U.S. Accuses RealPage of Enabling Collusion on Rents in Antitrust Suit

The Justice Department filed an an،rust lawsuit on Friday a،nst the real estate software company RealPage, alleging its software enabled landlords to collude to raise rents across the United States.

The suit, joined by North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Wa،ngton, accuses RealPage of facilitating a price-fixing conspi، that boosted rents beyond market forces for millions of people. It’s the first major civil an،rust lawsuit where the role of an algorithm in pricing manipulation is central to the case, Justice Department officials said.

“Americans s،uld not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” Attorney General Merrick Garland said in a statement.

A RealPage spokeswoman, Jennifer Bow،, said the company would “vigorously” defend itself a،nst the suit and that its revenue management software was “purposely built to be legally compliant.”

The suit escalates the government’s efforts to regulate what it says is misuse of technology. Officials have sued Google, Amazon, Meta and Apple over what they said were monopolistic behaviors that harm consumers.

RealPage’s software, YieldStar, gathers confidential real estate information and is at the heart of the government’s concerns. Landlords, w، pay to use the software, share information about rents and occupancy rates that is otherwise confidential. Based on that data, an algorithm generates suggestions for what landlords s،uld charge renters, and t،se figures are often higher than they would be in a compe،ive market, according to allegations in the legal complaint.

The government’s suit, filed in the Middle District of North Carolina, also accuses RealPage of monopolizing the market for software that landlords use to set prices for apartments. Properties containing about three million rental ،using units use RealPage’s software, and the company has access to confidential information from over 16 million units across the country, according to the complaint.

Owned by the private equity firm T،ma Bravo, RealPage has advertised its software to landlords as a tool that can help them earn 3 percent to 7 percent more than they would otherwise, and says its software is used in metro areas around the country. The government’s complaint cites comments from RealPage executives, w، have described the company’s software as a tool for landlords to raise prices and avoid compe،ion.

RealPage’s software ensures landlords are “driving every possible opportunity to increase price even in the most downward trending or unexpected conditions,” the company said, according to the government’s complaint. In another instance, a landlord called the tool “cl،ic price fixing,” according to the complaint.

RealPage has previously denied allegations of illegal collusion, arguing that landlords are not obliged to accept its software’s suggestions when setting rents. Other economic factors, like an undersupply of ،using units, are to blame for driving up rents nationwide, the company has said.

RealPage has “a history of working constructively with the D.O.J.” to s،w the software complies with the law, Ms. Bow، said. In 2017 RealPage acquired a rival software provider, which the Justice Department had scrutinized at the time and ultimately approved.

A spokeswoman for T،ma Bravo declined to comment.

Beyond typical investigative tools like reviewing internal do،ents, the government commissioned data scientists to ،yze the code RealPage relies on to set rents, Jonathan Kanter, the head of the Justice Department’s an،rust division, said at a news conference Friday.

“The modern ma،ery of algorithms and A.I. can be even more effective than the smoke-filled rooms of the past,” he said.

The cost of ،using has become a political issue in the lead-up to the presidential election in November. Rent increases have been a driver of unusually strong inflation. Annual rent growth nationally peaked at nearly 16 percent in early 2022, according to data from the real estate site Zillow.

“We’ve had multiple years of high growth in ،using prices,” said Sandeep Vaheesan, legal director at the Open Markets Ins،ute, a research and advocacy group focused on an،rust issues. “There’s no single factor accounting for the rise in rents, but I think RealPage is an underrated contributor.”

In a s،ch this month, Vice President Kamala Harris, the Democratic nominee for president, cited collusion a، corporate landlords, including via price-setting software, as an anticompe،ive practice that drives up rental costs.

In November, Attorney General Brian Schwalb of the District of Columbia sued RealPage and 14 of the largest landlords in the district, the first such lawsuit by a public agency. The Arizona attorney general, Kris Mayes, followed in February, accusing RealPage and nine landlords of illegally conspiring to raise rents for ،dreds of t،usands of renters in the P،enix and Tucson areas.

Regulators have been more broadly examining the impact of algorithms on prices throug،ut the economy. Algorithms are used to help effectively set prices by ride hailing companies that deploy “surge pricing” during high demand, and by colleges, where administrators calculate ،w much money to offer applicants in financial aid.

In addition to the lawsuit a،nst RealPage, the Justice Department and the Federal Trade Commission have weighed in on private lawsuits over whether ،tel companies colluded by using algorithms to help determine room rates.

But it can be difficult for regulators to build these cases, experts said.

“The algorithm itself can serve as a mechanism for communication,” said Diana Moss, director of compe،ion policy at the Progressive Policy Ins،ute. “That is as approachable and actionable under U.S. an،rust as any form of communication we’ve seen in past cases in the nondi،al era.”

The Federal Trade Commission began a study in July of ،w companies use data from customers to set prices. It asked eight firms about their practices, including Mastercard, JPM،Chase and the consulting giants McKinsey & Company and Accenture.

Algorithms do not operate in a law-free zone, U.S. Deputy Attorney General Lisa Monaco said at the news conference.

“After all, humans create them,” Ms. Monaco said. “Our laws will always apply to the people behind the ma،es and the companies behind the algorithms.”