A lawsuit has been filed by RealPage against the city of Berkeley, California, in response to its recent ban on the use of algorithms to determine apartment rental prices. The lawsuit claims that the ordinance, which was passed in March, constitutes a “sweeping and unconstitutional ban on lawful speech” and violates the First Amendment’s prohibition on content-based restrictions.

RealPage, a company that has faced controversy and been likened to a cartel by some lawmakers in the US, provides landlords with an algorithm that can maximize their revenue by analyzing a customer’s properties and nearby rental data to suggest optimal pricing. Critics argue that this practice amounts to illegal price-fixing, with the Department of Justice, under former President Joe Biden, filing a civil antitrust suit against RealPage last year. The suit alleged that RealPage’s price recommendations, which are based on rivals’ pricing information, decrease competition amongst landlords and control 80% of the market for commercial revenue management software.

Data compiled by the Department of Justice revealed that in regions where RealPage software is prevalent, rents have increased at a higher rate than the national average. While it is challenging to quantify the exact impact of RealPage’s software on these increases, the Justice Department cited statements made by RealPage executives, which suggest that the product is designed to maximize revenue. The executives stated, “There is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.”

Proponents of the “abundance” or YIMBY movements argue that deregulating the housing market will lead to lower rental prices. However, developing new properties in states like California is often a slow and arduous process, with new apartment buildings frequently being targeted by NIMBY groups using environmental laws to hinder development.

A common principle in business is that companies should avoid participating in price wars. RealPage’s comments suggest that the company adheres to this logic, although it denies engaging in illegal collusion. The company claims that landlords accept its suggestions less than 50% of the time and believes that Berkeley’s ban is unfair. According to RealPage, the primary issue is a severe lack of housing supply.

The Justice Department cited an instance where RealPage suggested that a landlord could increase rent by 7% by decreasing their occupancy rate from 97% to 95%. However, in a market with high vacancies, RealPage argues that landlords would still be bound by market forces to lower rent in order to meet their occupancy targets.

In Berkeley, a report by the Housing Advisory Commission found that six major real estate firms, which have been named in lawsuits over RealPage’s software, own over 1,300 apartments in the city. The ban on RealPage is set to take effect on April 24, but the company is seeking a temporary restraining order to block it.

While RealPage has relied heavily on First Amendment arguments, many activities that involve free speech are still illegal. Conspiring to fix prices may involve free speech, but that does not make regulating it illegal.

Ultimately, landlords should be aware that they are not widely regarded favorably in the US, and the use of this software is unlikely to improve their reputation.