Depending on where you live, have you questioned why the cost of your rent suddenly increased without advance notice? Well, the feds think they know why.
The U.S. Department of Justice (DOJ) announced in September 2024 that a lawsuit had been filed against the Texas-based real estate company RealPage. DOJ accused RealPage of participating in a price-fixing scheme to drive up rents. Cortland, a company with 5000 rental properties in Houston, told a Houston Chronicle reporter that they will cooperate with the DOJ. Attorney generals of eight other states-North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington-have also joined the Justice Department’s antitrust suit filed in federal court in North Carolina.
The Justice Department has asserted that the algorithmic pricing system used by RealPage allows landlords of multifamily residences to conspire and set rental prices above the market rate. This has been suggested to limit renters’ ability to negotiate lease terms and could harm a large portion of the American population by reducing their competitive advantages.
“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,” U.S. Attorney General Merrick Garland said in a statement. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents.”
Houston Chronicle reported that a spate of antitrust lawsuits accuse RealPage, a Richardson, Texas-based software company, of colluding with dozens of landlords, including several in Houston, to artificially raise rents through its algorithmic software, affirming the DOJ allegations.
As per the DOJ complaint, the information in question pertains to crucial details such as current rental rates, rates of vacancy, and lease termination dates.
The software uses data and artificial intelligence to recommend the best rental amount for landlords each day. RealPage has promoted this software as a tool that boosts landlords’ profits by enabling them to “outperform the market.”
RealPage denies helping to set rents, saying that market conditions have pushed prices higher. Previously, the company representatives also denied that its pricing software is anti-competitive and the executives further said it lowers rents when demand drops and can help reduce vacancy rates.
Higher Rental Rates in Houston
According to the Chronicle, average apartment rents in Houston average 22% higher than in 2020. The Chronicle’s calculations are based on MRI Software, which provides software to real estate professionals and is unrelated to RealPage. Rents have flattened recently, but they’re still beyond the reach of many Houston households, said Ben Martin, research director with Texas Housers, a nonprofit that advocates for affordable housing.
“RealPage isn’t responsible for all of those rent increases-there’s a lot of factors that play into that, involving housing demand and supply,” Martin said. “But it appears that landlords using RealPage and other algorithmic software have a point of confluence of additional information that helps them squeeze out more rent than they would be able to do otherwise.”
Among the landlords operating in Houston that are named in the lawsuit are some of the biggest property developers in the industry:
- Allied Orion Group
- Camden Property Trust
- Cortland Management
- Greystar Management
- Crow Holdings/Trammell Crow Residential
- Willow Bridge, formerly Lincoln Property
Sherman Antitrust Act
U.S. Attorney General Garland noted the lawsuit was brought under the Sherman Antitrust Act, a law passed more than a century ago when “an anticompetitive scheme might have looked like robber barons shaking hands at a secret meeting.”
Landlords colluding through mathematical algorithms may be new, he said, but it violates the same bedrock principle of a free market fostering competition.
The DOJ also alleges the company has a monopoly, controlling about 80% of the U.S. market share for this kind of software. And while RealPage says its program offers only a pricing recommendation, the complaint suggests it’s hard to reject.
“Landlords are encouraged to configure the product to automatically accept the RealPage recommendations,” says Eric Dunn, a tenants rights lawyer with the National Housing Law Project. “And if a property manager doesn’t want to accept the recommendation, they have to put in an explanation,” which he says is then sent to a regional manager.
RealPage Isn’t New To the Game
RealPage has sold software for years that utilizes data analytics to recommend daily prices for available units. Property managers in the U.S. wholeheartedly praised this technology which shows how the company’s algorithm boosts profits.
“The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it,” said Kortney Balas, director of revenue management at JVM Realty, referring to RealPage’s software in a testimonial video on the company’s website.
The nation’s largest property management firm, Greystar, found that even in one downturn, its buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium above competitors, RealPage said in materials on its website. Greystar uses RealPage’s software to price tens of thousands of apartments.
RealPage emerged as the leading provider of rent-setting software nationwide following the approval of a controversial merger by federal regulators in 2017, according to a ProPublica investigation. This development significantly increased the company’s influence over apartment prices. As a result, the Texas-based company expanded its client base for various real estate tech services to over 31,700 customers.
Workshops
As outlined in the complaint, RealPage organizes virtual training workshops where property managers engage in discussions and landlords are reported to have interacted through alternative channels.
RealPage emphasizes the benefits of collaborative practices among landlords, suggesting that by working together rather than engaging in competition, they can eradicate concessions such as reducing rent prices or offering a month of free rent. As RealPage has put it, “a rising tide raises all ships.”
Property Owners Need RealPage
Across the nation, many property owners depend on RealPage’s pricing algorithm, as noted by experts in the real estate industry. Earlier this month, a legal action was filed against the company, marking one of 20 nationwide lawsuits aimed at addressing concerns about the effectiveness and impact of their software.
In a recent and somewhat related case, hotels in Las Vegas were accused of sharing information via different pricing software and using it to artificially inflate room rates. A judge threw out that case in May, saying the plaintiffs had not shown the hotels made any agreement with one another to fix prices.
Some other pricing-software companies worry the DOJ lawsuit could hurt their reputations.
“AI is helping not just profit-seeking landlords, but operators and developers of affordable housing,” Vidur Gupta, CEO of Beekin, said in a statement responding to the suit.
Meanwhile, a Congressional bill is under consideration to restrict the application of artificial intelligence technology similar to RealPage platform in the rental housing sector.
Senior NewsBlaze Reporter Clarence Walker can be reached at [email protected]
Editor Note: The DOJ Civil Lawsuit Filed Against RealPage and Other Property Developers in Texas Doesn’t Prove By the Preponderance of Evidence These Companies Are Outright Guilty or Liable of Said Allegations Unless Found Civilly Liable in a Court of Law.
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