An antitrust lawsuit filed against RealPage, a software vendor, accuses landlords of widespread collusion through shared rental data that trains pricing algorithms.

The Lawsuit Against RealPage: Allegations of Price Fixing

Attorney General Merrick Garland accused Texas-based software company RealPage of violating antitrust laws on Aug. 23.

The Justice Department, in conjunction with attorneys general from eight states, has filed a lawsuit against RealPage, a Texas-based software company. The accusation? RealPage has allegedly facilitated widespread collusion among landlords by using complex algorithms to manipulate rent prices. The lawsuit, filed in the Middle District of North Carolina, suggests that RealPage’s practices have reduced competition in the rental market and abused its monopoly power within the niche of apartment pricing software.

According to the Justice Department’s complaint, RealPage’s software is designed with the explicit goal of maximizing profits for landlords. It does this by enabling them to avoid direct competition with each other on the pricing of individual apartments. The complaint highlights instances where the software identified tenants as potential candidates for larger rent increases. In one case, a landlord referred to RealPage’s product as “classic price fixing” because of its reliance on proprietary data to determine pricing strategies.

“Everyone knows that rent prices are far too high, and we believe this is one of the main reasons why,” stated U.S. Attorney General Merrick Garland during a press briefing on Friday.

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RealPage, however, plans to contest these allegations, describing its software as a “pro-competitive technology that has been used in a competitive manner for years.” The company’s spokesperson, Jennifer Bowcock, argued that the lawsuit is “merely a distraction from the more fundamental economic and political issues driving inflation across the economy — particularly in housing affordability.”

This lawsuit represents one of the Justice Department’s first major enforcement actions where software is at the heart of the alleged collusion.

“The RealPage lawsuit signals that the Department of Justice will treat algorithmic price fixing with the same severity as any other price-fixing scheme,” said Roger Alford, a former antitrust lawyer for the Justice Department, now a professor at the University of Notre Dame.

The federal lawsuit is supported by the states of North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington.

Impact on Renters and the Housing Market

The Justice Department lawsuit over the use of software to suggest rents comes as housing costs have become a hot-button political issue.

The Justice Department’s complaint emphasizes that housing is the largest expense for many Americans, particularly those with lower incomes. For individuals without a college degree, the portion of income spent on rent increased from 30% in 2000 to 42% by 2017, according to the statistics presented in the complaint.

RealPage, founded in 1998 and based in Richardson, Texas, claims to serve over 24 million real estate units globally. The Justice Department’s complaint indicates that RealPage controls approximately 80% of the U.S. market for commercial revenue management software. RealPage is owned by private equity firm Thoma Bravo, which acquired the company last year for around $10.1 billion, including debt.

The lawsuit alleges that RealPage collaborates with competing landlords, who share sensitive rental data that is then used to train the company’s pricing algorithms. These algorithms provide recommendations on rent increases and other pricing decisions.

RealPage has stated that while its software offers pricing recommendations, users retain the discretion to accept or reject these suggestions. The company also notes that the software can recommend not only rent increases but also decreases or no change at all.

However, the complaint highlights a RealPage pitch to potential clients, where the company touted its ability to give access to competitors’ data as a “meaningful tool” that enables landlords to outperform their competitors by 2-7%. Furthermore, the complaint references an instance where RealPage informed a prospective client that its software could identify opportunities to increase short-term rents. “As RealPage explained to one landlord, by using competitors’ data, they can pinpoint situations where ‘we might be able to impose a $50 increase instead of just a $10 increase for that day.’”

Legal and Economic Implications

RealPage has been under legal scrutiny since autumn 2022 when a ProPublica investigation revealed the significant influence of its software in setting rental prices. Since then, multiple state and municipal prosecutors have filed lawsuits. These include actions by the District of Columbia Attorney General Brian Schwalb in November 2023 and Arizona Attorney General Kris Mayes in February of the following year.

“This action sends a critical message to the market: algorithms can play a key role in facilitating illegal collusion,” said Gene Kimmelman, a former Justice Department antitrust official. “Courts must consider the impact of new technologies when evaluating illegal behavior.”

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The Justice Department’s case, which has been anticipated for months, is currently only filed against RealPage and not against landlords themselves. However, some legal experts argue that holding RealPage accountable for collusion might represent an overreach, as it’s simply a vendor used by multiple competitors who do not directly collaborate.

Jay Ezrielev, founder of the antitrust consulting firm Elevecon, has expressed concern that the Justice Department’s case against RealPage “marks a significant expansion of antitrust doctrine” and could potentially hinder economic growth.

“A low bar for establishing liability poses considerable and imminent antitrust risks for a significant portion of U.S. commerce,” Ezrielev wrote earlier this month.

As the case unfolds, it will likely have far-reaching implications for how software and algorithms are regulated in the context of antitrust laws. The outcome may redefine the boundaries of legal and illegal behavior in the age of technology-driven market manipulation. Whether RealPage’s practices are deemed as unlawful collusion or innovative competitive strategy, the case is set to be a landmark in the intersection of technology, real estate, and antitrust law.

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