DOJ’s Case Against RealPage Should Be Dismissed with Prejudice

By John Shu

October 28, 2024

The Biden-Harris Administration should stop wrongly blaming others for its own disastrous policies. For example, in 2023 the DOJ filed statements of interest in lawsuits in Atlantic City and Las Vegas which falsely alleged that hotel-casinos and their A.I. room pricing software vendors illegally fixed hotel room prices. Similarly, on August 23, 2024 the DOJ and eight states sued RealPage, Inc., a Texas A.I. software company which makes pricing recommendations to landlords, in North Carolina federal court, alleging similar (but still false) price-fixing claims.

Exactly one week before Attorney General Garland’s splashy press conference, Vice-President Harris falsely claimed at her August 16, 2024 North Carolina presidential campaign event that “[s]ome corporate landlords collude with each other to set artificially high rental prices, often using algorithms and price-fixing software to do it.” The DOJ’s lawsuit’s timing and location thus appears uncoincidental, perhaps even “collusive.”

The main reason that rental and other prices are sky-high is because the Administration and the Democrat-controlled Congress in 2021 and 2022 chose to print and spend over $2 trillion dollars, on top of the $4.6 trillion in Covid-related monies already printed and spent. It is basic, incontrovertible economic knowledge that any government which prints and spends lots of money, as the Administration did, will cause too many dollars to chase too few goods, thus causing high inflation and high prices for food, clothing, utilities, gasoline, housing/rent, etc. 

RealPage and its software and clients are not responsible for this Administration’s obscenely profligate government spending, the resulting painful inflation, or the Fed’s ensuing interest rate hikes.

These hikes caused skyrocketing interest rates for credit/loans (e.g. mortgage, business, auto, credit cards), further raising costs. America’s $35.6 trillion government debt and the mandatory interest payments on it also helped push interest rates higher. The Administration refused to acknowledge its bad policy choices; instead it falsely blamed “corporate greed” and “price gouging,” which turned into blaming A.I. and “price fixing” as its new strawman villains.

For example, home mortgage interest rates before January 19, 2021 were below 3%, but by fall 2023 surged to nearly 8%, essentially doubling mortgage payments. As a result, homeowners wouldn’t sell/move because they didn’t want new high-rate mortgages. This, along with increasing property taxes and home insurance premiums, made renting economically smarter than buying in the top 50 metro areas, which further increased rental demand and thus prices.

Harvard’s Joint Center for Housing Studies noted that high interest rates made construction loans to build new apartment/multifamily buildings much more expensive and caused a “swift slowdown in multifamily construction.” In fact, high construction costs, which include regulatory red tape and litigation, are why housing currently is so expensive. Lack of supply raises rental prices. Additionally, landlords/developers suffered increased costs for property taxes, personnel, maintenance, materials, (e.g. drywall, pipes, appliances, etc.), shipping, utilities, etc., further increasing rents.

The DOJ’s case against RealPage is legally flawed because its clients did not communicate nor exchange confidential information with each other via RealPage or its A.I.  Merely using the same software vendors/products (e.g. Microsoft Windows, Adobe Acrobat) is not price fixing. Also, RealPage did not disclose clients’ proprietary information to others. Instead, RealPage’s A.I. took in both public and proprietary data; anonymized, aggregated, and analyzed it; used multivariate statistical models to calculate and predict price elasticity (i.e. how rental demand responds to price changes); and then optimized recommendations for a particular client and that client’s individual needs, property, and geographic circumstances. In fact, the A.I. weighed more heavily the supply/demand flows of a client’s property over what other landlords did, regardless of whether they were clients. The A.I. merely automated what landlords and realtors have done for decades: conduct “comps” to collect data on rental availability and asking prices, and analyze that information with multiple variables.

Moreover, only a small percentage of landlords use RealPage’s A.I., which made recommendations for about 10.4% of the approximately 44 million rental units in the U.S.

Importantly, neither RealPage nor the A.I. required clients to accept the pricing recommendations; clients independently decided their own rental prices and often freely ignored the A.I.’s recommendations, which therefore cannot be price fixing.

In September and May of 2024, respectively, Judge Karen Williams, U.S. District Court for New Jersey and Chief Judge Miranda Du, U.S. District Court for Nevada, dismissed with prejudice both of the hotel-casino A.I. price-fixing cases because, very similar to the DOJ’s RealPage case, the hotel-casinos became clients of their respective third-party A.I. vendors at different times, did not exchange confidential information with each other, and were not required to accept the A.I. software’s pricing recommendations (and often did not).

These cases have small differences with the DOJ’s RealPage lawsuit, but are similar enough that the federal court in North Carolina should find them persuasive and likewise dismiss with prejudice the DOJ’s politically-driven case against RealPage.

John Shu is an antitrust expert, legal scholar and commentator who served in the administrations of Presidents George H. W. Bush and George W. Bush.

John Shu serves on the board of the Antitrust Education Project

Originally published at Real Clear Markets.