The Justice Department says that landlords did more than use RealPage in the alleged pricing scheme. “Along with using RealPage’s anticompetitive pricing algorithms, these landlords coordinated through a variety of means,” such as “directly communicating with competitors’ senior managers about rents, occupancy, and other competitively sensitive topics,” the DOJ said.
There were “call arounds” in which “property managers called or emailed competitors to share, and sometimes discuss, competitively sensitive information about rents, occupancy, pricing strategies and discounts,” the DOJ said.
Landlords discussed their use of RealPage software with each other, the DOJ said. “For instance, landlords discussed via user groups how to modify the software’s pricing methodology, as well as their own pricing strategies,” the DOJ said. “In one example, LivCor and Willow Bridge executives participated in a user group discussion of plans for renewal increases, concessions and acceptance rates of RealPage rent recommendations.”
DOJ: Firms discussed “auto-accept” settings
The DOJ lawsuit says RealPage pushes clients to use “auto-accept settings” that automatically approve pricing recommendations. The DOJ said today that property rental firms discussed how they use those settings.
“As an example, at the request of Willow Bridge’s director of revenue management, Greystar’s director of revenue management supplied its standard auto-accept parameters for RealPage’s software, including the daily and weekly limits and the days of the week for which Greystar used ‘auto-accept,'” the DOJ said.
Greystar issued a statement saying it is “disappointed that the DOJ added us and other operators to their lawsuit against RealPage,” and that it will “vigorously” defend itself in court. “Greystar has and will conduct its business with the utmost integrity. At no time did Greystar engage in any anti-competitive practices,” the company said.
The Justice Department is joined in the case by the attorneys general of California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, North Carolina, Oregon, Tennessee, and Washington. The case is in US District Court for the Middle District of North Carolina.
Enlarge/ US Attorney General Merrick Garland speaks during a news conference in Washington, DC, on Friday, August 23, 2024.
Getty Images | Bloomberg
The United States today sued RealPage, alleging that the software maker distorts competition in rental housing by helping landlords collectively set prices.
“To ensure they secure the greatest value for their needs, renters rely on robust and fierce competition between landlords. RealPage distorts that competition,” said the lawsuit filed by the US government and eight state attorneys general. In a press release, the Justice Department said that “RealPage’s pricing algorithm violates antitrust laws.”
Attorney General Merrick Garland delivered remarks on the lawsuit. “When the Sherman Act was passed, an anticompetitive scheme might have looked like robber barons shaking hands at a secret meeting,” he said. “Today, it looks like landlords using mathematical algorithms to align their rents. But antitrust law does not become obsolete simply because competitors find new ways to unlawfully act in concert.”
RealPage’s commercial revenue management software “enable[s] landlords to sidestep vigorous competition to win renters’ business,” the lawsuit alleged. “Landlords, who would otherwise be competing with each other, submit on a daily basis their competitively sensitive information to RealPage. This nonpublic, material, and granular rental data includes, among other information, a landlord’s rental prices from executed leases, lease terms, and future occupancy. RealPage collects a broad swath of such data from competing landlords, combines it, and feeds it to an algorithm.”
Using that sensitive data, “RealPage provides daily, near real-time pricing ‘recommendations’ back to competing landlords,” the US said. The US alleges that these “are more than just ‘recommendations'” and that “RealPage monitors compliance by landlords to its recommendations.”
AG: Landlords “outsource their pricing decisions”
The US asked for a court order declaring “that RealPage has acted unlawfully to restrain trade in conventional multifamily rental housing markets across the United States.” The requested order would prohibit RealPage from continuing its allegedly anticompetitive practices and provide “relief necessary and appropriate to restore competitive conditions in the markets affected by RealPage’s unlawful conduct.”
RealPage recently argued that its software “benefits both housing providers and residents,” and “makes price recommendations in all directions—up, down, or no change—to align with property-specific objectives of the housing providers using the software.” Landlords don’t have to follow the recommendations, the company says.
The US said RealPage takes a more direct role in setting prices. RealPage “reviews and weighs in on landlords’ other policies, including trying to—and often succeeding in—ending renter-friendly concessions (like a free month’s rent or waived fees) to attract or retain renters,” the lawsuit said. Garland alleged that “a large number of landlords effectively agree to outsource their pricing decisions to RealPage by using an ‘auto accept’ setting, which effectively permits RealPage to determine the price a renter will pay.”
The RealPage algorithm “can serve as a mechanism for communication,” Diana Moss, director of competition policy at the Progressive Policy Institute, a public policy think tank, was quoted as saying by The New York Times. “That is as approachable and actionable under US antitrust as any form of communication we’ve seen in past cases in the non-digital era.”
The lawsuit was filed in US District Court for the Middle District of North Carolina. Six landlords in North Carolina provided information to the Justice Department. The states joining the lawsuit are North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington.
Software eliminates “guessing game” on prices
Garland said the investigation preceding the lawsuit took nearly two years. The lawsuit quoted landlords describing how they use RealPage:
One landlord observed that RealPage’s software “can eliminate the guessing game” for landlords’ pricing decisions. Discussing a different RealPage product, another landlord said: “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term. That’s classic price fixing.” A third landlord explained, “Our very first goal we came out with immediately out of the gate is that we will not be the reason any particular sub-market takes a rate dive. So for us our strategy was to hold steady and to keep an eye on the communities around us and our competitors.”
The lawsuit said that “RealPage frequently tells prospective and current clients that a ‘rising tide raises all ships.’ A RealPage revenue management vice president explained that this phrase means that ‘there is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the industry down.'”
The US and states allege that RealPage violated Section 1 of the Sherman Act by unlawfully sharing information for use in competitors’ pricing, and by entering into vertical agreements with landlords to align pricing. RealPage is further accused of violating Section 2 of the Sherman Act through monopolization of the commercial revenue management software market.
RealPage, which is also facing a ban on its software in San Francisco, said the lawsuit is “devoid of merit and will do nothing to make housing more affordable.”
“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 pro-competitive technology that has been used responsibly for years,” RealPage said.
The White House issued a statement saying it has no comment on the lawsuit against RealPage, but that the Biden-Harris administration “continues to support fair and vigorous enforcement of the antitrust laws to prevent illegal collusion.”
Enlarge/ View of San Francisco with Russian Hill in the background.
Getty Images | Terraxplorer
San Francisco’s Board of Supervisors this week approved a ban on software that is allegedly used by landlords to collude on rent prices. Board of Supervisors President Aaron Peskin recently proposed what his office called “the first local ordinance in the country banning the sale or use of software which enables price collusion among large corporate landlords for the purpose of rent-gouging.”
The ordinance was approved on a first reading by a 10-0 vote by the board on Tuesday. It still needs to pass a final vote scheduled for September 3, Bloomberg wrote.
The ban targets software companies RealPage and Yardi. “RealPage has exacerbated our rent crisis and empowered corporate landlords to intentionally keep units vacant. So we’re taking action locally to ensure our working renters can afford to live here,” Peskin said.
RealPage and Yardi “collect and combine proprietary large landlord data and make pricing and occupancy recommendations,” Peskin’s office said. “These recommendations then effectively become the lay of the land, with multiple investigations finding they amount to illegal price-fixing. RealPage’s own executives have told investors that its software has driven double-digit increases in rents, increased ‘turnover’ of units, and increased vacancy rates.”
A March 2024 White House statement criticized the use of algorithms to set rent prices. “In a recent filing, the Department of Justice (DOJ) made clear its position that inflated rents caused by algorithmic use of sensitive nonpublic pricing and supply information violate antitrust laws,” the White House statement said. “Earlier this month, the Federal Trade Commission and DOJ filed a joint brief further arguing that it is illegal for landlords and property managers to collude on pricing to inflate rents—including when using algorithms to do so.”
The FTC/DOJ brief was filed in a class-action case against Yardi and property owners in US District Court for the Western District of Washington. There were also numerous lawsuits against RealPage and property owners, and those cases were consolidated into one case in a Tennessee federal court. The District of Columbia’s attorney general sued RealPage and landlords as well.
RealPage says its software helps renters
In June, RealPage issued a statement addressing what it called “false and misleading claims about RealPage and its revenue management software.” RealPage said its software “benefits both housing providers and residents.”
“RealPage revenue management software makes price recommendations in all directions—up, down, or no change—to align with property-specific objectives of the housing providers using the software,” the company said. RealPage said its property-owning customers can accept or reject the software’s price recommendations, and that the “revenue management software never recommends that a customer withhold vacant units from the market.”
The consolidated class action complaint alleged that vacancy rates rose because property owners “could (and did) allow a larger share of their units to remain vacant, thereby artificially restricting supply, while maintaining higher rental prices across their properties. This behavior is only rational if Defendants know that their competitors are setting rental prices using RealPage’s RMS [revenue management software] and thus would not attempt to undercut them.”
We asked RealPage and Yardi whether they plan to challenge the San Francisco ordinance in court and will update this article if we get any comment.
“While we share the San Francisco Board of Supervisors’ goal of helping renters, this ordinance will do nothing to make housing more affordable in the city, where there is a severe supply shortage of rental units that needs to be addressed,” a RealPage spokesperson told KRON4 after the vote.
RealPage told KRON4 that its “software is purposely built to be legally compliant and can be configured to comply with the new ordinance should it pass a final vote.” It also criticized the San Francisco board for what it called a “misplaced focus on nonpublic information.”
Ban on “algorithmic devices”
The San Francisco proposal said the software “programs enable landlords to indirectly coordinate with one another through the sharing of nonpublic competitively sensitive data, in order to artificially inflate rents and vacancy rates for rental housing. Participating landlords provide vast amounts of proprietary data to the programs, which in turn do not just summarize statistical data, but also perform calculations with the data to then set or provide recommendations for rent and occupancy levels.”
The ordinance “would prohibit the sale or use of ‘algorithmic devices’ to set, recommend, or advise on rents or occupancy levels for residential rental units in San Francisco.” It defines “algorithmic device” as including revenue management software “that uses algorithms to analyze nonpublic competitor rental data for the purposes of providing a landlord recommendations on whether to leave their unit vacant or on what rent to charge.”
“An entity that sold such a device for use on residential rental units in San Francisco, or a San Francisco landlord that used such a device, could face a civil action and be ordered to pay damages, restitution, civil penalties of up to $1,000 per violation, and/or attorneys’ fees,” the proposal said.
