I would say that we’re entering an era where AI and algorithms will increasingly shape not just our personal preferences and hobbies, but also crucial areas such as employment and inflation, the latter being one of the most important macroeconomics variables of our time. While this may bring positive outcomes, there are also potential drawbacks. In the U.S., for instance, there has been a persistent issue with rising rental prices, even during periods of low demand. It appears that this trend is linked to artificial intelligence.
The worst part. The software company RealPage is facing multiple lawsuits, including a significant antitrust case in Tennessee. The company allegedly worked with at least 21 major landlords and institutional investors–comprising 70% of multi-family apartment buildings and 16 million units across the country–to systematically increase rental prices.
Algorithmic pricing. Companies use “dynamic pricing” to customize prices based on user data. This means that the price of a product is no longer solely based on its cost, but is instead determined by estimating what a person is willing to pay for it. This practice is used in various industries, and it has recently been identified that algorithmic pricing is also being utilized in the U.S. rental market.
Investigating RealPage. In 2022, ProPublica conducted an investigation into RealPage. They found that landlords almost always followed the company’s algorithm-generated suggestions to raise rents. In November 2023, the Washington, D.C. attorney general filed a lawsuit against RealPage and 14 landlords who collectively managed over 50,000 apartments in the U.S. capital.
This marked the first time the software company was referred to as a “housing cartel.” For its part, RealPage argued that its management products use aggregated and anonymized data to offer price recommendations for around 4.5 million housing units across the country. The company claimed that its tools could help increase homeowners’ income by 2% to 7%.
Yieldstar. This is the codename for RealPage’s algorithms and is one of three key revenue management tools offered by the company. The software is supposedly designed to balance pricing, occupancy, and lease length to help property managers optimize the performance of their portfolio. RealPage then utilizes data from its models in a tool called “AIRM,” which considers the impact of credit, marketing, and leasing efficiency.
RealPage explains that its owner clients aren’t obligated to accept its pricing suggestions. The company charges a flat fee for each unit managed with its software and was acquired by the private equity firm Thoma Bravo in 2021.
Second lawsuit. In February 2024, a group of tenants in a New Jersey building filed a lawsuit alleging that their landlords were using software to generate inflated rent increases. They claimed that management began significantly raising prices after providing concessions to tenants during the pandemic. The tenants learned about how revenue management software works in real estate after reading ProPublica’s investigation.
Cortland scandal. Recently, the FBI entered the headquarters of real estate giant Cortland Management, a corporation that manages 85,000 rental homes in 13 states and is owned by Thoma Bravo. Cortland is believed to be connected to algorithmic manipulation with RealPage.
This recent police action highlighted RealPage’s practices of raising rents by coordinating landlords’ pricing decisions and keeping apartments off the market.
May the rent not go down. According to Matt Stoller, director of research at the American Economic Liberties Project, large corporate landlords have been collaborating rather than competing for tenants since 2016.
How? They started sharing “real-time data regarding pricing, inventory, occupancy rates, and unit types that are or will be coming available to rent” using RealPage’s revenue management system. At the same time, RealPage was sending landlords pricing recommendations. From then on, they landlords followed RealPage’s pricing recommendations around 80-90% of the time, leading to increased revenue by keeping apartments off the market.
The recent scandal involving Cortland is particularly significant given that it operates in Atlanta, where software determines 81% of multi-family rental unit prices. City rents have increased dramatically in Atlanta since 2016, aligning with the practices of other large corporate landlords.
Unmasking the FBI. Interestingly, Stoller also mentions the FBI’s role in all this. Although the FBI historically has played a major role in antitrust investigations, its activity in this area has decreased significantly since the early 2000s.
Algorithmic pricing beyond the housing market. Earlier this month, Esteban Hernández, a reporter at Spanish outlet El Confidencial, wrote about the use of technology in rental prices. In macroeconomic terms, companies have been trying to increase profit margins for some time. After the pandemic led to job losses and wage cuts, companies sought to raise margins and prices using algorithms to generate (more) profits.
The rental scandal in the U.S. isn’t an isolated event. It's a practice companies have been employing in other countries and industries. For instance, Bloomberg editor Joe Wiesenthal recently highlighted how the U.S. airline industry relies on data from a company that collects flight ticket price data. This allows subscribing companies to adjust their prices in real-time.
However, this trend isn’t limited to the airline industry. The meat industry has its own system, too. In this case, Agri Stats collects data from meat packers to inform its “subscribers” about their competitors’ activities in the market, enabling them to raise prices accordingly. This practice extends to numerous online retailers as well.
Image | Blake Bolinger | Pexels | RealPage
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