How one company transformed the apartment rental market

The big picture: Not only did a huge rise in demand for apartments drive up rents as the pandemic dragged on, but RealPage stands accused of pushing landlords to raise rents higher than they would've on their own.

• That's according to the DOJ's antitrust suit and a damning ProPublica investigation in 2022 that drew attention to the company.

The other side: RealPage strongly disputes these characterizations.

• "Inflation, high interest rates, and a housing supply shortage have driven up rent prices in America," Jennifer Bowcock, a RealPage spokesperson, told Axios.

By the numbers: RealPage expanded its reach into the national rental market after a 2017 merger. The DOJ alleges that it holds a monopoly in the rental data industry.

• RealPage now controls 80% of the market for rent-setting software. These programs collect private information from landlords on rent prices, lease expiration dates, and even the details of applications from prospective tenants, per the suit.

For the record: RealPage says only 7% of rentals in the U.S. are managed using its products, and notes that two-thirds of the data in its pricing algorithm comes from publicly available sources.

• "RealPage is designed to help property managers and renters find the right price to fill their units, keep occupancy rates high, and manage seasonal fluctuations in demand so that there are units available at the times prospective renters need them," Bowcock said.
• "When a rental unit is priced too high, it sits vacant and that doesn't help anyone."

How it works: The company's data is used to recommend to landlords the rents they should charge.

• It almost always suggests an increase, according to the DOJ's lawsuit.
• Not so, says RealPage. Often, the addition of private leasing information leads the algorithm to recommend lower rents, per Bowcock.

The intrigue: More than half the time, Bowcock says, a property manager will set a price different from RealPage's recommendations. When that happens, alleges the DOJ, a Real Page "pricing advisor" will call up the manager and ask what's going on — and escalate their questions to the manager's supervisor.

• Even when a market is softening and demand is falling, RealPage encourages landlords to hold rents steady, per the DOJ.
• "When data reveals peers are raising rents," the DOJ says, the advice is to raise rents.

The bottom line: No one is saying that RealPage alone is responsible for the rise in rent prices, but that the company contributed to the phenomenon.

• "I think what it did was add another layer of pressure to rents that wasn't market-based," says Jonathan Miller, a New York-based real estate appraiser who follows rental markets around the country.

Not just an algorithm

Attorney General Merrick Garland took aim at "landlords using mathematical algorithms" at a press conference last week when he announced the suit against RealPage.

Why it matters: That framing perhaps downplays the fact that a lot of the behavior the DOJ describes in the lawsuit was driven by humans.

Behind the scenes: The lawsuit alleges...

• Thousands of monthly phone calls by workers at RealPage to collect rental data;
• Company "pricing advisors" that encouraged landlords to follow the algorithm's recommendations;
• Sponsored cocktail hours, in which landlords met with each other;
• And even shared Google Drive documents for competitors to use to collect information.

Between the lines: Even as software plays a central role in this case, that's nothing new.

• As ProPublica noted, the country's largest airlines were accused of using software to fix ticket prices back in the early 1990s.
• The Justice Department called the system "an electronic smoke-filled room."

The White House strategy

The Justice Department's antitrust strategy is part of the Biden administration's plan to bring down housing costs and one that Kamala Harris clearly wants to continue.

How it works: RealPage is typically used by big landlords and property managers at more expensive rental properties. When prices rise in those kinds of buildings, it has a knock-on effect on the rest of the market.

• As higher-income renters get priced out of high-end buildings, they trickle into lower-end rentals, effectively driving up prices for all kinds of apartments — even the little mom-and-pop places that don't use RealPage.

Driving the news: In her first economic policy speech earlier this month, the Democratic presidential candidate alluded to RealPage without naming the company.

• "Some corporate landlords collude with each other to set artificially high rental prices, often using algorithms and price-fixing software to do it," Harris said. "It's anticompetitive, and it drives up costs. I will fight for a law that cracks down on these practices."

Exactly one week after her speech, the DOJ filed its suit.