Why the Justice Department is suing a software company to forestall rent agreements between landlords

Of all of the the reason why it may be difficult to pay rent every month, did you could have an algorithm-driven illegal cartel in your list?

Millions of individuals within the United States are paying way more in rent than they will reasonably afford, and rental housing prices are rising much faster than household income. In 2022 there have been 22.4 million US households spend greater than 30% of their income for rent and utilities, up from 20.4 million in 2019.

Many of those households faced significant cost burdens, with 11.6 million households scuffling with housing costs devour greater than half of their income. In Chicago, Cincinnati, Minneapolis, Virginia Beach and Washington, rental prices are year-over-year are increasing at double-digit rates.

Several aspects drive up the high rental costsThese include increasing demand, a dwindling supply of low-rent units, rising capital costs to construct latest rental housing, and regulatory barriers restricting multifamily construction.

But there's one other surprising factor driving up rental prices: landlords using technology to make deals. The USA The Justice Department is suing the corporate RealPage, Inc.and accuses him of selling software to landlords that enables them to jointly set prices – an illegal practice of price fixing. As a former official within the Antitrust Division of the Department of Justice and a Law professorI even have followed the case closely.

The dangers of price fixing

The Federal Trade Commission defines price agreements as an agreement, conspiracy or association between competitors to extend, fix or otherwise maintain the worth at which their goods or services are sold.

Some agreement that restricts price battle violates antitrust law. Examples of price fixing include commitments between competitors to maintain prices fixed, to adopt an ordinary price calculation formula, or to stick to a minimum fee or price list.

So when competitors share proprietary, confidential current pricing information – directly or not directly through an intermediary – to stabilize or control industry prices, that’s what they’re doing crossed the border involved in illegal collusion, in response to the FTC. This is the case in large parts of the US rental market, argues the Justice Department.

One algorithm for everybody

In August 2024, the Department of Justice and eight states filed a lawsuit against RealPage in federal court in North Carolina. The Justice Department accused the corporate of selling software to landlords that collects nonpublic information from competing landlords and uses that combined information to make pricing recommendations.

Landlords who use the software enter the rental prices they charge and the software aggregates all the info from the corporate's customers. The software's algorithm then provides recommendations for the fees to be charged. The recommendations are general higher than the present market priceAnd Most customers accept the recommendationsthat drive up prices in a market.

Even if landlords retain some authority to deviate from the algorithm's recommendations, it is illegitimate for competing landlords to collectively delegate vital elements of their pricing to a standard algorithm. in response to the Justice Department's lawsuit. The Ministry of Justice explained that “RealPage replaces competition with coordination. It substitutes unity for rivalry. It undermines competition and the competitive process. This is happening openly and directly – and American renters are paying the price.”

The case is unusual in that, unlike a typical price-fixing cartel, the landlords used RealPage's algorithms to significantly improve their ability to repair prices. Algorithmic price fixing is usually simpler and more practical than other types of cartel behavior. The software can easily aggregate massive amounts of proprietary data, optimize cartel profits, monitor cartel price deviations in real time, and minimize incentives for fraud.

“It’s much easier to set the worth when you outsource it to an algorithm “As opposed to sharing manila envelopes in a smoke-filled room,” Jonathan Kanter, head of the Justice Department's antitrust division, told The New York Times.

Since 2022, RealPage and various property managers have been named as defendants in greater than a 12 months 30 class motion lawsuits with the accusation that the RealPage software is getting used to unlawfully set rental prices. Federal courts are inclined to be sympathetic to such arguments, as evidenced by the denial of a motion to dismiss the case one in every of the private lawsuits filed against RealPage.

In this case the court held that a There may very well be price agreements for legal reasons. Landlords provided RealPage's algorithmic system with their proprietary business data, knowing that RealPage would demand the identical of its competitors and use all of that data to recommend rental prices to the entire company's customers.

Classic price agreements or data-driven decisions?

Some landlords look like aware that by sharing confidential pricing information with RealPage's software, they’ve facilitated the illegal monitoring and increase of rental prices. The Justice Department's criticism quoted a landlord Comment on RealPage's software: “I've always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. This is classic price fixing.”

Even RealPage executives have boasted that when landlords share their software, “every possible technique to increase the worth“ says the criticism.

RealPage argued that its software “simply helps landlords make data-driven decisions“in an intensely competitive market. The company claims its tools are designed to reflect market conditions and optimize utilization, not price fixing.

The company describes the impact of its alleged collusion with landlords as “a rising tide [that] raises all ships.” Perhaps a greater description of their ministry could be a rising tide, lifting all ships for many who have one.

The Justice Department case and the private cases are within the early stages of litigation. If the division is successful, RealPage might be prohibited from engaging in anticompetitive practices related to assisting landlords in sharing proprietary pricing information.