The Justice Department is expanding its probe of the rental housing market, opening a criminal investigation of a top developer of property pricing software and some of its customers, according to four people with knowledge of the matter.
The DOJ is looking into the possibility that RealPage is facilitating price-fixing among some of the large residential property owners and management firms that use the company’s product, according to the people, who were granted anonymity to discuss a confidential matter.
The move opens a new front in an array of investigations and lawsuits targeting the rental housing market by the DOJ, state attorneys general and class-action plaintiff lawyers. It involves software companies such as RealPage and dozens of managers and owners of apartment complexes around the country. The White House and the Department of Housing and Urban Development have produced several policy directives aimed at the industry.
It is also a marked escalation of the probe, which has been underway for at least two years and has been run primarily by the DOJ’s antitrust lawyers as a civil matter, which is also ongoing, the people said.
The Biden administration has made cracking down on anti-competitive activity a cornerstone of its domestic economic agenda, and antitrust enforcers at the DOJ and Federal Trade Commission are key to that goal.
In his State of the Union address, President Joe Biden highlighted actions in the food, health care and housing markets. High housing costs are a particular priority for the administration, with Biden calling out rental prices, saying, “For millions of renters, we’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents.” The president was in Nevada on Tuesday, discussing actions to fight “rent gouging among corporate landlords.”
The department’s antitrust division is conducting the probes and issued subpoenas earlier this year on behalf of a federal grand jury in Washington, three of the people said.
The DOJ declined to comment.
The investigation is one of the only known criminal probes involving so-called algorithmic price-fixing, in which an alleged conspiracy is implemented with software. In 2015, the DOJ secured guilty pleas in a small e-commerce case where it said prices were fixed via algorithms.
RealPage’s software, including its YieldStar product, is used by landlords to estimate supply and demand for their listings, allowing them to maximize rents. The Richardson, Texas-based company employs statistical models and nonpublic data, much of it submitted by its property management clients, to make its estimates. The Justice Department is concerned that RealPage’s software is used as a shield for competitors to exchange sensitive pricing data that their rivals would otherwise not be able to access.
The company, along with its private equity owner Thoma Bravo and dozens of property owners and managers, is already the target of a class-action lawsuit brought by renters. There are also suits filed by attorneys general in Washington, D.C., and Arizona. The North Carolina attorney general recently announced that his office is also investigating.
The DOJ investigations at least partly track with the allegations laid out in the existing lawsuits, according to the people with knowledge of the matter. The nearly 40 property owners and managers contacted by POLITICO either declined to comment or did not respond to requests for comment. The class action lists the largest owners and operators of apartments as defendants, including Greystar Real Estate Partners, Lincoln Property and Cushman & Wakefield-owned Pinnacle Property Management Services, which recently disclosed a pending settlement.
RealPage denied any wrongdoing.
“RealPage’s revenue management software is purposely designed and built to be legally compliant, and we have a history of working constructively with the Department of Justice to show that,” company spokesperson Jennifer Bowcock said in a statement. “In fact, in 2017 the DOJ analyzed extensive information about YieldStar and [Lease Rent Options] when it granted antitrust clearance for RealPage’s acquisition of LRO without objecting to the nature of our revenue management products.”
A spokesperson for Thoma Bravo declined to comment.
When his office filed its case last fall, D.C. Attorney General Brian Schwalb said, “RealPage and the defendant landlords illegally colluded to artificially raise rents by participating in a centralized, anticompetitive scheme, causing District residents to pay millions of dollars above fair market prices.” He added, “Defendants’ coordinated and anticompetitive conduct amounts to a District-wide housing cartel.”
RealPage’s centralized pricing algorithm was allegedly used to set rents for more than 50,000 apartments, according to the D.C. complaint. The lawsuit describes RealPage as the “‘big tech’ company of rental housing.”
The antitrust spotlight first fell on RealPage with a 2022 ProPublica story detailing the company’s role in allegedly helping landlords set rents in a way that could trigger allegations of collusion.
Lawsuits quickly followed. RealPage and the property owners and managers “conspired to limit supply and raise multifamily rental housing prices, causing substantial damages to Plaintiffs and other members of the Class whose ability to obtain affordable housing depended on getting competitive prices for the units they rented,” according to the most recent version of the class action complaint.
For their part, RealPage and the property companies have argued in court that the allegations do not support any agreement to fix prices. Among their arguments, the property owners and managers say there is no evidence of any conspiracy, beyond that they are all clients of RealPage.
However, a federal judge in Tennessee late last year declined to dismiss much of the case, saying it “unequivocally alleges that RealPage’s revenue management software inputs a melting pot of confidential competitor information through its algorithm and spits out price recommendations based on that private competitor data.”
And while the DOJ’s investigations are confidential, the department has weighed in on the class action to argue that price-fixing is illegal whether it takes place in a smoke-filled room or is done by algorithm.
“Put simply, RealPage allegedly replaces independent competitive decisionmaking on prices, which often leads to lower prices for tenants, with a price-fixing combination that violates” antitrust law, the DOJ said in support of the renters’ case.
While the RealPage probes could yield a traditional price-fixing lawsuit, they are also emblematic of the Justice Department’s increased focus on information-sharing agreements across the economy. Last year the antitrust division withdrew guidance giving safe harbors to certain information sharing in health care. And the sharing of anonymized data in the chicken industry is the focus of a separate DOJ antitrust case.
CORRECTION: A previous version of this report misidentified a target of the attorney generals’ lawsuits.
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