DOJ targeting AI rental pricing software is misguided, conservatives warn

The Department of Justice (DOJ) on Friday filed a lawsuit against a rental software company that offers an artificial intelligence (AI) tool for landlords to use in assessing rental market prices as they determine what to charge renters.

The DOJ suit alleges that RealPage violated antitrust law by contracting with "competing landlords who agree to share with RealPage nonpublic, competitively sensitive information about their apartment rental rates and other lease terms to train and run RealPage's algorithmic software," which provides recommendations on apartment pricing and terms. It also accused the company of maintaining a monopoly in the market for commercial revenue management software, and the DOJ seeks to "end RealPage's illegal conduct and restore competition for the benefit of renters."

The suit comes as the Biden-Harris administration last month pressed Congress to force corporate landlords to choose between abiding by a 5% cap on rent increases or losing federal tax credits. Vice President Kamala Harris' campaign has also called for a ban on the use of algorithms by rental companies, which her campaign said lets them "collude with each other and jack up rents dramatically."

RealPage has denied those allegations, saying that its software merely advises landlords about whether they should set rent for a given unit higher or lower. It added that it does not encourage them to keep units off the market and only uses nonpublic data in anonymized forms to prevent landlords from getting insights into their competitors' pricing, which the company believes complies with antitrust law. 

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"RealPage’s revenue management software is purposely built to be legally compliant, and we have a history of working constructively with the DOJ to show that," the company told FOX Business in a statement. "In fact, in 2017 when the DOJ granted antitrust clearance for our acquisition of LRO, the DOJ also analyzed extensive information about our revenue management products without objecting to them in any way. We continue to educate the DOJ about our revenue management products, which operate fundamentally the same as they did at the time of that 2017 review."

The company said on its website that its customers "decide their own rent prices, always have 100% discretion to accept or reject software price recommendations, are never punished for declining recommendations, and accept recommendations at widely varying rates that are far lower than has been falsely alleged." 

RealPage also noted that as of May 2023, only 6.7% of rental units nationally used its AI Revenue Management (AIRM) or YieldStar tools, while 3.7% used its Lease Rent Operations.

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Grover Norquist, founder and president of Americans for Tax Reform, criticized the DOJ's investigation of AI rental software companies and told FOX Business that the probe "smells of an effort to set up national rent control, which has been discussed by other parts of the Democratic Party."

Norquist added that the software's suggestion is not compelling landlords or renters to offer or sign leases at the suggested rate.

"Everybody can ignore it, and will, if it doesn't make any sense," he said. "Which is why it's so ridiculous for people whose answer is government-imposed, mandated prices to suggest that when somebody says, 'here's what prices look like right now,' that that's somehow collusion and causing a problem."

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Stephen Moore, a senior visiting fellow in economics at the Heritage Foundation, told FOX Business that consumers use algorithms to determine the best deals for products they're buying, including airfares and lodging, because they are efficient tools to match supply with demand and have value in the housing sector as well.

"What the Department of Justice is saying is that it should be somehow illegal for landlords to use algorithms and software to figure out how much they can charge for their rental units," Moore said. "If that is the case, then we should also outlaw consumers being able to do the same thing. And there are benefits to these algorithms because it matches, in an efficient way, the consumer who values the product the most with the seller who wants to sell the product. In this case, it's a rental apartment."

"Having a really efficient, real-time pricing management system where prices can change moment by moment, just like the price of a stock does, enhances consumer and business welfare at the same time," he added.

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Moore said that addressing inflation and the resulting high interest rates would be a better way to deal with high housing costs.

"The most important thing they could do to lower rental prices is to stop borrowing trillions of dollars a year," Moore said. "Because what's happening is, the reason that rental prices and housing prices are going up is because the mortgage rate has gone way up, it was 3% when Trump left office, and now it's 6.5%, so people are paying twice as high a mortgage payment, and that really significantly deters their ability to afford a new house, or in this case apartment."