The city of Berkeley, California is being sued by RealPage over its ban on algorithms used to determine apartment rental prices. The lawsuit states that Berkeley’s ordinance passed in March represents a “sweeping and unconstitutional ban on lawful speech,” and a violation of the First Amendment’s prohibition on content-based restrictions.
RealPage is a controversial company that has been likened to a cartel by some lawmakers across the United States. It essentially offers landlords an algorithm that can maximize their revenue by evaluating a customer’s properties along with rental data from nearby properties to offer suggested pricing. Critics contend that the practice amounts to illegal price-fixing. Last year, the Department of Justice under former President Joe Biden filed a civil antitrust suit against RealPage, accusing it of decreasing competition amongst landlords by generating price recommendations based on rivals’ pricing information, whereas in a “free” market the owners would have to compete independently based on pricing, lease terms, and other factors. Prosecutors say RealPage controls 80% of the market for commercial revenue management software.
Data compiled by the Department of Justice showed how in certain regions where RealPage software was prevalent, rents have increased at a higher pace than the national average, though it is hard to quantify how much RealPage software is responsible for these increases. In its lawsuit, however, the Justice Department cited RealPage executives’ own words about how the product can maximize revenue: “There is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.”
Proponents of the “abundance” or YIMBY movements have argued that deregulation of the housing market will lead to lower rental prices. Developing new properties in states like California is a slow, arduous process, and new apartment buildings are frequently targeted by NIMBY types who use environmental laws to try and thwart any development.
A common refrain in MBA programs is that companies should not participate in price wars. RealPage’s comments suggest it follows such logic, though the company is adamant that it does not participate in illegal collusion. It says that landlords accept its suggestions less than 50% of the time, and the company believes Berkeley’s ban amounts to scapegoating. The real issue, RealPage says, is a severe lack of housing supply.
In one instance cited by the Justice Department, RealPage suggested a landlord could increase rent by 7% by decreasing their occupancy rate from 97% to 95%. But in a market with high vacancies, RealPage would argue, landlords would still be bound by market forces to lower rent in order to hit that occupancy target.
In Berkeley specifically, a report from the Housing Advisory Commission found that six major real estate firms named in lawsuits over RealPage’s software own over 1,300 apartments in the city. The ban on RealPage is set to go into effect on April 24, but RealPage is seeking a temporary restraining order to block it.
While RealPage has leaned heavily on First Amendment arguments, a lot of activities that involve free speech are still illegal. Conspiring to fix prices may involve free speech, but that does not make regulating it illegal.
No matter how this shakes out, landlords should be conscious that they are not held in high regard in the United States, and this software is not doing them any favors.
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