Legal Action Against RealPage: DOJ Targets Alleged Misuse of Pricing Algorithms in Apartment Rental Market

It's no secret that apartment rental prices in the US have been consistently rising over the years. But are these increases a part of a natural economic cycle, or could they be the result of coordinated manipulation? A lawsuit filed by the US Department of Justice (DOJ) unveils some disturbing answers.

Algorithms in the Apartment Rental Market

The DOJ has indicated that a single company, RealPage, might have significantly contributed to the seemingly coordinated price hikes in the rental market. A Texas-based business, RealPage, offers commercial revenue management software for landlords. This software assists in generating rental values; however, the DOJ alleges that this tool might actually be facilitating anti-competitive practices by enabling price coordination.

A..Unique Approach to Pricing

According to Lisa Monaco, deputy attorney general, RealPage's software uses artificial intelligence (AI) to run an algorithm that operates across various rental properties. The landlords input rental rate and lease term data which the AI uses to generate a suggested price. In essence, the DOJ believes this sofware is recreating the very issue antitrust laws were designed to prevent — market manipulation.

The RealPage Effect

Across the United States, the impact of RealPage's software might be far-reaching. The DOJ estimates the company's market share for such software at a whopping 80%. With its software applied to approximately three million rental units throughout the nation, its influence on price-setting is considerable. There is already a collection of lawsuits against RealPage, including cases in Arizona and Washington, DC, where their software allegedly determines the price of over 90% units in large apartment buildings. The potential extent of the price-setting effect underscores the seriousness of these allegations.

The Legal Battle Intensifies

In a landmark move, the DOJ's civil lawsuit joins forces with the attorneys general of eight states to heighten the legal pressure on RealPage. This combined effort marks an unprecedented action against the use of pricing algorithms and bears significant implications for the future regulation of AI technologies

Further intensifying matters, the lawsuit cites instances where RealPage executives arguably acknowledged the anti-competitive dynamics of their product. These executives conveyed that, rather than fostering competition, they seek a state of 'mutual success' across the rental property market – a perspective antithetical to competitive market theory.

Defending Against Allegations

Far from remaining silent in the face of legal action, RealPage has firmly denied the antitrust accusations. They have released detailed statements and resources defending their practices and have reiterated that they designed their revenue management software with compliance to legal standards in mind.

AI and Law: An Emerging Frontier

In a press conference, Lisa Monaco reiterated that despite the complexity of AI and algorithm-enabled systems, these do not operate outside of the legal framework. Using AI to commit a violation is, in itself, a violation. Moreover, the DOJ alleges that the AI algorithms consistently produce escalating rental prices, maximizing profits for landlords, and directly affecting tenants.

While the DOJ continues its legal challenge, the outcome of this case will certainly have a significant impact on the use and regulation of AI technology in various marketplaces.

Looking Towards the Future

The DOJ, backed by data scientists and technologists, aims to investigate further into the code running such systems. This decison to scrutinize algorithm-fueled business practices signals a blueprint for future regulatory action in our increasingly digitized world.