The Arguments Against RealPage Aren’t Real, Part One

On Aug. 23, 2024, the U.S. Department of Justice (DOJ) and several state attorneys general filed an antitrust lawsuit against RealPage, a Texas-based developer of revenue-management (RM) software for rental housing. The lawsuit accuses RealPage of unlawfully enabling collusion among property managers in order to reduce competition in local rental markets, thereby raising costs for apartment renters.

At issue are RealPage’s AI-generated pricing algorithms, which use both public and private data to recommend rental prices that will maximize property owners’ profits—an objective that has drawn predictable anti-business ire and spawned numerous regulatory measures aimed at reining in the company. For instance, in the U.S. Congress, Sen. Ron Wyden (D-Ore.) introduced the ominous-sounding “Preventing the Algorithmic Facilitation of Rental Housing Cartels Act of 2024.” And at the municipal level, San Francisco officials recently approved a city ordinance prohibiting the use of “algorithmic devices” to recommend rents, while neighboring San Jose may do the same.

Opponents’ Concerns

This pushback against RealPage’s algorithmic RM tools stems from an October 2022 report by left-leaning advocacy organization ProPublica. Noting the recent double-digit jumps in rental costs throughout the country, the advocacy group claimed that while supply and demand, high mortgage interest rates, and other economic factors certainly play a part in rising rents, its investigation identified “another key factor: a rental pricing software owned by real estate tech firm RealPage.”

ProPublica’s foundational thesis is indisputable. As news reports have repeatedly documented, rental costs nationwide have skyrocketed at patently unsustainable rates. To wit:

• “Rents are rising faster than wages across the country” (CBS News)
• “Half of US tenants can’t afford to pay their rent” (CNN)
• “Housing is now unaffordable for a record half of all U.S. renters” (National Public Radio)

In laying much of these escalating costs at the feet of RealPage, ProPublica pointed to the company’s “boasts that [its software] helps landlords outperform the market by up to 7%” as well as to the assertion (in a since-deleted video) that its software “was a driver of double-digit rent increases across the country.” For example, “[i]n a RealPage-priced building in a downtown Seattle ZIP code, rent rose by 33% in one year for a couple living in a one-bedroom apartment.” By contrast, “[i]n a non-algorithm-priced building in the same ZIP code, rent for another tenant’s studio rose by just 3.9% over a similar period.”

The inner workings of RM software and algorithmic pricing as employed by RealPage would seem to validate RM tools’ role in rising rents. According to trade publication Multifamily Executive, RM software evaluates market conditions to set rents and terms for a given unit. The effects can be dramatic— property management companies using such software have achieved “an immediate impact on the rents [they were] able to charge, often to levels they [had] never imagined possible.” Similarly, The New York Times reported that “[f]or about a decade the country’s biggest landlords … have been using powerful software tools to set rental rates on new and renewing leases … [T]he software weighs competitors’ rental rates, market conditions, seasonal trends and hundreds of other variables to recommend the highest feasible rent for each apartment at a given time.”

Further, ProPublica and others claim these rent increases violate antitrust laws because RM solutions in general (and RealPage in particular) promote collusion among property managers by collecting and sharing nonpublic information from landlords on rent prices, lease expiration dates, and even the details of applications from prospective tenants. The company also obtains information through its 1,000-member user group, pricing subcommittees, and private annual conferences. Compounding this problem, the DOJ lawsuit says, is that RealPage now controls 80 percent of the market for rent-recommendation software—clearly a monopolistic position.

On its face, then, the DOJ, anti-algorithmic legislators, and other litigants appear to have both the law and the facts on their side.

Anticompetitive Intent

And yet… appearances can be deceiving. Just because monopolistic, collusion-based manipulation of rental markets is convincingly postulated doesn’t mean it exists. Antitrust law is complex and arcane, and emotion-driven perceptions don’t often align with legal standards. That especially turns out to be the case with RealPage’s alleged antitrust and competition violations.

In short, the arguments against RealPage, by and large, simply aren’t real.

Genuine antitrust violations traditionally have hinged on two recognized elements: concerted action and anticompetitive effect. In other words, plaintiffs must demonstrate that defendants: (1) communicated with one another with anticompetitive intent; and (2) that these actions resulted in demonstrably anticompetitive outcomes.

As it happens, the first element isn’t satisfied in the RealPage case—even at the most basic level. Analysis by Legal Dive confirms that RealPage customers:

• Have no contact with one another/don’t know other customers’ identities
• Are unaware of the terms set between the vendor and other customers
• Don’t know if/which other customers are participating in “price-fixing”
• Are “free to deviate” from algorithm recommendations if they want

The publication concludes that there’s no evidence to suggest that each firm simply isn’t acting in its own self-interest.

Not unexpectedly, the DOJ says that none of this matters. In a 2023 filing, the agency stated its belief that it isn’t necessary for property management companies to know about one another in order to collude. Merely by “inputting their data into the company’s software…,” the filing insisted, “the property companies are acting in concert with one another.” And by choosing to participate, “the companies effectively gave their consent to the scheme.”

The DOJ concluded that “[i]t makes no difference that prices are fixed through joint use of an algorithm instead of by a person … Put another way, whether firms effectuate a price-fixing scheme through a software algorithm or through human-to-human interaction should be of no legal significance. Automating an anticompetitive scheme does not make it less anticompetitive.”

Not only does such a stretching of antitrust standards go far beyond the boundaries of the law and legal precedent, but it is also exceptionally risky. According to a former advisor to the Federal Trade Commission, the DOJ’s framework “implies a remarkably low threshold for classifying conduct as ‘concerted action’” and, if applied more broadly, “would raise considerable obstacles for the commercial use of algorithms, proprietary data, and artificial intelligence [in any industry], resulting in significant harm to innovation and efficient operation of markets.” And yet, the advisor says, “the DOJ’s opposition to the use of RealPage’s revenue-management software will not make rental markets more competitive but may instead reduce the supply of housing and make housing less affordable.”

That’s hardly a path toward ending the rental crisis.

Next up, Part Two: Anticompetitive Outcomes