Real estate software provider used AI-powered algorithms to drive up rents, DoJ lawsuit says

The US Justice Department, along with multiple state governments, filed charges on Friday against real estate software provider RealPage for its alleged use of landlord-friendly algorithms powered by artificial intelligence, which they say have resulted in sweeping rental price increases across the country.

The DoJ's civil antitrust lawsuit against RealPage accuses the company of creating software that allows landlords to band together in their respective markets and drive up apartment prices.

RealPage is further accused of violating antitrust laws by monopolizing the property management software market used by US commercial real estate companies to price apartments.

The lawsuit, filed in North Carolina’s Middle District Courts, charges the Texas-based tech firm of violating Sections 1 and 2 of the Sherman Act, which essentially bans contracts or agreements that harm competition or attempt to monopolize more than 70% of a market share.

In total, eight states have joined the federal lawsuit, including California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington.

Justice Department Sues RealPage for Algorithmic Pricing Scheme that Harms Millions of American Renters

RealPage’s Pricing Algorithm Violates Antitrust Laws

🔗: https://t.co/1t4eKutQLD pic.twitter.com/GRewih9CqT

undefined U.S. Department of Justice (@TheJusticeDept) August 23, 2024

RealPage software is used in approximately 80% of the market share of multi-family dwellings, the DoJ said, adding that its software “harms millions of Americans.”

The company has previously said its "multi-family real estate analytics" software was developed “to benefit both property managers and residents.”

The 'commercial revenue management software program,' – known as LRO – is said to illegally use AI-powered algorithms to help landlords maximize the prices of apartment rentals within the same market, depriving tenants of fair pricing and thereby limiting housing options.

“RealPage has found a modern way to violate a century-old law through systematic coordination of rental housing prices – undermining competition and fairness for consumers in the process, said US Deputy Attorney General Lisa Monaco.

“Training a machine to break the law is still breaking the law,” Monaco said.

'Rooting out an illegal scheme'

According to the complaint, the LRO software program first collects sensitive market information about properties owned by competing landlords.

That information – such as current apartment rental rates and other lease terms – is then used to train RealPage’s pricing algorithm, which generates recommendations to the landlords on what prices and lease terms to offer renters.

The lawsuit claims that in a free market, these same landlords would be competing independently of each other to attract renters, basing their property prices, discounts, concessions, lease terms, and other dimensions through their own market calculations.

One landlord was quoted in the complaint saying, “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. That’s classic price fixing….”

The DoJ said internal documents show the company referred to its LRO software program as “driving every possible opportunity to increase price " and aimed to maximize profits at the expense of renters.

According to rent statistics by Self Financial, in 2023, there were over 109 million renters in the US.

"Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law," US Attorney General Merrick Garland said in Friday’s announcement.

RealPage responds

In response to the DoJ announcement, RealPage on Friday claims the lawsuit against its software is based upon “false allegations.”

In fact, the company said it has been dealing with the “false and misleading claims” since 2022, going so far as to have created a 6-page online booklet titled, ”The Real Story,” which can be found on its public policy website, decisively created to focus on the legal battles it's facing.

“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 in its response.

The company argues that the accusations against them are “merely a distraction” from the economic state of the economy in regard to inflation and affordable housing, which US lawmakers should be creating policy solutions for instead.

RealPage claims its revenue management software is "purposely built to be legally compliant," also citing a 2017 antitrust clearance granted by the DoJ when it acquired LRO.

The company said the DOJ had “analyzed extensive information” about its revenue management products and found no objection to them at the time.

It further argued that landlords using the product can

• decide their own rent prices,
• always have 100% discretion to accept or reject software price recommendations,
• are never punished for declining recommendations, and
• accept recommendations at widely varying rates that are far lower than has been falsely alleged.

“We believe the claims brought by DOJ are devoid of merit and will do nothing to make housing more affordable. We intend to vigorously defend ourselves against these accusations, “ the statement concluded.

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. It is merely…

undefined RealPage Public Policy (@rppublicpolicy) August 23, 2024

Exorbitantly high housing costs, partly spurred on by the COVID-19 pandemic, have been a major issue for Americans and more than likely will prove an important economic issue in the upcoming US elections.

According to online real estate marketplace Zillow, in the past five years, US home prices have risen across the nation by about 50%, with rents shooting up about 35%.

The DoJ said that Americans spend more money on housing than any other expense.

Reuters reports that the case is the first time the Justice Department has pursued algorithmic collusion, a growing concern for antitrust enforcers as technology companies offer pricing services based on big data.