On Friday, the United States Department of Justice—along with the attorneys general of eight states—announced a civil antitrust lawsuit against the Richardson-based company RealPage. The firm’s software allows the owners of rental properties to anonymously share the details of their rates, lease terms, vacancies, and other information previously regarded as trade secrets, and to receive suggested rent prices based on an algorithm that aggregates that data. The lawsuit alleges that this violates the Sherman Act, the famous antitrust law, that has been in place since the late 1800s.
The implications of the case could be significant. Rent prices nationally have increased an average of 33 percent over their prepandemic rates. The problem is particularly acute in Texas: according to research from Harvard’s Joint Center for Housing Studies, 51 percent of renters in the Lone Star State—and nearly one million more American households than just five years ago—pay more than 30 percent of their income in rent, which the Center defines as “cost burdened.” That’s true in cities as varied in lifestyle and local economy as Amarillo, Brownsville, Dallas, Del Rio, El Paso, and Houston. For many renters, the problem is even worse: Roughly a quarter of all cost-burdened renters spend more than half of what they earn on rent alone. If the DOJ wins the lawsuit, one factor that it argues is driving rent upward—the cooperation between landlords enabled by RealPage—could be eliminated.
Here’s what you should know about the lawsuit against RealPage, and what it might mean for you.
How does RealPage’s software work?
RealPage is, according to the company, “the leading global provider of AI-enabled software platforms to the real estate industry.” The company, which was founded in 1998 and acquired by the private equity firm Thoma Bravo in April 2021, uses both public and nonpublic rental data in its YieldStar software to determine rental market values, with prices changing daily based on what landlords and property managers are charging. A landlord who uses the company’s software provides their own rental data, which RealPage anonymizes. In return the landlord receives a picture of the broader market—not just the advertised prices but also what tenants are actually paying, how many units are coming out of their leases, how many vacancies exist and are expected, and more.
Using that data, YieldStar provides those landlords with a recommended rental price for the unit that’s updated every day. According to a landlord quoted in the DOJ lawsuit, the software helps “eliminate the guessing game” of trying to read the market and determine what’s fair by giving them a precise number.
Is that illegal?
Price-fixing is illegal, although the question of whether RealPage’s software is an example of price-fixing is a novel one. According to the Justice Department, RealPage’s software “allows landlords to manipulate, distort, and subvert market forces,” which the suit alleges leads to illegal collusion. The government’s argument is that by providing landlords with detailed information they wouldn’t otherwise have access to, and offering specific price recommendation, RealPage is essentially facilitating the formation of an illegal cartel that keeps rent prices artificially high by discouraging competition. The suit also alleges that the software might encourage landlords to keep units vacant to artificially create scarcity, rather than lower rent prices. (RealPage denies this).
RealPage has been accused of price-fixing before. Following an October 2022 ProPublica investigation, the company—along with several landlords who reportedly use YieldStar—was sued by the state of Arizona, the District of Columbia, and renters around the country. (The first class action lawsuit brought by renters against property owners using the company’s software was settled in February on unspecified terms.) In February, Senator Amy Klobuchar of Minnesota, chair of the Senate’s antitrust subcommittee, worked with other Democrats to introduce the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act, which would specifically outlaw use of algorithms such as YieldStar. In July, San Francisco’s board of supervisors approved a ban on the use of the software in the city.
Similar suits might follow. Algorithms used for hotel prices and e-commerce have also raised concerns. Last October, the Federal Trade Commission filed a lawsuit against Amazon’s “Project Nessie” algorithm, which it alleged allowed Amazon to manipulate prices of goods, under a different legal principle. In March, the FTC and the DOJ jointly warned the hotel industry against using algorithmic price setting services. (A class action suit on similar grounds was dismissed by a Nevada judge in May.)
What does RealPage say about this?
In June, RealPage responded to the investigations into its practices by publishing a six-page pamphlet called The Real Story, in which it argues that both landlords and renters benefit from the company’s software. The company writes that it “helps ensure that prospective residents have access to the best pricing available to everyone.” It refutes unspecified allegations that RealPage punishes landlords who reject price recommendations, or that it advises landlords to keep vacant units off the market to create scarcity; it also argues that RealPage is a much smaller player in the industry than ProPublica readers may have come away from the investigation believing, insisting that less than 7 percent of rental units nationally are priced using its software, and that its recommendations are “far lower than has been falsely alleged.”
The real problem, RealPage’s document insists, is the broader market issue of housing affordability, which the company says is a result of a wide range of factors including an undersupply of rental units, and thus high demand for those units; inflation raising the cost of building, insurance, and management for rental properties; regulations on builders; high mortgage rates that push residents who might otherwise pursue home ownership into the rental market; and changes in which parts of the country residents wish to live.
“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 procompetitive technology that has been used responsibly for years,” Jennifer Bowcock, senior vice president of communications for RealPage, emailed Texas Monthly in a statement. “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.”
She noted that the company has “a long history of working constructively with the DOJ to show that” the company’s software was “purposely built to be legally compliant,” and that a 2017 Trump Administration DOJ analysis of the company, performed as part of a review of its merger with a similar company, elicited no objections. “We believe the claims brought by DOJ are devoid of merit and will do nothing to make housing more affordable.”
How effectively do those arguments address the lawsuit’s claims?
It’s certainly true that there are broader issues around affordability that are affecting the housing market on all levels, many of which were accurately identified in RealPage’s statement.
The company’s claim that it’s a small player, though, is more context-dependent. According to the lawsuit filed against the company last November by the District of Columbia, nearly 90 percent of all units in larger apartment buildings (defined as those with more than fifty units) in the city’s metropolitan area use the software. In its initial reporting on the company, ProPublica found that in one Seattle neighborhood, 70 percent of all apartments were controlled by ten property managers, all of whom used RealPage’s software to set prices. In the lawsuit, the DOJ identifies several specific markets in which RealPage users constitute “from at or around 29 percent to more than 60 percent” of the rental market, including Austin and Dallas–Fort Worth, claiming that such a share “has harmed, or is likely to harm, competition and thus renters.”
The Justice Department’s lawsuit quotes several RealPage executives to counter the company’s claim that it helps produce competition. The suit quotes a RealPage vice president as saying that “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,” and that if its software were used widely enough, landlords and property managers could “likely move in unison, versus against each other.” The suit also notes that RealPage has often used the language that “a rising tide raises all ships,” which appears multiple times in press releases and blog posts from the company. The government suggests this is more than simply a marketing cliche.
Whether the lawsuit is consistent with the way antitrust enforcement has been conducted in this country over the years is a matter of some dispute among experts and economists. In a blog post about the DOJ’s interest in RealPage published earlier this month, Jay Ezrielev of the economics advisory firm Elevecon, wrote that “the DOJ’s legal theory represents a vast expansion of antitrust doctrine,” since the landlords who used RealPage’s software weren’t in direct communication with one another. “The theory would raise considerable obstacles for the commercial use of algorithms, proprietary data, and artificial intelligence, resulting in significant harm to innovation and efficient operation of markets.”
Others believe the case is more straightforward. “[It seems like] a hub-and-spoke conspiracy with RealPage (the hub) coordinating the behavior of the spokes (the landlords),” Ruth Gilgenbach, an economics PhD and partner at Ashenfelter & Ashmore, a litigation and economic consulting firm based in New Jersey, and a lecturer at Rutgers University, said. She noted that there are numerous examples of successful antitrust litigation in which various parties enter into separate agreements with a leading party to coordinate prices, as well as federal lawsuits around illegal information exchanges. “This really seems like pretty classical price-fixing.”
