Justice Department accuses RealPage of scheme to help landlords raise rents in antitrust lawsuit | News, Sports, Jobs

Attorney General Merrick Garland, center, talks to reporters about an antitrust lawsuit against real estate software company RealPage during a news conference at the Justice Department, Friday, Aug. 23, 2024, in Washington. At left is Deputy Attorney General Lisa Monaco and at right is Acting Deputy Attorney General Benjamin Mizer. (AP Photo/Mark Schiefelbein)

WASHINGTON (AP) — The Justice Department filed an antitrust lawsuit Friday against real estate software company RealPage Inc., accusing it of illegally allowing property owners to coordinate to inflate rental prices.

The lawsuit, filed jointly with attorneys general of states including North Carolina and California, accuses the company of violating antitrust laws by using an algorithm that landlords use to derive recommended rental prices for millions of apartments across the country.

Rents across the U.S. rose sharply in 2021 and 2022, and while the increase has since slowed somewhat, they remain high for many renters, in part due to a huge shortage of housing supply.

Justice Department officials say RealPage is another reason for high rents because the algorithm allows landlords to equalize prices and avoid competition that would otherwise drive rents down.

“Americans should not have to pay higher rent just because a company finds a new way to scheme with landlords to break the law” Attorney General Merrick Garland told reporters.

In a statement, RealPage said the Justice Department’s claims are “lacking merits and doing nothing to make housing more affordable.”

“We are disappointed that after many years of educating and working with us on antitrust issues involving RealPage, the Department of Justice has chosen this moment to bring a lawsuit that seeks to place blame on a pro-competitive technology that has been used responsibly for years.” the company informed.

In an interview with The Associated Press, Dom Beveridge, a longtime revenue management expert who is not involved in the lawsuit, offered a detailed, resounding defense of revenue management software and said prosecutors fundamentally misunderstood how such products worked.

“If it were true that the software enables price fixing, I would side with the defendants 100% — but this software simply does not do that” said Beveridge, who worked at RealPage briefly when the software company that makes his business was acquired in 2017. “These algorithms are functionally only capable of optimizing one property at a time. They can’t say, ‘I’ll take property A, B, and C and figure out what they should do together,’ which is the objection.”

He stressed that property managers are incentivized to maximize revenue, which means keeping occupancy high, not limiting supply as critics say. Instead of being like Uber “jump price” “Revenue management tools help apartment managers tailor their offerings like a game of Tetris, thereby increasing available supply,” Beveridge said.

RealPage came under scrutiny after a 2022 ProPublica investigation into the company’s practices suggested it may be responsible for some of the skyrocketing rents. Since then, RealPage has drawn the ire of Democratic lawmakers, including Sen. Amy Klobuchar of Minnesota, who in February introduced a bill that would ban companies from using algorithms to collude and fix prices.

White House economic adviser Lael Brainard said the White House had no comment on the lawsuit, but added that President Joe Biden’s administration “has made clear that no one should pay higher prices because of corporate lawbreaking and continues to support fair and vigorous enforcement of antitrust laws to prevent illegal collusion.”

RealPage isn’t the only company offering an algorithmic tool to help property managers set prices. But the lawsuit says the company is by far the largest in the industry, controlling 80% of the market.

Using data to help property managers set rents isn’t new or, on its face, illegal. But officials say RealPage is different.

RealPage uses not only publicly available data, but also confidential data that RealPage customers have agreed to share privately, to help RealPage software charge a higher price, according to lawsuits filed last year by the attorneys general of Arizona and Washington.

Authorities say it’s a cartel-style illegal price-fixing. Only this time, instead of the cartel members meeting in the proverbial “smoky room” They claim that pricing is done by artificial intelligence.

The Justice Department points to RealPage executives themselves saying how their product maximizes prices for owners. One executive said: “There is a greater good in everyone being successful than when they just try to compete with each other, which actually leads to the downfall of the entire industry.”

RealPage noted that property owners are free to reject the software’s price recommendations. But the Justice Department says doing so often requires a series of steps, including speaking with a RealPage pricing consultant who can “prevent property managers from acting on emotion.”

Beveridge argued that property managers’ compliance with RealPage’s algorithm is not actually high – around 40-50% of rents that are ultimately published fall within 1% of the algorithm’s recommendations, according to prosecutors.

“It’s basically a coin flip” he said. “You should want people to accept about 90% of your recommendations, because most price recommendations are really small.”

The case is the latest example of aggressive antitrust enforcement by the Biden administration.

The Justice Department sued Apple in March and in May announced a massive lawsuit against Ticketmaster and its owner, Live Nation Entertainment. Law enforcement agencies have also launched investigations into the roles Microsoft, Nvidia and OpenAI have played in the AI ​​boom.

Among those celebrating the lawsuits against Realpage is Lee Hepner, general counsel of the American Economic Liberties Project, an organization that advocates for government action against corporate concentrations.

“Courts are tempted to turn a blind eye to this harm because algorithms tend to hide the existence of an agreement between competitors” Hepner said. “It’s not as simple as an email between competitors agreeing to fix prices. I think it’s very important that our courts deal with the use of these software algorithms as if it were any other form of price fixing.”

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