Software should not be able to set prices for rental apartments

The problem, of course, is that what helps landlords hurts tenants who have to pay higher prices.

The U.S. Department of Justice and eight state attorneys general filed a civil lawsuit against Texas-based RealPage last month, accusing the company of violating federal antitrust laws by illegally reducing competition and gaining a monopoly on commercial revenue management software. “RealPage replaces competition with coordination,” the complaint says. “It replaces rivalry with unity. It undermines competition and the competitive process. It does so openly and directly—and American renters are paying the price.”

RealPage said in an emailed statement to its editorial board that the DOJ “seeks to blame a pro-competitive technology that has been used responsibly for years” and called the lawsuit “baseless” and a “distraction” for policymakers “from the underlying economic and policy issues” affecting housing affordability. “RealPage’s revenue management software was intentionally built to comply with the law, and we have a long history of working constructively with the DOJ to demonstrate that,” the statement reads.

Massachusetts, which is not involved in the lawsuit, already has a housing problem. Forbes in April listed Boston and Worcester among the 25 most competitive rental markets in the country. ApartmentAdvisor last month found that Boston is the fourth most expensive rental market in the United States, with an average rent of $3,300 for a two-bedroom apartment. In a 2023 survey of young Boston-area residents by the Greater Boston Chamber of Commerce, 82 percent said the cost of rent was a factor in deciding how long to stay. The lack of affordable housing hurts Massachusetts’ ability to attract businesses.

The last thing Massachusetts needs is software that allows property owners to collude to inflate prices.

RealPage’s price recommendation software isn’t widely used in Massachusetts, but it is used. According to RealPage, 5.3 percent of the total rental market in Massachusetts is priced using the two software products that are the subject of the DOJ complaint. Another product that raises fewer anticompetitive concerns is used by 3.5 percent of units. The federal complaint lists two markets in Massachusetts where RealPage has agreements with local landlords to share nonpublic pricing information: Chelsea/Revere/Watertown and Western Norfolk County.

The software is used mostly by large companies. U.S. Sens. Elizabeth Warren and Ed Markey and U.S. Rep. Seth Moulton wrote to 13 corporate landlords doing business in Massachusetts, asking if they use RealPage’s pricing software. Doug Quattrochi, executive director of MassLandlords, an organization representing small landlords, said only a handful of its 2,400 members use it.

Attorney General Andrea Campbell’s office would not comment on whether Massachusetts might join the lawsuit. Campbell should consider joining, if only to make a statement that Massachusetts does not want such practices here.

Owners have the right to set prices based on publicly available information. That’s what a free market is.

The problem with RealPage, outlined in the 115-page complaint, is that it collects nonpublic information through contracts with landlords—including floor plans, renewal offers, occupancy rates, rental prices, lease terms, and concessions—and uses it in pricing recommendations. The company also hosted “user group” meetings, where landlords would gather virtually to discuss policies, including rent increases. (It wasn’t until the company went public in 2022 that the organization began instructing landlords not to discuss confidential information.) As one of the company’s customers, quoted in the DOJ lawsuit, noted, this sounds suspiciously like price fixing.

The software also includes settings designed to keep prices high, according to the complaint. The algorithm develops a range of price recommendations, and the software will sometimes recommend prices above the range but never below it. The software would recommend that the owner rent fewer properties before recommending lower prices. If there is a surplus of leases expiring within 12 months in an area, the software might recommend raising the price for a 12-month lease compared with an 11- or 13-month lease to spread out the dates when apartments become available. The software offers features that make it easier for the owner to accept the price recommendations but harder to reject them. It advises owners not to offer discounts.

According to the lawsuit, RealPage claims it controls more than 80 percent of the multifamily rental income management market and has virtually no competition because no one else has a comparable set of data.

As Mark Martinez, a housing attorney at the Mass Law Reform Institute, put it simply: “It’s a market distortion.”

San Francisco recently passed an ordinance banning software that recommends rental prices based on nonpublic information. In response, RealPage announced that users can now remove nonpublic competitor information from its price recommendations. Potentially, Boston or other municipalities could take similar action. But it would be more effective if the courts were clear about what practices are anticompetitive and illegal.

Eliminating the use of these software management tools won’t solve Boston’s housing crisis, but it could help combat price gouging.

RealPage, according to the complaint, claims its goal is to “raise the tide” for all landlords. But it shouldn’t be allowed to use anti-competitive processes to squeeze tenants with high prices.

Editorials represent the views of the Boston Globe Editorial Board. Follow Us @GlobeOpinion.