Justice Department Sues Landlord Software Company RealPage
![Justice Department Sues Landlord Software Company RealPage Justice Department Sues Landlord Software Company RealPage](https://i1.wp.com/pyxis.nymag.com/v1/imgs/f2a/ca4/38f3c10dac24487f3181d24ede65914e3a-apartments.1x.rsocial.w1200.jpg?w=780&resize=780,470&ssl=1)
On Friday, August 23, the Justice Department filed an antitrust lawsuit against software company RealPage, which provides a rental-price-setting service to landlords. It’s not the first lawsuit against the company (states like Arizona and some cities have filed similar cases), and earlier reports, such as a ProPublica investigation from 2022, laid out how landlords and property managers used RealPage’s software, YieldStar, to drive up rents. YieldStar, the government argues, did much more than provide price recommendations; it enabled landlords to collude to raise rents across the country. It’s one of the first major federal cases involving algorithmic AI, and could potentially affect other industries that rely on similar software to generate prices, like hotels and airlines.
If you live in a major metropolitan area where rent has gone crazy in the past few years, RealPage may be why, according to U.S. Attorney General Merrick Garland. Below, we explain just what RealPage is, what it has been alleged to have done to raise the rent, and what it could mean for your bills.
What is RealPage?
RealPage is a Texas-based company that offers “revenue management” software called YieldStar, which has a proprietary algorithm that the company says can help landlords set rental amounts. Since 2004, when the software was developed, company executives and property managers who use the product have said that the software has enabled landlords to push rents higher and higher, helping them to “outperform the market” (this is also how the company markets itself to landlords). After a merger in 2017, RealPage became the most dominant provider of this kind of software — its competitors include Yardi, which is also involved in similar lawsuits, although not at the federal level. In 2020, the company said the software was being used to manage 19.7 million rental units, including multifamily apartments and single-family homes. RealPage is owned by a private equity firm called Thoma Bravo, which also invests in other software and cybersecurity companies, and was an investor in FTX.
How does the YieldStar algorithm supposedly work?
RealPage gathers internal data on rents and occupancy from its many landlord clients, who are required to submit the data to use the product, and analyzes it. Then, the algorithm, which the company touts as proprietary, spits out a new rental price for each unit every day that it thinks a landlord should charge based on that data, including real-time prices (meaning not just advertised amounts, but what renters actually paid), leasing data, upcoming vacancies, and other inputs. The idea is that, using all this information, landlords get an inside view of their competitors’ rates and other data points, and it enables them to charge more than they would have if they only had the information that is publicly available about rental averages or trends. For the landlord, in addition to the higher price, the benefit of the software is that this computer-generated price is quantitative and empirical, and eliminates any of the more squishy, human factors that might impact how a landlord determines what to charge for rent.
What’s the problem?
The danger of the YieldStar software is that it could potentially create what is essentially a cabal of landlords working together to override market forces to collectively set prices higher, which, in turn, fuels a cycle that continues to push rents even higher. The information RealPage has is otherwise confidential and not available elsewhere, and many landlords use the software in an “auto accept” setting, which allows the company to be the sole arbiter of rental markets around the country, with zero oversight. Coordinating pricing like that is a potential violation of federal law. Because RealPage is so large, many landlords and property-management companies in certain areas use it — for example, according to ProPublica, 70 percent of apartments in one neighborhood in Seattle are overseen by RealPage clients. Not only that, but RealPage allegedly created “work groups” that brought rival landlords together to meet privately about rental prices, and encouraged would-be competitors to communicate on their online forum. According to the Justice Department’s complaint, one landlord approvingly called YieldStar “classic price fixing.”
How does all of this impact tenants?
Lack of competition in pricing means that landlords have less of an incentive to respond to actual market conditions that might otherwise cause them to lower their rents — like, say, slower demand in cold winter months or climate conditions that might cause people to move elsewhere. And according to some reports, using YieldStar increased revenue for the landlords who used it but created an incredible turnover rate for tenants — i.e., no one could afford the algorithmically recommended rate hikes. One client said their turnover rates increased by 15 percent after they implemented YieldStar — but that wasn’t a problem. As the CEO said, the profit they were still able to make showed “keeping the heads in the beds above all else is not always the best strategy” (he later disavowed the comments to ProPublica). All of this, one could argue, leads to skyrocketing rents that don’t feel at all related to the real world of what people are willing to pay, or the conditions of housing stock and availability. In some places where the software is used, rents have increased by double digits in just a few years. The Justice Department’s suit claims that RealPage goes even further than suggesting higher rents — it actually “polices” its landlord clients when they try to lower them.
Who else has sued RealPage?
In 2022, law firms began filing suits against RealPage on behalf of tenants in several cities like Seattle and Austin, attempting to form a class-action lawsuit. The attorney general in Washington, D.C., then sued RealPage in November 2023, along with 14 landlords, and called it a “housing cartel.” Arizona’s AG followed in February of this year. The Justice Department’s suit filed on August 23, joined by eight states (though not New York), is a major escalation. The government’s lawsuit not only accused the company of price fixing but also of monopolizing the competition. Representatives of the attorney general have framed the action as part of a broader regulatory move to rein in the use of tech by companies like Amazon and Uber, and even Vice-President Kamala Harris referenced RealPage in her recently released suite of housing proposals, when she promised to ban the use of algorithmic price-setting tools.
Does this mean rents could go down?!
The implications of the Justice Department’s suit could be enormous. Some of the country’s largest landlords use RealPage. It’s not clear exactly what could happen if the Justice Department’s suit is successful, but it could mean that, yes, rents at least stop getting hiked in the places where RealPage has driven them up.
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