A
cross the country, Americans are struggling to keep up with rising rent costs. Rental prices have increased roughly 35% over the last five years, according to Zillow. Recently, the Justice Department and attorneys general from eight states filed a lawsuit against RealPage, a software company that helps landlords manage 16 million rental units nationwide. The lawsuit claims RealPage has shared data about rental properties, leading property owners to collude rather than compete in the rental market.

    Sandeep Vaheesan, legal director at the Open Markets Institute, joins us to discuss RealPage and the antitrust lawsuit filed against them. RealPage works with landlords across the country, collecting unit-specific data and using it to determine rental prices. They compile this data and provide pricing recommendations to their clients, who collectively control millions of apartment units.

    When RealPage users try to override a recommendation, they face significant obstacles. Landlords must seek approval from supervisors before overriding, and even then, RealPage can deny the request. The company has been known to terminate clients who frequently override its pricing recommendations. RealPage also sends secret shoppers to pose as prospective tenants and verify that landlords are adhering to recommended rents.

    Using RealPage's price-setting algorithm differs significantly from comparing comps on traditional sites like Realtor or Zillow. RealPage consolidates granular information, offering more precise pricing recommendations than public websites can provide. However, this consolidation also enables collective price-setting among landlords, rather than individual profit and loss considerations.

    The antitrust lawsuit against RealPage is not about the legality of its algorithm but rather how the data generated is being used. The government alleges that RealPage has facilitated collusion among rival landlords, enabling them to set rents jointly and boost their revenues and profits at the expense of tenants.

    Proving collusion can be challenging, but the government has several helpful facts on their side. RealPage's marketing materials signal to landlords that competitors are already working together, and significant rent increases have occurred since the widespread adoption of RealPage's software tools. Additionally, RealPage helped instigate a change in pricing strategy among landlords, shifting from maximum occupancy to higher rents with lower occupancy levels.

    RealPage has defended itself by claiming it is simply helping individual landlords price their units more rationally and that there is no collusion going on. They also point to broader features of the housing market, such as restrictions on new construction, as contributing factors to higher housing prices.

    Landlords who use RealPage to set rates may also be legally liable for their actions. The federal lawsuit targets only RealPage, but the lawsuits filed by Arizona and the District of Columbia have named individual landlords as well.

    In a world of AI-powered algorithms, existing antitrust laws are sufficient to protect consumers from such conduct. The algorithmic aspect is interesting, but it's the joining of competing forces that matters for antitrust purposes. Whether prices are fixed through a spreadsheet or determined by high-powered computers, the concerted action among competitors is what counts.

    The impact of RealPage on renters has been significant, with some markets experiencing rent increases as high as 80% since the software was widely adopted. While waiting for the outcome of this case, tenants may be part of class-action lawsuits against RealPage, which could potentially lead to remedies such as rent credits or checks in the mail.