DOJ Takes Aim at AI-Powered Rent Prices

The U.S. Department of Justice (DOJ) and eight state attorneys general filed an antitrust lawsuit against real estate software company RealPage on August 23, 2024. The lawsuit alleges that RealPage’s algorithmic pricing software allowed landlords to engage in illegal price-fixing for rental units. 

The lawsuit highlights the risk for landlords of using commercial tools to recommend rental prices for multiunit dwellings based on nonpublic pricing and lease-term data of competing landlords. The suit may also have broader implications for the use of AI-driven pricing software in key consumer markets. 

In addition, the suit underscores the importance of ensuring that vendor contracts contain appropriate data use restrictions to ensure compliance with applicable laws.

The Allegations

The lawsuit focuses on RealPage’s AI-powered revenue management software products. 

The DOJ alleges that RealPage contracts with competing landlords, who share sensitive information about their apartment rental rates and other lease terms. RealPage’s AI models analyze this data and recommend rental prices and other terms to participating landlords.

The complaint claims that by allowing landlords to set prices based on their competitors’ nonpublic information, RealPage’s software facilitates coordination among landlords in local markets to set higher prices. The DOJ argues that this reduces competition and harms renters.

Scrutinized Uses of Algorithms in Rental Pricing

The DOJ’s complaint argues that RealPage’s algorithms are anticompetitive in several ways, providing insight into what types of AI-enabled features are likely to receive heightened regulatory scrutiny.

• AI-Driven Pricing Across Competitors. The DOJ alleges that RealPage’s models synchronize price increases in hot markets across competing landlords to test what local renters will bear, while coordinating resistance to price decreases in down markets. The complaint argues that the algorithms distort competitive pricing by collectively reducing landlords’ concerns that their competition will undercut them.
• Artificially Constrained Supply. The DOJ alleges that RealPage’s models never recommend rental prices below the market floor. Instead of undercutting the market rate and reducing prices when demand falls, the algorithm recommends restricting the supply of new leases. The complaint argues that the RealPage AI model artificially constrains the housing supply and disrupts competitive market dynamics.
• Artificially Coordinated Supply. The DOJ alleges that RealPage’s models adjust unit-level prices based on nonpublic lease expiration dates across competing landlords. This counteracts the downward pressure on price if too many units become available at the same time. The complaint argues that the models exchange insights into nonpublic data across competitors, driving prices higher than would otherwise be sustainable.

Consequences

The DOJ’s lawsuit against RealPage may have significant ramifications for how AI-enabled tools are integrated into rental housing markets. 

The lawsuit may also impact the use of AI and algorithmic decision-making in markets beyond rental housing. A favorable ruling for the DOJ could increase scrutiny on using AI to drive revenue in key consumer-facing industries, such as consumer credit and health insurance. 

Businesses should consider revisiting vendor contracts to understand whether they have appropriate data use restrictions. Businesses also should consider monitoring the RealPage case, as well as federal and local legislative developments, for insight into what uses of data are likely to be deemed problematic in the AI context. 

If you have questions about this development, please contact Shannon Yavorsky, David Curtis, Peter Graham or other members of the Orrick team.