Of all the reasons it might be difficult to pay rent every month, did an algorithm-driven illegal cartel make your list?
Millions of people in the United States are paying far more rent than they can reasonably afford, with rental housing prices rising much faster than household incomes. In 2022, 22.4 million U.S. households spent more than 30% of their income on rent and utilities, up from 20.4 million in 2019.
Many of these households faced serious cost burdens, with a record 11.6 million households struggling with housing costs consuming more than half of their income. In Chicago, Cincinnati, Minneapolis, Virginia Beach and Washington, rents are rising by double digits year after year.
Several factors are driving the high cost of rental housing, including increasing demand, a decreasing supply of low-cost rental housing, the rising capital costs of building new rental housing, and regulatory barriers that limit the construction of multifamily housing.
But there’s another surprising factor driving up rents: landlords working together using technology. The US Department of Justice is suing RealPage, Inc. and accuses it of selling software to landlords that allows them to jointly set prices – the illegal practice of price fixing. As a former official in the Justice Department’s Antitrust Division and a law professor, I have followed the case closely.
The dangers of price fixing
The Federal Trade Commission defines price fixing as an agreement, conspiracy, or combination among competitors to increase, fix, or otherwise maintain the price at which their goods or services are sold.
Any agreement that restricts price competition violates antitrust laws. Examples of price fixing include commitments between competitors to maintain prices, adopt a standard formula for calculating prices, or adhere to a minimum fee or pricing schedule.
So when competitors share proprietary, confidential current price information – directly or indirectly through an intermediary – to stabilize or control industry prices, they have crossed the line into illegal collusion, according to the FTC. This is the case in large parts of the American rental market, the Justice Department argues.
One algorithm for everyone
In August 2024, the Department of Justice and eight states filed a lawsuit in a federal court in North Carolina against RealPage. The Justice Department accused the company of selling software to landlords that collects non-public information from competing landlords and uses that combined information to make price recommendations.
Landlords using the software enter the rental rates they charge, and the software collects all data from the company’s customers. The software’s algorithm then makes recommendations for what to charge. The recommendations are generally higher than the current market rate, and most customers adopt the recommendations, driving prices higher in a market.
Even if landlords retain some authority to deviate from the algorithm’s recommendations, it is illegal for competing landlords to jointly delegate important aspects of their pricing to a common algorithm, the Justice Department lawsuit said. The Department of Justice stated that “RealPage replaces competition with coordination. It replaces unity with rivalry. It undermines competition and the competitive process. It does this openly and directly – and American renters must pay the price.”
The case is unusual because, unlike a typical price-fixing cartel, the landlords used RealPage’s algorithms to dramatically improve their ability to price-fix. Algorithmic price fixing is generally simpler and more effective than other forms of cartel behavior. The software can easily collect large amounts of proprietary data, optimize cartel profits, monitor cartel price deviations in real time, and minimize incentives to cheat.
“It’s much easier to set price if you outsource it to an algorithm than if you’re handing out manila envelopes in a smoke-filled room,” Jonathan Kanter, head of the Justice Department’s antitrust division, told The New York Times.
Since 2022, RealPage and several property managers have been named as defendants in more than 30 class action lawsuits alleging that the RealPage software is used to unlawfully set rental rates. Federal courts are typically sympathetic to such arguments, as evidenced by the denial of a motion to dismiss the case in one of the private lawsuits filed against RealPage.
In that case, the court ruled that there could be a price agreement by operation of law. Landlords provided RealPage’s algorithmic system with their own commercial data, knowing that RealPage would demand the same from their competitors and use all that data to recommend rental prices to all of the company’s customers.
Classic price agreements or data-driven decisions?
Some landlords appear to be aware that by sharing confidential pricing information with RealPage’s software, they were enabling the unlawful monitoring and increase of rents. The Justice Department complaint quoted a landlord commenting on RealPage’s software: “I’ve always liked this product because your algorithm uses proprietary data from other subscribers to suggest rental rates and terms. That is classic price fixing.”
Even RealPage executives themselves have boasted that when landlords use their software collectively, they can “take every possible opportunity to raise the price,” according to the complaint.
RealPage argued that its software “simply helps landlords make data-driven decisions” in a competitive market. The company claims its tools are designed to reflect market conditions and optimize occupancy, not price fixing.
The company describes the impact of its alleged collusion with landlords as “a rising tide that raises all ships.” Perhaps a better description for their service is a rising tide that lifts all ships for those who have one.
The Justice Department case and the private cases are in the early stages of litigation. If the division is successful, RealPage may not engage in anticompetitive practices related to helping landlords share proprietary pricing information.
This article is republished from The Conversation, an independent nonprofit organization providing facts and trusted analysis to help you understand our complex world. It was written by: Roger Alford, University of Notre Dame
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Roger Alford does not work for, consult with, own shares in, or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond his academic appointment.
