The Justice Department plans to file an antitrust lawsuit against real estate software company RealPage as early as Friday. Two people familiar with the lawsuit allege that the company's software allowed landlords to collude to increase rents.
The lawsuit, which will be joined by California, Colorado, Minnesota, North Carolina, Washington and other states, would accuse RealPage of facilitating a price-fixing conspiracy that drove up rents above market potential, according to the people, who spoke on condition of anonymity because of the sensitivity of the case.
The lawsuit would bolster government efforts to regulate technology abuse. Officials have sued Google, Amazon, Meta and Apple for allegedly maintaining monopolies that harm consumers.
At the heart of the government's concerns is RealPage's YieldStar product, which collects confidential information about properties. Landlords who pay for the software share information about rents and occupancy rates that would otherwise be confidential. Based on that data, an algorithm generates suggestions about how much landlords should charge tenants. And those numbers are often higher than they would be in a competitive market, according to allegations in previous lawsuits filed by state attorneys general against RealPage.
A Justice Department spokeswoman declined to comment.
RealPage, owned by private equity firm Thoma Bravo, has promoted its software to landlords as a tool they can use to outperform the market by 3 to 7 percent. The company says its software is used in metropolitan areas across the country.
RealPage did not immediately respond to requests for comment. A spokesperson for Thoma Bravo did not immediately respond to a request for comment.
RealPage has previously denied allegations of illegal collusion, arguing that landlords are not required to consider the software's suggestions when setting rents. Other economic factors, such as a shortage of housing, are to blame for rising rents nationwide, the company said.
Housing costs have become a political issue ahead of the November presidential election. Rent increases have been a driver of unusually high inflation. Annual rent growth peaked at nearly 16 percent nationwide in early 2022, according to data from real estate website Zillow.
“We've seen strong growth in real estate prices for several years,” said Sandeep Vaheesan, legal director of the Open Markets Institute, a research and advocacy group that focuses on antitrust issues. “There's no single factor that explains the increase in rents, but I think RealPage is an underappreciated factor.”
Vice President Kamala Harris, the Democratic presidential candidate, called collusion among commercial landlords, including through price-fixing software, an anti-competitive practice that drives up rents in a speech this month.
In November, District of Columbia Attorney General Brian Schwalb sued RealPage and 14 of the district's largest landlords, the first lawsuit of its kind by a public agency. In February, Arizona Attorney General Kris Mayes followed suit, accusing RealPage and nine landlords of illegally conspiring to raise rents for hundreds of thousands of tenants in the Phoenix and Tucson areas.
Regulators are more broadly examining the impact of algorithms on pricing across the economy. For example, algorithms are used by ride-hailing companies that implement “surge pricing” to effectively set prices when demand is high, and colleges also calculate how much money to offer applicants in financial aid.
“The algorithm itself can serve as a communication mechanism,” says Diana Moss, director of competition policy at the Progressive Policy Institute. “That is just as accessible and punishable under U.S. antitrust law as any other form of communication we've seen in previous cases in the non-digital age.”
In July, the Federal Trade Commission began an investigation into how companies use customer data to set prices, questioning eight companies about their practices, including Mastercard, JPMorganChase and consulting giants McKinsey & Company and Accenture.