The Department of Justice (DOJ) recently lobbed an amended complaint related to its case against software maker RealPage into public discourse. Leading economists, legal specialists, technology experts and national media have outlined the litany of shortcomings with the DOJ’s initial probe. Rational minds might even say the lawsuit isn’t really about the law.
The story began as a Democrat-led effort to explain away the nation’s housing affordability crisis…but software isn’t responsible for the shortage of 4.5 million homes in America.
Ironically, cities like San Francisco and Philadelphia have recently passed legislation to outlaw algorithmic pricing tools for rental units, but it’s these types of regulations that discourage housing development, which drives up rental pricing. The National Association of Homebuilders estimates that regulations imposed by government at all levels account for more than 30% of the cost of a typical multifamily development. It takes longer and costs more to construct homes in San Francisco than anywhere else in the United States, due to onerous building restrictions and requirements. It’s no surprise then that San Francisco’s cost of housing is 71% higher than the national average.
Rent prices have jumped by an estimated 30.4% nationwide between 2019 and 2023, while wages during that same period rose 20.2%. Yes, there is a real housing affordability crisis, but the bullseye has been placed on the wrong target. New York City, where RealPage’s software has a penetration rate of just 1.4%, has the highest rents in the country. Why? Lack of supply.
"New multifamily buildings coming online have eased competitive pressure in many markets, but in New York City, construction just simply can't keep up with demand," says StreetEasy Senior Economist Kenny Lee.
Buying a home has been pushed out of reach for so many people in America due to prices climbing 47% since 2020. As a result, overwhelming demand for rental units has become a challenge nationwide, and affordability has plummeted with demand far outpacing supply.
Reflecting the market is much different than controlling the market, and there is little to suggest that RealPage is capable of the latter. Fewer than 10 percent of all rental housing units in the US use its software to generate rental price recommendations, according to the company.
It’s quite telling that even the Washington Post admits, “In Austin’s metro area, roughly 46 percent of multifamily units are controlled by property companies listed as co-defendants in the RealPage suits, the highest rate in the country. But rents in Travis County, where Austin is, have dropped more than 4 percent in the past year as new buildings have opened their doors.” According to Rent.com’s December 2024 Rent Report, the article should read “dropped by 16.3% in the past year.”
As the Trump administration sets its sights on home affordability and lessons learned from Austin, Scott Turner, a Texas State Representative has emerged as the nominee to lead the Department of Housing and Urban Development (HUD). In testimony to Congress, Turner expressed bewilderment by the nation’s failure to build enough homes and set his sights on solutions to tackle obstacles in home construction: “What I want to do is combat anything that raises the cost of housing, be it the cost of construction, be it fees, regulatory burdens,” Turner said. “That's what I'm focused on.”
In responding to Turner’s statements, even Sen. Elizabeth Warren (D-MA) concurred, “This is Econ 101, supply and demand. We are not building enough housing. We need more housing everywhere, for everyone.”
Instead, the DOJ now resorting to accusing landlords of colluding with one another – separate from use of RealPage’s revenue management software – suggests that the agency realizes that its claims of price-setting by algorithm are flimsy, at best. Essentially, the DOJ is augmenting the lawsuit, which was initially targeted at the innerworkings of software, by shifting the goalposts entirely.
Of course, landlords are going to engage in price discovery and, in the 21st century, that includes outsourcing the math to software programs that calculate rent estimates based on comparables. So, why did the Biden administration add this major escalation of a hollow lawsuit to its list of eyebrow-raising actions in the waning days of its reign? The answer may be that scorched earth is the true goal.
Rather than wasting resources on the DOJ’s reinvented case, let’s hope that America’s leaders end this baseless inquiry into housing data analysis, and instead focus on fast-tracking construction of badly needed affordable housing.
Charles Sauer is the president of the Market Institute.