Rent Algorithms Under Scrutiny: A Shift in the Housing Market?

The Department of Justice (DOJ) recently announced a settlement with RealPage, a software company accused of using a rent-setting algorithm that stifled competition and inflated rental prices. It’s a headline grabbing move, and it looks like a win for renters. Landlords will no longer lean on this technology to silently shadow each other’s pricing moves. But, the real story is more complex than a simple victory.

At its core, this case revolves around the potential for algorithmic collusion. The argument goes like this: RealPage’s software, with access to a massive amount of confidential data, essentially whispers pricing suggestions to landlords, pushing rents higher than they would be in a truly competitive market. The DOJ seems to think that’s what went down, with antitrust chief Gail Slater stating RealPage replaced competition with coordination, and renters bore the cost.
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The settlement itself is interesting. RealPage doesn’t have to admit wrongdoing or pay damages. Instead, they agree to change how they use data. They can only use non-public data that is at least a year old for price recommendations. The DOJ sees this as injecting more genuine competition into local housing markets, letting the market dictate rents.

Yet, the company paints a different picture. RealPage’s attorney argues there has been misinformation surrounding their software and its purpose. They assert the algorithm has historically led to lower rents, reduced vacancies, and more pro-competitive results by using aggregated, anonymized data. It’s a claim that directly contradicts the DOJ’s assertions, creating a clear tension in how this situation is being framed.

It’s worth noting that RealPage software provides daily recommendations to landlords nationwide on pricing available apartments. While landlords don’t have to follow the suggestions, critics argue that because the software has access to a treasure trove of confidential data, it helps RealPage’s clients charge the highest possible rent.
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Several property management companies already reached settlements regarding their use of RealPage. This includes a hefty $50 million settlement from Greystar, the nation’s largest landlord, and another $7 million to settle a lawsuit filed by nine states. The trend implies there is wider acknowledgement of misdoing that has driven the DOJ investigation.

Adding fuel to the fire, California and New York recently enacted laws targeting rent-setting software, and other cities like Philadelphia and Seattle are following suit. Ten states, though not part of Monday’s settlement, have joined the DOJ’s antitrust lawsuit.

From my perspective, this situation isn’t black and white. The real estate industry is incredibly data-driven, and algorithms are increasingly used to optimize pricing. The line between legitimate market analysis and anti-competitive behavior can be blurry.

Is RealPage intentionally manipulating the market? It’s hard to say definitively. The software likely identifies trends and opportunities that individual landlords might miss. This could lead to higher rents, but it could also lead to more efficient use of resources and reduced vacancies, as RealPage claims.

Still, the concentration of so much data in one company’s hands raises legitimate concerns. The potential for abuse is certainly there, even if it’s not intentional. The risk increases with the integration of AI, which elevates these algorithms.

Here’s what’s really at stake: access to affordable housing. Rent is a major expense for many people, and even small increases can have a significant impact. If algorithms are contributing to rent inflation, it’s a serious problem.

This settlement is a step in the right direction, but it’s not a complete solution. The one-year-old data restriction will change the dynamics, although how meaningfully it will reduce rent inflation remains an open question.

Ultimately, the industry must embrace greater transparency and accountability in its use of algorithms. The public needs to understand how these technologies work and how they impact rental prices. Landlords should prioritize their tenants, not just profit.

This situation underscores the ongoing tension between innovation, market efficiency, and fair pricing. It’s a delicate balance, and one that requires continuous scrutiny as technology evolves. The RealPage case may be a turning point, pushing the industry to rethink its approach to data and pricing strategies. The future of rent pricing might very well depend on it.

It will be interesting to observe how quickly other rental companies pivot their strategy. They must innovate while avoiding anti-trust violations.

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Keywords: Rent algorithms, RealPage, rent inflation, DOJ settlement, algorithmic collusion, housing market, rent-setting software, antitrust lawsuit