Is This Why Your Rent Is Skyrocketing? DOJ And 8 US States Sue RealPage For Alleged Price-Fixing Scheme

US housing rents have jumped 19% to an average of $1,712 since 2019. While the rent increase was the least, at 1%, in the past year, renewed demand from renters could mount further upward pressure on rental pricing as new homes hit the tight real estate market. Furthermore, many potential first-time homebuyers are choosing to rent as record-high property prices and mortgage rates remain unaffordable. The ongoing unspooling of pandemic-era housing arrangements is also driving rental demand and prices. While there are several reasons for rents rising, new-age real estate tech companies have recently come under the scanner for possibly inflating rents in collusion with landlords.

Algorithm Misused In Rental Price-Fixing Scheme

The US Department of Justice (DOJ) filed a lawsuit against real estate tech company RealPage last week for allegedly enabling landlords to raise tenant rents using its software, YieldStar. The lawsuit, filed jointly by states like California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee, and Washington State, claimed that RealPage allowed landlords to fix higher rents beyond market forces to affect millions of renters.

YieldStar leverages modern algorithms and complex market data, including local trends, demand/supply, competitor pricing, and occupancy rates, to calculate the optimal rent prices for landlords and property managers. The software stores confidential real estate data of over 16 million US rental units, accessible to paid members (landlords). While the DOJ is investigating how the company facilitated landlords to share confidential information about occupancy rates and rents secretly, it is also looking into comments from RealPage executives who allegedly advertised YieldStar as a tool to help them earn up to 7% higher than they would (by fixing higher prices) and subsequently avoid any competition.

DOJ also pointed out RealPage's statement highlighting how the software ensures landlords are "driving every possible opportunity to increase price even in the most downward trending or unexpected conditions." The Justice Department also alleges that RealPage, founded in 1998 by entrepreneur Steve Winn, illegally monopolised the property management software segment of the real estate market for multi-family US homes. RealPage became public in 2010 and was sold to private equity firm Thoma Bravo in 2021 for $10.2 billion.

RealPage Fights Back

Attorney General Merrick Garland highlighted that US citizens shouldn't be paying higher rents because a business has found a way to "scheme with landlords to break the law." In 2022, many tenants filed a lawsuit against leading property management firms, including RealPage, alleging a breach of US federal antitrust regulations through the misuse of pricing software to increase rents. While the tenants' efforts pushed two multi-family residential property operators to settle the claims this year, RealPage has denied any wrongdoing.

Company representative Jennifer Bowcock reportedly said RealPage would "vigorously" defend itself and that its revenue management software was "purposely built to be legally compliant." The real estate firm has argued that landlords are not mandated to accept YieldStar's pricing suggestions, attributing the rent hikes to macroeconomic factors like short housing supply and high inflation. Bowcock added that RealPage has "a history of working constructively with the DOJ" to show the software follows the law.

Meanwhile, Vice President Kamal Harris highlighted in a recent speech that collusion among corporate landlords, in any form, including via algorithm-based price-fixing software, is an anti-competitive practice that pushes up rents. DOJ's recent lawsuit against RealPage is part of a broader effort among regulators to understand and prevent the misuse of price-setting technology used by ride-hailing companies and college administrations to calculate financial aid.