The Division of Justice on Tuesday sued six of the nation’s largest landlords, accusing them of utilizing a pricing algorithm to improperly work collectively to lift rents throughout the nation.

The lawsuit expands an antitrust criticism the division filed in August that accused property administration software-maker RealPage of partaking in unlawful price-fixing to cut back competitors amongst landlords so costs — and income — would soar. Officers performed a two-year investigation into the scheme following a 2022 ProPublica story that confirmed how RealPage was serving to landlords set rents throughout the nation in a manner that authorized consultants mentioned might lead to cartel-like conduct.

Collectively, the six landlords handle greater than 1.3 million flats in 43 states and the District of Columbia. Prosecutors have already negotiated a settlement with one in every of them.

“Whereas People throughout the nation struggled to afford housing, the landlords named in in the present day’s lawsuit shared delicate details about rental costs and used algorithms to coordinate to maintain the worth of hire excessive,” mentioned performing Assistant Legal professional Basic Doha Mekki of the Justice Division’s Antitrust Division. The swimsuit seeks to finish “their apply of placing income over folks” and to make housing extra inexpensive.

The authorized motion is the newest growth to comply with ProPublica’s preliminary investigation. Since 2022, senators have launched laws searching for to ban using hire algorithms just like RealPage’s, and tenants have filed dozens of ongoing federal lawsuits. Cities across the nation, together with San Francisco, Philadelphia and Minneapolis, have additionally moved to bar landlords from utilizing related algorithms to set rents.

RealPage’s well-liked software program was gathering nonpublic pricing data from a number of property managers and feeding it by a typical algorithm, which then beneficial an optimum hire stage to those that used it — in violation of guidelines that prohibit such coordination, federal prosecutors alleged. Additionally they accused the landlords of improperly speaking immediately about their pricing by calls, emails and participation in “consumer group” boards hosted by RealPage.

The corporate pushes landlords to make use of an “auto-accept” characteristic on its software program, authorities mentioned, and makes it onerous for property managers to reject its options.

RealPage Senior Vice President Jennifer Bowcock referred to as the federal case “flawed” and mentioned the corporate is “dedicated to vigorously defending ourselves and our clients towards the DOJ’s accusations.” RealPage has already modified its software program to take away nonpublic knowledge, regardless of its view that its expertise was authorized and “pro-competitive,” she mentioned.

“It’s previous time to cease scapegoating RealPage — and now our clients — for housing affordability issues when the foundation reason for excessive housing prices is the undersupply of housing, which we now have been saying from the start,” she mentioned.

Three of the landlords sued on this week’s motion appeared in ProPublica’s 2022 story, together with the nation’s largest landlord, Greystar, and Camden Property Belief.

Camden CEO Ric Campo informed the information group on the time that the condo market in Houston, the place the corporate is headquartered, was so large and numerous that “it will be arduous to argue there was some form of worth fixing.”

However when Camden adopted the nascent rent-setting expertise in 2006, the corporate discovered that its income grew despite the fact that extra tenants have been transferring out.

“The web impact of driving income and pushing folks out was $10 million in earnings,” Campo informed a commerce publication then. (He later mentioned that quote doesn’t replicate how he or Camden views renters in the present day.)

Neither Campo nor Camden responded to a request for remark.

Greystar, the most important supervisor and proprietor of leases within the U.S., mentioned in a press release that it was “disillusioned” that the Justice Division added the corporate to the swimsuit.

“At no time did Greystar interact in any anti-competitive practices,” the assertion from the South Carolina-based firm mentioned. “We are going to vigorously defend ourselves on this lawsuit.”

ProPublica’s 2022 knowledge evaluation additionally discovered Willow Bridge Property Firm (previously Lincoln Residential) managed dozens of buildings in markets that had seen quick progress in hire. The corporate didn’t instantly reply to a request for remark concerning the Justice Division lawsuit.

One property proprietor and supervisor, Cortland, has already agreed to cease utilizing opponents’ nonpublic knowledge to coach or run pricing fashions underneath a settlement with federal prosecutors. The proposed settlement has been submitted to the courtroom for consideration.

Atlanta-based Cortland manages over 80,000 leases in 13 states. A associated federal legal investigation that led to a Could 2024 search of its headquarters has been closed, a spokesperson mentioned.

The spokesperson mentioned the corporate is “happy” to announce the settlement.

“We consider we have been solely in a position to obtain this end result as a result of Cortland has invested years and important inside assets into growing a proprietary income administration software program software that doesn’t depend on knowledge from exterior, nonpublic sources,” the spokesperson mentioned.

Income administration software program will help landlords handle rents “effectively” and keep away from discrimination, mentioned a spokesperson for defendant Cushman & Wakefield, which additionally owns defendant Pinnacle. The spokesperson mentioned that as a supervisor solely, the corporate doesn’t “set technique, pricing, or occupancy targets,” resolve which software program to make use of, or whether or not to simply accept any software program’s suggestions.

The lawsuit additionally named as a defendant Blackstone’s LivCor. Blackstone didn’t instantly reply to requests for remark.

Along with naming landlords as defendants within the declare, it additionally added the attorneys common of Illinois and Massachusetts as co-plaintiffs, bringing the full variety of collaborating states to 10. The states embody the nation’s most populous — California, which has 17 million renters.

RealPage mentioned that “fewer than 10% of all rental housing items within the U.S. use RealPage software program to counsel rental costs, and our software program suggestions are accepted lower than half the time.”

However a White Home report in December mentioned that quantity could possibly be larger. It mentioned RealPage and census knowledge counsel that as many as 1 in 4 leases nationwide use a RealPage pricing algorithm. And the corporate’s penetration is larger in some markets, it mentioned.

Utilizing fashions of what aggressive markets would seem like, researchers discovered that algorithmic pricing prices renters in items the place it’s used $70 extra a month, or 4% of hire, on common. In six main metro areas, the associated fee exceeds $100 a month, the report discovered.

The report estimated the full added value to renters from using such algorithms in 2023 to be roughly $3.8 billion.

RealPage mentioned that the evaluation is “riddled with flawed assumptions,” and that the White Home by no means contacted the corporate concerning the report.

The destiny of the Justice Division’s lawsuit underneath the incoming administration is unclear. President-elect Donald Trump has nominated Gail Slater, a veteran antitrust lawyer and financial advisor to JD Vance, to guide the division’s antitrust division.