Federal Lawsuit Alleges Michigan Property Management Software Inflates Rents
Michigan, October 2023
In a critical legal development, a sophisticated rent-setting software from RealPage is facing allegations of artificially inflating rents in a "price-fixing conspiracy" across four major Michigan cities—Detroit, Grand Rapids, Kalamazoo, and Lansing. This sophisticated AI-driven tool, which suggests rental prices to corporate landlords, is now at the centre of a lawsuit filed by the U.S. Department of Justice (DOJ) last month.
The DOJ accuses RealPage of orchestrating an "unlawful scheme" that fosters collusion among landlords, resulting in higher rental prices. The lawsuit claims that the software replaces competition with coordination, thus subverting the competitive market process.
"RealPage replaces competition with coordination. It substitutes unity for rivalry. It subverts competition and the competitive process. It does so openly and directly – and American renters are left paying the price," reads the complaint by the DOJ.
The lawsuit follows a 2022 ProPublica investigation and a string of over 30 class-action lawsuits against RealPage, as the nation's rent prices have surged nearly 20% in the past four years. In Michigan, over half of the renting population now struggles to cover housing costs.
Role of Algorithms in Price Setting
The case against RealPage underscores broader concerns regarding the influence of powerful algorithms in setting prices and potentially stifling competition. Anjana Susarla, a Professor in Responsible AI at Michigan State University, emphasised that "legal issues are intersecting with the pervasiveness of technology in today’s life." Susarla pointed out that with RealPage's dominant market position, even tenants at lower-end properties could feel the ripple effects.
According to the DOJ, landlords using RealPage's software share sensitive information such as rental rates, lease terms, and occupancy details. This data feeds into an algorithm that suggests rental prices in almost real-time. Hence, the software reportedly allows landlords to collude based on non-publicly available information, violating antitrust laws.
One landlord in the complaint stated that the software effectively eliminates the "guessing game" for setting rents. Another mentioned that they relied on RealPage's proprietary data to propose rents, labelling it as "classic price fixing."
Defence and Counterarguments
In response, RealPage maintains that its software is intended to be legally compliant and not anticompetitive. The company highlighted that its revenue management software was given antitrust clearance when RealPage acquired LRO in 2017.
A statement from RealPage to MLive dismissed the lawsuit as an attempt to "scapegoat pro-competitive technology that has been used responsibly for years." The statement added, "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."
Additionally, Stephen Weissman, a lawyer representing RealPage, told USAToday that the software aggregates data from multiple sources and reiterated that RealPage is committed to complying with the law.
Jeremy Piper, a lawyer representing landlords in Michigan, described the case as not being a "clear cut case" of collusion. He argued that it's common practice for landlords to survey apartment listings to comprehend the market.
Future Implications: Algorithms and Antitrust Laws
The RealPage case highlights an emerging legal frontier concerning the role of algorithms within industries. Federal regulators, including the Federal Trade Commission (FTC), have been scrutinising how algorithms might become modern tools for price fixing.
"Today, software algorithms can be employed to fix prices—and this modern machinery may be easier and more effective than past methods of price fixing," the FTC stated in a March legal brief. The brief adds that rent algorithms could be a substantial antitrust issue in the future.
Daniel Crane, a law professor and antitrust expert at the University of Michigan, remarked, "It may very well have exactly the same effect as massive price fixing without there being any human agency agreeing with another human agency."
San Francisco has already taken action by becoming the first city to ban landlords from using rental pricing software. Additionally, legislation introduced by two U.S. senators seeks to make such software illegal nationwide.
Conclusion
As the legal proceedings unfold, the role and impact of algorithms like RealPage's software on rental prices will be under intense scrutiny. This case could set a precedent for future legal battles in various sectors where AI-driven pricing tools are used. With housing affordability becoming a critical issue for many Americans, the case against RealPage places a spotlight on the intersection of technology, law, and market competition.
Source: Noah Wire Services