Saving Us From Scheming Landlords? Biden DOJ Sues Real Estate Tech Company RealPage

In its continuing frenzy to see anticompetitive behavior behind every bush — and then apply the wrong remedies — the Biden Department of Justice recently sued RealPage, a technology company that helps landlords determine how much to charge in rent. 

On the face of it, RealPage is one of the many new tools offered by modern technology. It aggregates national data with landlord data and suggests a figure for rent. However, while RealPage makes it easy for landlords to accept a suggestion, it makes it cumbersome to reject one (which the Department of Justice is calling price-fixing and collusion). (READ MORE: The Most Important Question Harris Can’t Answer)

The DOJ lawsuit claims that “in a free market,… landlords would… be competing independently to attract renters based on pricing, discounts, concessions, lease terms, and other dimensions of apartment leasing.” RealPage, it alleges, has decreased “competition among landlords in apartment pricing and [monopolized] the market for [software] that landlords use to price apartments.” According to the DOJ’s invocation of the Sherman Antitrust Act, “RealPage uses this scheme and its substantial data trove to maintain a monopoly in the market for commercial revenue management software.”

As usual, in its misguided zeal to increase competition in all the wrong ways, this latest slice of Bidenomics neglects several key factors.

The Government Has Itself to Blame for Increased Rent, Not RealPage

First, the average rent has indeed increased by more than 50 percent in the past decade. But prices in general have increased by more than 30 percent in that same time. Comparing these figures reveals that rental increases are real, but the magnitude is not as severe as the DOJ alleges.

Second, rental increases are largely due to federal intervention in the first place. The late economist Steve Horwitz liked to point out that, after adjusting for inflation, the price of just about everything has fallen in the past 50 years. Take computers, which went from luxury to commonplace in 40 years. In 1983, an Apple IIe computer cost $6,300 (in 2024 dollars) for 64KB of computing power; today, one can buy an entry-level 32GB computer for less than $300. Last century, food expenditures represented 33 percent of average household income. In the past 50 years, they have fallen from 15 percent to 9 percent.  

Three sectors of the economy remain stubbornly immune to the widespread price decreases from increased productivity and better technology: education, healthcare, and housing. Of course, these are three of the most highly regulated, subsidized, and government-directed sectors of the economy. If the Biden/Harris administration were serious about fostering competition in housing and lowering prices, it would examine zoning laws that prevent new construction, subsidies (from federal mortgage assistance to the mortgage interest deduction) that drive up prices, and a bevy of other interventions. (READ MORE: Welcome to the Permission-Slip Economy)

The result of these regulations is clear: a glaring underproduction of housing. In fact, the housing advocacy group, Up for Growth, estimated that this is as high as 3.9 million missing homes, affecting all 50 states and Washington, DC. By preventing the construction of new housing, policymakers are inadvertently causing increased prices for both rental properties and housing.

If the Biden/Harris administration wants to lower housing prices, the only real solution is to make it easier for construction companies to build more housing, a point that even Barack Obama made during his speech at the Democratic National Convention. Trying to lower prices through increased regulation is like trying to put out a fire with gasoline.

Antitrust Policy: A Solution in Search of a Problem

In any transaction, there are both buyers and sellers. While economists often assume that both sides have “full and complete information,” this rarely holds in the real world. Often, one side of the exchange has better and more information than the other. These information asymmetries are often cited as justification for government action. In the case of RealPage, the supply side (the landlords) allegedly has much more information than the demand side (tenants) and thus has stronger bargaining power.  

That may have been the case 40 years ago, but in a world that is deeply connected by the internet, this seems unlikely. As Peter Boettke and Mark Steckbeck argue, reputations matter in today’s society far more than they ever have and are far more communicable than ever before. The rise of websites such as Zillow, Trulia, and a dozen others shows that information, both about market prices and landlord reputations, has grown on both sides. Because of this, even if landlords enjoy an advantage in the sense of understanding the market for rental properties better than prospective tenants, tenants can quickly and accurately discover which landlords treat their tenants fairly and honorably and which do not. Because of this, the ability of landlords to dictate monopolistic prices to tenants is undermined severely.

Problems arise in the application of antitrust policies to market phenomena. In any instance, the result is always the same: less innovation. In the case of the housing and rental properties, this would be disastrous.

First, it shields existing firms from the competition of new entry. In this case, RealPage is yet another algorithm-based entity that attempts to determine fair market value for a rental property. A quick search online reveals that Zillow.com, Rentometer.com, RentCafe.com, Apartments.com, Rentcast.com, and RedFin.com all provide nearly the same service, with plenty of additional websites not listed here.

Second, the true innovation of these services, RealPage included, is much more consumer-friendly than has been alleged. In a new paper by Sophie Calder-Wang and Gi Heung Kim of the Wharton School of Business, algorithmic pricing “helps building managers set prices that are more responsive to market conditions.” What they found by studying the Seattle rental market is that property management companies that used AI tools were quicker to “[lower] rents during the [economic] downturn and [to increase] rents during the upturn.” The result is that occupancy rates remained higher among properties that used AI tools to help set prices than those that did not. Higher occupancy rates mean fewer properties went unused and more people were in housing, not less.

Third, by allowing rental prices to rise, homebuilders are incentivized to build more homes. Rising prices, especially prices that rise faster than inflation, reveal that there are more potential buyers than the current market can serve. This impels producers to increase production and invites new entry into the market, further increasing availability. In the case of housing, however, this is prevented by restrictive zoning laws and NIMBYism. (READ MORE: Trump and the Kennedys for Tax Cuts, Kamala Not)

In addition to the problems antitrust policies create after implementation, there are also problems in deciding when to apply them. The telltale sign of alleged anticompetitive behavior is prices, specifically rising prices. But this should seem strange. In other contexts, producers charging a price that is too low is considered illegal because of anti-dumping laws.

While these are usually applied in the context of international trade, the same logic has been applied to domestic firms as well, with regulators seeking to punish large firms such as Walmart and Target for destroying small, locally owned mom-and-pop shops through undercutting their competitors’ prices. Likewise, charging a price that is identical or near-identical to one’s competitors is seen as evidence of potential collusive activity. As a result, sellers are faced with the possibility of being subject to the ire of regulators no matter what they do. If they price too low, they can be accused of anti-competitive behavior; if they price the same as their competitors they could face charges of collusion; if they price too high they could be charged with being a monopoly and prosecuted under antitrust legislation.  

Finally, there is the difficulty of defining a monopoly. At its root, it is a simple term to define: a market condition where there is but one seller of a good in question. But the real world is full of nuance. For example, consider the simple question: is McDonald’s a monopoly? At first blush, the answer appears to be a resounding “no,” as one can come up with a myriad of alternative fast food options. But if we consider the fact that McDonald’s is the only seller of “Big Macs” in the entire world, suddenly the question becomes much less clear. Because of this, defining the good in question is paramount for any antitrust case.

In determining when to apply the standards of antitrust legislation, regulators often refer to the “Potter Standard” of “I know it when I see it.” The problem is that different people see the world differently. What looks like anticompetitive behavior to one person might reasonably look like perfectly innocent, competitive behavior to another. As a result, charges brought against companies are often politically charged, reflecting an underlying crony capitalist sentiment.

Greed As the Solution?

In an ironic twist that only the likes of Michael Douglas’s 1987 character, Gordon Gekko could appreciate, where greed may be the impetus behind alleged collusions, greed is also the collusion’s undoing!

Consumers are not mindless automatons, simply obeying the orders of malicious sellers. They actively seek out the best deals for their purchases because doing so helps to stretch their dollars further. This is true in a world coming off record inflation, where prices for all goods and services have risen dramatically, and is especially true for purchases that represent a greater share of one’s monthly income. Rent is frequently one of the most expensive items in any monthly budget and as such, consumers are very responsive to changes in price especially when they have more than one option.

Imagine a town with two landlords in it, each looking to rent identical apartments. If they both agree to raise rent, then potential tenants might be in trouble. But this sort of collectivist thinking pits landlords against tenants. It does not address that landlords are also pitted against one another. If both landlords greedily agree with one another to raise rents, but only one of them does so, the landlord who does not raise rent would enjoy a significant advantage in attracting new tenants. Seeing this, the landlord who greedily raised rents would be forced to lower them back to the pre-collusion level — lest he attract virtually zero new tenants. Because of this, greed may be the source of collusion in the first place, but greed is also the collusion’s undoing.

If policymakers are serious about helping people get into homes, they need to stop approaching the problem as if it were one of insufficient funds on the part of potential renters or excessive prices on the part of landlords.  The problem is one of supply. Plain and simple.

By allowing prices in areas with high demand for rental properties to rise, investors are informed that there is money to be made in providing new, affordable housing in precisely these areas. While investors may be receiving such signals, further interventions in the housing market are preventing them from acting on this information and building more housing.

The U.S. housing market doesn’t need an antitrust lawsuit. Instead of hurting markets even more, policymakers need to stop meddling. They need to cut regulations for new housing permits and end subsidies to buyers. They need to allow more space to be freed up to build housing by eliminating or severely curtailing exclusionary zoning laws. In short, they need to allow markets more freedom.

David Hebert is a Senior Research Fellow with the American Institute for Economic Research. Nikolai Wenzel is a Professor of Economics at Universidad de las Hespérides and an Associate Research Faculty Member at the American Institute for Economic Research.

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