JUSTICE IN DEFENSE OF RENTERS

COMPETING LANDLORDS CAUGHT COLLUDING WITH REAL ESTATE ALGORITHM

By PETER THOMAS BUSCH

Landlords of rental housing have been caught in a price fixing scheme that drives up rents for millions of Americans.

In United States of America, et al v. RealPage, Inc. 1:24-cv-00710, the United States Department of Justice (DOJ) alleges that a real estate software company colludes with landlords to continuously push the price of rental properties in an upward trend.

RealPage, Inc offers landlords a software subscription that essentially guarantees increasingly higher revenues for those landlords who comply with the terms of the real estate management software, the DOJ alleges in court filings on August 23, 2024.

Moreover, RealPage, Inc is itself a monopoly having captured 80 per cent of the market for this particular real estate software.

The software aggressively collects landlord and tenant data and then uses an algorithm to recommend price increases. This use of an algorithm creates unfairness by taking the competitiveness out of the rental market that would otherwise occur when the landlord and the tenant bargain for prices. The software has also discouraged landlords from offering concessions to prospective renters.

“A free market requires that landlords compete on the merits, not coordinate pricing,” the DOJ states in the Notice of Claim (para 8)

Landlords understanding what the software does; and, landlords knowingly participate in the revenue management scheme by sharing private business information about available rental units and about prospective renters through the software interface.

The DOJ has authority to file the claim pursuant to Section 16 of the Clayton Antitrust Act (1916) which allows for injunctive relief in which the state may sue to divest a company of business assets. And RealPage, Inc is engaged in interstate trade and commerce.

The Clayton Antitrust Act is companion legislation to the Sherman Antitrust Act of 1890. The DOJ also relies on section 4 of the Sherman Act for authority to bring the lawsuit against the commercial entity doing business in the United States, alleging violations of Section 2 of the Sherman Act in terms of possessing monopoly power and taking deliberate steps with the intent of acquiring and/or maintaining monopoly power.

Landlords are given access to the data of competing landlords through the software that creates model training, floor plan price recommendations and unit-level pricing.

This ‘machine learning’ also limits the availability of units on the market and creates friction for the downward pressure on prices that would otherwise drop in market downturns.

The defendant also creates geographic markets and geographic submarkets to set prices.

Apart from the incentive to maximize revenue, landlords are compelled to follow the recommendations provided by the software because the app has an ‘auto-accept’ feature for recommendations while requiring the landlord to manually enter reasons for rejecting the recommendations.

And if a landlord refused to increase prices as recommended, then the app auto-generates a dispute.

The DOJ contends that landlords collude with each other, including with competing landlords, by sharing data through the app and then by following the recommendations made by the app that have been generated by an algorithm.

Similar to other apps, the more data available, the better the app can provide recommendations with greater accuracy, based on controlled market conditions.

The Justice investigation uncovered that competing landlords also contact each other directly in a ‘call-around’ and/or through trade forums organized by the defendant, RealPage, Inc.

The DOJ alleges that the defendant disrupts the normal competitive bargaining process between landlords and renters that would result in lower prices, perhaps affecting as little difference as that between a $10 price increase and a $50 price increase.

Revenue protection is also provided in the manipulation of supply and demand forces by hiding the real number of leases available, thereby limiting supply, instead of requiring landlords to decrease prices, which would normally occur when supply exceeds demand.