Software shouldn’t be allowed to price fix rental housing

The problem, of course, is that what helps landlords hurts renters, who must pay those higher prices.

The US Department of Justice and eight state attorneys general last month filed a civil lawsuit against the Texas-based RealPage accusing the company of violating federal antitrust laws by illegally decreasing competition and obtaining a monopoly for commercial revenue management software. “RealPage replaces competition with coordination,” the complaint states. “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.”

RealPage said in a statement emailed to the editorial board that the DOJ “seeks to scapegoat pro-competitive technology that has been used responsibly for years” and called the lawsuit “devoid of merit” and “a distraction” for policy makers “from the fundamental “economic and political issues” affecting housing affordability. “RealPage’s revenue management software is purposely built to be legally compliant, and we have a long history of working constructively with the DOJ to show that,” the statement said.

Massachusetts, which is not involved in the summer, already has a housing problem. Forbes in April named Boston and Worcester are among the country’s top 25 most competitive rental markets. ApartmentAdvisor last month said Boston was the fourth-most expensive rental market in the United States, with a $3,300 median rent for a two-bedroom apartment. Of a 2023 survey of young Boston area residents by the Greater Boston Chamber of Commerce, 82 percent said the cost of rent was important in deciding how long to stay here. A lack of housing people can afford harms Massachusetts’ ability to attract businesses.

Software that lets landlords collude to push prices higher is the last thing Massachusetts needs.

RealPage’s price recommendation software is not used extensively in Massachusetts, but it is used. According to RealPage, 5.3 percent of the total market of rental units in Massachusetts are priced using the two software products that are the focus of the DOJ complaint. Another product, which has fewer anticompetitive concerns, is used by 3.5 percent of units. The federal complaint lists two markets in Massachusetts where RealPage has agreements with local landlords to share nonpublic pricing information: Chelsea/Revere/Watertown and Western Norfolk County.

The software is used mainly by large companies. US Senators Elizabeth Warren and Ed Markey and US Representative Seth Moulton wrote to 13 corporate landlords that do business in Massachusetts asking whether they use RealPage’s pricing software. Doug Quattrochi, executive director of MassLandlords, which represents small landlords, said of its 2,400 members, only a handful use it.

Attorney General Andrea Campbell’s office would not comment on whether Massachusetts may join the lawsuit. Campbell should consider joining it, if only to make a statement that Massachusetts doesn’t want these practices here.

Landlords have a right to set prices based on publicly available information. That’s what a free market is about.

The problem with RealPage, laid out in the 115-page complaint, is it collects nonpublic information through contracts with landlords — including floor plans, renewal offers, occupancy rates, lease prices, lease terms, and concessions — and uses that in pricing recommendations. The company has also held “user group” meetings, where landlords gathered virtually to discuss policies, including rent increases. (Only after public reporting about the company in 2022 did the organization begin instructing landlords not to discuss confidential information.) As one company client noted, cited in the DOJ lawsuit, that sounds suspiciously like price-fixing.

The software also includes settings designed to keep prices high, according to the complaint. An algorithm develops a range of price recommendations, and the software will sometimes recommend above the range but never below it. The software would recommend that a landlord lease out fewer properties before recommending dropping prices. If a region will see a glut of leases expiring in 12 months, the software might recommend raising the price for a 12-month lease compared to an 11- or 13-month lease to stagger the dates when apartments become available. The software offers features that make it easy for a landlord to accept its price recommendations but hard to reject them. It counsels landlords not to offer discounts.

RealPage says it controls more than 80 percent of the revenue management market for multifamily rentals and effectively has no Competitors because no one has a comparable data trove, according to the case.

As Mass Law Reform Institute housing attorney Mark Martinez put it simply, “It’s a distortion of the market.”

San Francisco recently passed An ordinance banning software that recommends rental pricing based on nonpublic information. In response, RealPage announced users could now remove Competitors’ nonpublic data from price recommendations. Potentially, Boston or other municipalities could take similar actions. But it would be more effective for the court to rule clearly on what practices are anticompetitive and illegal.

Eliminating the use of these software management tools won’t solve Boston’s housing crisis, but it could make a dent in addressing price gouging.

RealPage, according to the complaint, says its goal is to “raise the tide” for all landlords. But it shouldn’t be allowed to use anticompetitive processes to sink tenants with high prices.

Editorials represent the views of the Boston Globe Editorial Board. follow us @GlobeOpinion.