithm supposedly work?

RealPage collects and analyzes internal data on rents and occupancy from its numerous landlord clients, who must submit that data to use the product. Then, each day, the algorithm, which the company touts as proprietary, spits out a new rent price for each unit that it thinks a landlord should charge based on that data, including real-time prices (so not just advertised amounts, but what tenants actually paid), rental data, upcoming vacancies, and other inputs. The idea is that using all of that information, landlords can gain insight into their competitors’ prices and other data points, allowing them to charge more than they could if they only had publicly available information on rent averages or trends. For the landlord, the benefit of the software, besides the higher price, is that this computer-generated price is quantitative and empirical, eliminating all of the fuzzy, human factors that might influence a landlord’s setting of rent.

What is the problem?

The danger of the YieldStar software is that it could potentially spawn a kind of conspiracy of landlords working together to overcome market forces and collectively set higher prices, which in turn sets off a cycle that drives rents ever higher. The information RealPage has is otherwise confidential and not available anywhere, and many landlords use the software in an “auto-accept” setting that allows the company to be the sole arbiter of rental markets across the country, with no oversight whatsoever. Such price coordination is a potential violation of federal law. Because RealPage is so large, it is used by many landlords and property management companies in certain areas—for example, 70 percent of the apartments in one Seattle neighborhood are managed by RealPage clients, according to ProPublica. In addition, RealPage is said to have created “working groups” that brought rival landlords together to privately consult on rental prices and encouraged potential competitors to communicate on its online forum. According to the Justice Department complaint, one landlord approvingly described YieldStar as “classic price-fixing.”

What impact does all this have on tenants?

The lack of competition in pricing means landlords have less incentive to respond to actual market conditions that might otherwise cause them to lower their rents—such as lower demand in the cold winter months or climate conditions that might cause people to move elsewhere. And according to some reports, using YieldStar increased revenue for landlords who used it, but led to incredible tenant turnover rates—i.e., no one could afford the algorithmically recommended price increases. One client said his turnover rate increased 15 percent after implementing YieldStar—but that wasn’t a problem. As the CEO said, the profit they were still able to make showed that “keeping heads in bed above all else isn’t always the best strategy” (he later retracted these comments to ProPublica). All of this, one could argue, is leading to skyrocketing rents that have nothing to do with the real world of what people are willing to pay, or the conditions of housing stock and availability. In some places where the software is used, rents have increased by double digits in just a few years. The Justice Department’s lawsuit says that RealPage goes even further than just suggesting higher rents – the company actually “monitors” its landlord clients when they try to lower rents.

Who else has sued RealPage?

In 2022, law firms began filing lawsuits against RealPage on behalf of renters in several cities, such as Seattle and Austin, attempting to formulate a class action lawsuit. The Washington, DC, attorney general then sued RealPage in November 2023, along with 14 landlords, calling it a “housing cartel.” The Arizona attorney general followed in February of this year. The Justice Department’s lawsuit, filed on August 23 and joined by eight states (though not New York), represents a significant escalation. The government’s suit accused the company not only of price fixing, but also of monopolizing the competition. Attorney general officials have portrayed the lawsuit as part of a broader regulatory effort to limit the use of technology by companies like Amazon and Uber, and even Vice President Kamala Harris referenced RealPage in her recent set of housing proposals when she promised to ban the use of algorithmic price-fixing tools.

Does this mean that rents could go down?!

The fallout from the Justice Department’s lawsuit could be huge. Some of the country’s largest landlords use RealPage. It’s not clear exactly what might happen if the Justice Department’s lawsuit is successful, but it could mean that rents stop rising, at least in places where RealPage has driven them up.