The U.S. Justice Department and eight attorneys general sued property management software giant RealPage Inc. last Friday for allegedly helping landlords collude to raise rents, in a case that highlights growing regulatory scrutiny of the impact of algorithms on the real estate market.
The complaint accuses RealPage of selling software to landlords that collects sensitive, non-public information from them on a daily basis including rental prices, lease terms, and future occupancy. It then feeds this data into an algorithm that makes pricing recommendations to competing landlords and monitors compliance to these recommendations.
In effect, by offering advice based on nonpublic information from rival landlords, RealPage helps multifamily owners set higher prices and offer less favorable leasing terms and fewer concessions than they otherwise would, thwarting the process of free competition, according to the DOJ.
“Renters are entitled to the benefits of vigorous competition among landlords,” the lawsuit states. “In prosperous times, that competition should limit rent hikes; in harder times, competition should bring down rent, making housing more affordable. RealPage has built a business out of frustrating the natural forces of competition.”
Based in Richardson, Texas-based, RealPage was acquired by private equity firm Tomas Bravo in 2021. The software company defended its practices in a statement provided to the media.
“RealPage’s revenue management software is purposely built to be legally compliant, and we have a history of working constructively with the DOJ to show that,” the company said, according to a Bloomberg report.
“In fact, in 2017 when the DOJ granted antitrust clearance for our acquisition of LRO, the DOJ also analyzed extensive information about our revenue management products without objecting to them in any way,” RealPage added. The company acquired Lease Rent Options (LRO), its largest competitor, in 2017.
The DOJ complaint separately accuses RealPage of having unlawfully maintained a monopoly over commercial revenue management software for multifamily housing in the U.S., in which the company has a roughly 80% market share.
The soaring cost of housing has become a political football in the run-up to the 2024 election. The average US rent has jumped by over 33% since the start of the pandemic, according to a Zillow index – although the pace of growth is slowing, with property managers responding to a cooler market by offering more concessions to attract new tenants.
In an August 9 blog post apparently referencing the pending RealPage lawsuit, the National Multifamily Housing Council (NMHC) noted that “Collecting market pricing data and using algorithmic analysis is not new. It has been used for decades in a variety of industries. This common tool helps businesses to understand demand and, with additional factors, to help inform a price decrease or increase.”
The post by NMHC President Sharon Wilson Géno argues that the primary driver of high housing prices in the U.S. is a shortage of homes – the industry group reckons we need to build 4.3 million apartments alone between 2022 and 2035 – and high costs, not the use of algorithms in the rent pricing process.
“Housing providers are responsible for determining rents, not algorithms,” Wilson Géno adds. “Rents are set based on the unique situation of each individual property and owner and are not driven exclusively by market pricing.” She also notes that the federal government itself has used both market rent data and aggregated rent information in setting rents for the Section 8 program for decades.