Justice Department claims RealPage software helped landlords collude over rents
The U.S. Department of Justice alleges that RealPage used technology to help landlords share information about leases, thereby keeping rent high for millions of tenants.
The Justice Department and attorneys general from eight states, including California and Oregon, filed a lawsuit Friday accusing the web-based company RealPage of collecting confidential information from landlords nationwide, making it easier for them to coordinate and raise rent prices for millions of tenants.
The Justice Department alleges that RealPage implemented an “illegal scheme to reduce competition in housing pricing among landlords and monopolize the market” that “deprives tenants of the benefits of competition in rental terms and harms millions of Americans.”
“Americans should not have to pay more rent just because a company found a new way to collude with landlords and break the law,” said Attorney General Merrick B. Garland. “We allege that RealPage’s pricing algorithm allows landlords to exchange confidential, competitively sensitive information and adjust their rents. Using software as an exchange mechanism does not exempt this system from liability under the Sherman Act, and the Department of Justice will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them.”
RealPage did not immediately respond to a request for comment.
Justice Department officials said this was the first civil case in which the government alleged that an algorithm was used to allegedly violate federal law. The lawsuit followed a nearly two-year investigation.
“By feeding sensitive data into a sophisticated algorithm powered by artificial intelligence, RealPage has found a modern way to violate a centuries-old law through the systematic coordination of rental prices — and undermine competition and fairness for consumers in the process,” said Assistant Attorney General Lisa Monaco. “Training a machine to break the law is still breaking the law.”
The states involved in the lawsuit include California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee and Washington.
What you should know:
What is RealPage? How does it work?
Founded in 1998 by Steve Winn, RealPage Inc. is an international company that provides web-based rental pricing services to property owners and managers. As of 2023, the real estate technology company says it will serve over 24 million units worldwide from offices in North America, Europe and Asia.
The company grew in 2017 after acquiring its biggest pricing competitor – software company Lease RentOptions (LRO) – and related assets from the Rainmaker Group for $300 million in cash.
According to the lawsuit, filed in federal court in North Carolina, RealPage collected rental rates and other lease terms from landlords on a daily basis so it could compare them instantly. RealPage then processed the information using algorithmic pricing software that generated recommendations for rental rates, the lawsuit says.
The lawsuit alleges that RealPage knows what competing landlords are charging and can increase landlords’ profits by using that information to recommend that landlords set or increase their prices. In doing so, the lawsuit alleges, RealPage eliminates competition and leaves tenants no choice but to pay artificially high prices.
A RealPage executive told a landlord that using competitor data could help identify where a landlord “may need to increase by $50 per day instead of $10,” the lawsuit says.
The lawsuit also quotes a landlord describing RealPage’s software. “I’ve always liked this product because your algorithm uses proprietary data from other subscribers to suggest rent and term,” the landlord said. “This is classic price fixing.”
Where have rents increased in California?
According to a 2023 study, California’s inland cities have seen the highest rent increases in the state, rising as much as 40% since 2020.
According to data from economists at the real estate portal Zillow, average rents in Bakersfield, Fresno, Visalia and Riverside have increased by up to 40 percent in just three years.
While rents have been rising in California’s inland cities, the state’s largest cities are experiencing a different trend. According to a recent report from rental platform Zumper, rent prices have fallen in several major California cities.
The most significant rent declines were observed in Oakland and Sacramento, where rents fell 9.1% and 8.1% year-over-year, respectively. Rent declines were also seen in Los Angeles (5.0% decline), San Jose (2.3% decline), San Francisco (1.7% decline), San Diego (1.3% decline), and Long Beach (1.1% decline).
According to Zilloow, the average rent in California is $2,850, $744 higher than the national average.
What impact did the alleged price fixing have on tenants in California?
California Attorney General Rob Bonta alleges that unfair price increases have occurred throughout California, particularly in multifamily housing in Southern California, including Orange County, Anaheim, Santa Ana, Irvine, Riverside, San Bernardino, Ontario, Rancho Cucamonga, Temecula, Murrieta, San Diego and Carlsbad.
RealPage misused consumer data to drive competitors out of the rental industry, leaving renters with no choice but to pay landlords’ intentionally inflated prices, Bonta alleged.
“This means that even when there was a high supply of rental units, rent prices remained the same and in some cases even increased. This behavior is unacceptable and illegal, and given California’s current housing shortage and affordability crisis, it causes real harm,” Bonta said. “Millions of Californians worry every day about having a roof over their heads, and RealPage has directly made it harder to do so.”
How much can your rent increase in California?
California’s rent protection law limits rent increases for most tenants in California. Landlords cannot increase rent by more than 10% total or 5% plus the percentage change in cost of living, whichever is less, within a 12-month period. When tenants move out and new tenants move in, the landlord can set the initial rent to charge.
The percentage change in the cost of living for most areas can be determined using the National Consumer Price Index from the Bureau of Labor Statistics or the California Consumer Price Index from the California Department of Industrial Relations.
USA TODAY contributed to this article.
