Justice Department Sues Richardson’s RealPage Over Pricing Scheme, Alleging Harm to Renters

Following a two-year investigation, the U.S. Department of Justice filed a civil antitrust lawsuit Friday against Richardson-based RealPage Inc., accusing the company of using an “unlawful scheme to decrease competition among landlords in apartment pricing” with its rental management software that landlords use to price apartments.

“In a free market, these landlords would otherwise be competing independently to attract renters based on pricing, discounts, concessions, lease terms, and other dimensions of apartment leasing,” states a press release issued by the DOJ on Friday.

In simple terms, RealPage is accused of contracting with competing landlords who agree to share their proprietary rental rates and lease terms to run RealPage’s algorithmic pricing software. According to the lawsuit, the landlords effectively collude and set rents above market rate in North Texas and across the country.

In press statements, RealPage has said the Justice Department’s allegations were “devoid of merit and will do nothing to make housing more affordable.”

Landlord Profiteering

This didn’t happen overnight. RealPage has been identified by numerous sources as a potential reason for inflated rents. ProPublica reported in October 2022 that RealPage’s YieldStar software helps landlords set prices for apartments across the U.S. 

“With rents soaring, critics are concerned that the company’s proprietary algorithm is hurting competition,” the article states. 

Back in June, an Accountable US watchdog report alleged landlord profiteering and named the six largest publicly traded apartment companies that reported nearly $300 million combined in increased profits for the first quarter of 2024. thanks to significant rent increases, according to a national report on landlord profiteering released June 12.

Rising Rental Rates and Landlord Profiteering Prompt Dallas Council Review of State, Federal Legislation 

Dallas Fights Unfair Rental Practices

Mark Melton, founder of the Dallas Eviction Advocacy Center, said he expected this. The attorney was unavailable to speak at length, but in past interviews with CandysDirt.com, It’s clear where he stands on practices that prevent people from having roofs over their heads or the ability to pay a reasonable rent.

“I am in complete support of a landlord’s right to be compensated for the use of their property,” Melton said last year when the Dallas Eviction Advocacy Center helped declare Texas eviction law as unconstitutional. “But the plight of the landlord is not inherently more worthy of protection than the plight of the tenant. Government policies should balance the interests of both parties.”

RealPage Denies Collusion

RealPage has denied the allegations, saying that its software merely advises landlords about whether they should set the rent for a given unit higher or lower.

“We are disappointed that, after multiple years of education and cooperation on the antitrust matters concerning RealPage, the DOJ has chosen this moment to pursue a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years,” RealPage said in a statement.

“It is merely a distraction from the fundamental economic and political issues driving inflation throughout our economy — and housing affordability in particular — which should be the focus of policymakers in Washington, D.C. RealPage’s revenue-management software is purposely built to be legally compliant, and we have a long history of working constructively with the DOJ to show that. In fact, in 2017 when the DOJ granted antitrust clearance for our acquisition of [Lease Rent Options], the DOJ also analyzed extensive information about our revenue-management products without objecting to them in any way. We believe the claims brought by DOJ are devoid of merit and will do nothing to make housing more affordable. We intend to vigorously defend ourselves against these accusations.”

Fox Business reported that RealPage denied engaging in or enabling collusion by landlords.

“The suit comes as the Biden-Harris administration last month pressed Congress to force corporate landlords to choose between abiding by a 5% cap on rent increases or losing federal tax credits,” the Aug. 23 Fox Business article states. “Vice President Kamala Harris’ campaign has also called for a ban on the use of algorithms by rental companies, which her campaign said lets them ‘collude with each other and jack up rents dramatically.'”

The company added that it does not encourage landlords to keep units off the market and only uses nonpublic data in anonymized forms to prevent landlords from getting insights into their competitors’ pricing, which the company believes complies with antitrust law, as reported by Fox Business.

A New Scheme With Landlords to Break the Law

The DOJ investigation has had RealPage in its sights for at least two years before the suit was filed last week. 

The Justice Department, together with the Attorneys General of North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington, filed a 115-page complaint in the U.S. District Court for the Middle District of North Carolina alleging that RealPage violated Sections 1 and 2 of the Sherman Antitrust Act, according to the DOJ press release. 

“RealPage also uses this scheme and its substantial data trove to maintain a monopoly in the market for commercial revenue management software,” the release states. “The complaint seeks to end RealPage’s illegal conduct and restore competition for the benefit of renters in states across the country.”

U.S. Attorney General Merrick Garland said Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law. 

“We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents,” Garland said. “Using software as the sharing mechanism does not immunize this scheme from Sherman Act liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them.”

‘Driving Every Possible Opportunity to Increase Price’

The DOJ complaint cites internal documents and sworn testimony from RealPage and commercial landlords. From the complaint: 

• RealPage acknowledged that its software is aimed at maximizing prices for landlords, referring to its products as “driving every possible opportunity to increase price,” “avoid[ing] the race to the bottom in down markets,” and “a rising tide raises all ships.”
• A RealPage executive observed that its products help landlords avoid competing on the merits, noting that “there is a greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.”
• A RealPage executive explained to a landlord that using competitor data can help identify situations where the landlord “may have a $50 increase instead of a $10 increase for the day.”
• Another landlord commented about RealPage’s product, “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term. That’s classic price fixing …”

The complaint alleges that RealPage’s agreements and conduct harm the competitive process in local rental markets for multifamily dwellings across the U.S. 

“Landlords agree to share their competitively sensitive data with RealPage in return for pricing recommendations and decisions that are the result of combining and analyzing competitors’ sensitive data,” the filing states. “This creates a self-reinforcing feedback loop that strengthens RealPage’s grip on the market and makes it harder for honest businesses to compete on the merits.”

Who is Behind RealPage?

RealPage was founded by Dallas billionaire Stephen Winn (worth $1.5 billion according to Forbes) in 1998. The company is headquartered at 2201 Lakeside Blvd. in Richardson, where it leases an impressive 450,000-square-foot headquarters in the heart of the “Silicon Prairie.”

Winn trained as an electrical engineer but worked in accounting software. He took RealPage public in 2010 and sold it to the private equity firm Thoma Bravo in April 2021 for $10.2 billion.

The RealPage founder graduated St. Marks School of Texas in 1964 after he began attending the private all-boys school in 10th grade. Winn was recently awarded the school’s highest honors this spring with the Distinguished Alumnus Award.

Winn is a real estate developer as well. His real estate firm, Mirasol Capital, is developing 1,400 acres in the Texas Hill Country near Dripping Springs called Mirasol Springs, a green “model for conscientious real estate development.”

The plans call for about 40 luxury homes and a 71-room Auberge Resorts hotel with cottages. There is also a research facility, the University of Texas Hill Country Field Station, for conservation and bio-diversity ecosystem research. Given the area’s scarce water resources and drought sensitivity, his plan includes a solution for potable water — he aims to process sewage on-site for use in irrigation.

Central Texas environmental groups say the location is one of the last untouched canyons in Texas, especially the Hill Country which has surged in population following Austin’s tech boom. Mirasol is uphill from Roy Creek Canyon’s junction with the Pedernales River. Some are lobbying the federal government to have a local species of salamander rendered endangered to try and halt Winn’s efforts in the name of preservation.

CandysDirt.com publisher Candy Evans contributed to this report.