California Joins DOJ Antitrust Lawsuit, Alleges Price-Fixing Software Drives Up Rent

California joined seven other states and the U.S. Department of Justice on Friday in a federal antitrust lawsuit against the real estate software company, RealPage Inc., accusing it of enabling landlords to illegally drive up rents.

The software lets property management companies and landlords voluntarily input rent prices and other lease terms and then provides “recommendations” for how much to charge tenants, according to the complaint. That allows landlords to “move in unison versus against each other,” as RealPage’s vice president of Revenue Management Advisory Services allegedly described it, according to the suit, which stifles competition and artificially inflates prices.

“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,” Attorney General Merrick Garland said in a statement on Friday.

RealPage did not respond to KQED’s request for comment, but it has denied wrongdoing in other class action suits.

Nationally, some 16 million renters live in properties controlled by companies that use RealPage’s software, according to RealPage’s own estimates, as detailed in the lawsuit. The suit comes as shelter costs have continued to drive up total household costs, contributing to nearly 90% of the increase last month, even as inflation overall has ebbed, according to the U.S. Bureau of Labor Statistics.

Meanwhile, corporate landlords are under pressure to lower rents nationally. Last month, President Joe Biden called on Congress to pass new legislation to force landlords with 50 or more units to cap annual rent increases at 5% or risk losing certain federal tax breaks. In her first major campaign event, Vice President and Democratic presidential nominee Kamala Harris pledged to “take on corporate landlords and cap unfair rent increases.”

Liz Zelnick, director of the Economic Security & Corporate Power Program at the consumer watchdog group, Accountable.us, said her organization has been investigating RealPage for years after it began noticing a pattern: Corporate landlords were posting record profits while raising rents, not just in high-priced cities like Boston and San Francisco, but across the country.

“We recognized that it wasn’t just plain corporate greed; it was corporate greed meets price fixing,” she said. “This is really artificially raising rates across the country in different cities and towns and making it nearly impossible for tenants to find a cheaper building in the city in which they were looking because a lot of these landlords were colluding with one another, within those same cities.”

In California, Attorney General Rob Bonta said in a statement on Friday that renters in Southern California are particularly impacted by companies that use RealPage. As home prices and rents rise, he said, renters have “no other choice” but to pay.

“This means that even if rental home supply was high, rent prices stayed the same, and in some cases, rents went up,” Bonta said. “This conduct is unacceptable and illegal.”

The National Apartment Association declined to comment on the case, citing the pending litigation. For its part, the California Apartment Association said it remains committed to educating its members “about compliance with all relevant laws and regulations.”

“We believe in fair competition and responsible practices in the rental market,” Mike Nemeth, a spokesperson for the association, said in an email to KQED. “We’re aware of the lawsuit filed by the DOJ and Attorney General Bonta against RealPage, and we’ll be monitoring the case closely to assess its impact on California’s housing providers and renters.”

In the Bay Area, a study by Accountable.us found that six real estate companies that use RealPage’s software controlled more than 18,300 units in San Francisco; over 8,600 units in Santa Clara County; nearly 4,000 units in Alameda County; and more than 2,600 units in Contra Costa County.

San Francisco Board of Supervisors President and mayoral candidate Aaron Peskin recently introduced legislation prohibiting property owners and managers from using algorithm-based tools. In a statement Friday to KQED, he lauded the federal antitrust lawsuit.

“Once again, San Francisco is a model for the nation,” he said. “The rent’s too high, and that’s why I’m banning the corporate software that enables tenant price gouging here in San Francisco.”

While California has its own laws prohibiting rental increases of more than 10% annually, Leah Simon-Weisberg, an attorney with the tenants’ rights advocacy organization, Alliance of Californians for Community Empowerment, said this suit is evidence more regulation is needed. Her organization is advocating for a measure on the Berkeley ballot that would strengthen tenant protections.

“We need to stop pretending that there is a free market and stop pretending that a free market is going to solve anything,” she said. “We need regulation.”