Key Details:
- Today, Friday, August 23, 2024, the Department of Justice filed an antitrust complaint against RealPage—the real target of the FBI investigation when it conducted an unannounced raid of national apartment manager Cortland Management last May.
- RealPage, a $9B Texas-based software company, provides suggestions for rent increases based on its YieldStar algorithm, which relies not on renter demand but on data collected from landlords.
- The reliance of corporate landlords on RentPage suggests a possible collusion to prop up rent prices regardless of actual vacancy numbers, driving up shelter costs.
Today, the Department of Justice filed an antitrust lawsuit against Texas software company RealPage, which provides suggestions for rent increases based on its YieldStar algorithm.
According to the DOJ complaint, YieldStar bases those suggestions not on actual renter demand (vacancy numbers) but on data collected from landlords.
Earlier this year, the FBI performed an unannounced raid of national apartment manager Cortland Management to investigate whether corporate landlords are colluding with RealPage to keep rents climbing faster than local demand would justify.
Given the scope of RealPage’s influence—its recommendations influence rent prices on millions of housing units across the country—the DOJ has stepped up its investigation “into potential antitrust violations in the multifamily housing industry.”
DOJ Alleges Collusion Between RealPage and Landlords to Drive Up Rents
In a speech delivered today, Attorney General Merrick B. Garland threw down the gauntlet, alleging an “arrangement” between landlords and RealPage through the latter’s “revenue management software” to increase rents based on data submitted by competing landlords, including:
- Rental rates
- Lease terms
- Projected vacancies
RealPage combines this data and feeds it into its YieldStar algorithm, which then sends real-time pricing recommendations back to the competing landlords.
From Garland’s speech:
“But as we allege, these are more than just recommendations. RealPage actively polices landlords’ compliance with those recommendations. It also monitors landlords’ other policies by, for example, trying to stop concessions that landlords use to attract or retain renters.
“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.
“Landlords understand what their arrangement with RealPage gets them. As one said, ‘I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. That’s classic price fixing.’”
In its advertising, RealPage uses the phrase, “a rising tide raises all ships.” A paraphrase from RealPage’s vice president makes their intent even clearer: “there is greater good in everybody succeeding versus essentially trying to compete against one another.”
In this case, “everybody” refers to the landlords, a large number of whom essentially outsource their rent pricing to RentPage by enabling its “auto accept” setting, effectively allowing the YieldStar algorithm to decide what renters pay.
Garland makes the point that “trying to compete against one another” is what a free market economy is all about. “And ensuring such competition [is] what our antitrust laws are all about.”
“Under the antitrust laws, landlords — like any competitors — may not share with each other their confidential, sensitive data in a way that permits them to align how they price their products —in this case apartments — and thus cause renters to pay more than they would in a competitive market.
“Using software as the sharing mechanism — or calling it “Artificial Intelligence Revenue Management” as RealPage does — does not immunize the scheme from Sherman Act liability.”
RealPage’s Response to Allegations
On June 18, RealPage posted a response to former allegations, which date back to October 2022, on its website. This includes an 8-page ebook titled The Real Story: RealPage’s Response to Allegations Concerning Its Revenue Management Software.
The response notes that allegations are false and that “housing affordability, including the lack of affordable rental housing,” is the real problem, “created by a host of complex and economic and political forces.”
In addition, the response speaks about how the revenue management software recommends both increases and decreases in rent prices—depending on internal supply and demand for the property. In its FAQs section, it states,
“RealPage Revenue Management software frequently recommends adjusting rent downward whenever supply and demand dynamics at a property so indicate. For example, if a certain type of unit (such as a 2-bedroom unit) at a property is not leasing quickly, then the software will routinely recommend that the rent price be adjusted downward.
“RealPage Revenue Management software will recommend price increases at a particular unit type for a particular property ONLY when there are more renters willing to pay a higher price than available units (that is, demand exceeds supply). If renters are not willing to pay a published price, then the system will very quickly recommend lowering that price.”
RealPage is not the only organization in the industry that the DOJ is watching. In July, it was decided the DOJ was allowed to reopen its investigation of the National Association of Realtors (NAR) on broker commissions.
Stay tuned for more details.
