Use of Algorithm to Inflate Rent Amid Housing Crisis Raises Eyebrows in US Senate

From the reels that are suggested on Instagram to ads which pop up on websites and social media platforms, everything in the digital age is driven by algorithms that are constantly crunching data. A recent ProPublica investigation has brought to light an increase in the use of algorithms by landlords in setting rent prices, a practice that could be inflating rental costs and impacting housing supply. A software developed by Texas-based RealPage gathers proprietary data from various landlords and processes it through an algorithm, subsequently recommending what rents they should charge.

This revelation has led to serious concerns about the potential for price-fixing and manipulation in the rental housing market.

RealPage's software is not limited to a handful of landlords. In major cities like Seattle, the investigation found that nearly every property manager overseeing multi-family apartments in certain neighborhoods used this software. The software’s recommendations, although not mandatory, could lead to uniform pricing strategies among competing landlords, effectively reducing competition and possibly leading to higher rents for tenants.

In response to these findings, a group of US senators, including Ron Wyden (D-Ore.), Peter Welch (Vt.), and Amy Klobuchar (Minn.), have taken legislative action. They are sponsoring a bill that aims to make the use of such software for setting rent prices illegal, categorizing it as a form of algorithmic price fixing. Sen. Wyden equated this practice with traditional, secretive forms of price-fixing, arguing that using technology does not make it any less of a collision. The proposed law seeks to bring clarity and modernization to antitrust laws.

The ripple effect of the ProPublica report was significant, leading to a flurry of legal activity. Tenants across the nation filed numerous lawsuits against their landlords, accusing them of violating antitrust laws. These cases gained further legitimacy when the Department of Justice supported the tenants' stance. The accused along with RealPage, have consistently denied these allegations, arguing that the plaintiffs have not provided direct evidence of a conspiracy.

The Preventing the Algorithmic Facilitation of Rental Housing Cartels Act, as the proposed legislation is known, goes beyond just making the use of rent-setting algorithms illegal. It aims to comprehensively address potential collusive behavior in the housing market. This includes prohibiting mergers between companies like RealPage and Yardi, which could further consolidate control over housing market data and exacerbate market manipulation.

Housing advocates, like Diane Yentel from the National Low Income Housing Coalition, put stress on the significance of this legislation. In a housing market already strained with rising rents and increasing homelessness, this law could be a critical tool in preventing predatory pricing strategies and maintaining fair competition.

If passed, this legislation could set a precedent for how technology is used in setting prices, not just in the housing market but potentially in other areas as well. Landlords and property management companies may need to reassess their pricing strategies, potentially leading to a more transparent and competitive rental market. For tenants, this could mean fairer pricing and more options. However, the bill's implications will depend on the final form it takes and its enforcement.