AI-Based Rent Pricing Algorithms Distort Housing Market in the U.S.
Concerns have been raised that AI-based rent pricing algorithms are distorting the housing market in the United States. Analysis suggests that the invisible hand of AI is paralyzing the natural price adjustment mechanisms of the rental market. Some experts argue that this functions as a kind of digital cartel, which is a key factor in the entrenchment of housing cost inflation.
On the 16th of this month, New York became the first state in the U.S. to sign a bill into law prohibiting price-fixing activities using rent pricing algorithms. According to a report by Reuters on the 24th, this legislation aims to curb collusion in rent pricing at the state level. Earlier this month, a collective lawsuit involving tenants across the country resulted in a preliminary settlement of $141 million involving 27 major rental management companies, including the largest in the U.S., Greystar.
A prominent player in the controversial rent pricing algorithm space is RealPage, a U.S. real estate software company. The AI Revenue Management (AIRM) software offered by RealPage has come under scrutiny, with allegations that it is designed not just as an efficiency tool, but in a manner that restricts competition. The White House Council of Economic Advisers (CEA) estimates that one in four (25%) multifamily apartments in the U.S. utilizes this algorithm.
The core driving force of the algorithm is the real-time collection and analysis of confidential and sensitive data obtained from competitors. According to a lawsuit filed by the U.S. Department of Justice (DOJ) in court last year, RealPages software receives internal business information from its clients (landlords) that is typically not shared among competitors. This includes daily data on current and future vacancy rates, actual lease rates, renewal rates, potential tenant visit counts, and rental availability dates for individual units. Last year, the DOJ filed an antitrust lawsuit against RealPage.
The implications of such algorithms on the rental market could be significant, raising questions about fair competition and the sustainability of housing costs. As laws begin to evolve in response to these concerns, the effectiveness of regulations on AI-driven pricing mechanisms will be closely watched.
On the 16th of this month, New York became the first state in the U.S. to sign a bill into law prohibiting price-fixing activities using rent pricing algorithms. According to a report by Reuters on the 24th, this legislation aims to curb collusion in rent pricing at the state level. Earlier this month, a collective lawsuit involving tenants across the country resulted in a preliminary settlement of $141 million involving 27 major rental management companies, including the largest in the U.S., Greystar.
A prominent player in the controversial rent pricing algorithm space is RealPage, a U.S. real estate software company. The AI Revenue Management (AIRM) software offered by RealPage has come under scrutiny, with allegations that it is designed not just as an efficiency tool, but in a manner that restricts competition. The White House Council of Economic Advisers (CEA) estimates that one in four (25%) multifamily apartments in the U.S. utilizes this algorithm.
The core driving force of the algorithm is the real-time collection and analysis of confidential and sensitive data obtained from competitors. According to a lawsuit filed by the U.S. Department of Justice (DOJ) in court last year, RealPages software receives internal business information from its clients (landlords) that is typically not shared among competitors. This includes daily data on current and future vacancy rates, actual lease rates, renewal rates, potential tenant visit counts, and rental availability dates for individual units. Last year, the DOJ filed an antitrust lawsuit against RealPage.
The implications of such algorithms on the rental market could be significant, raising questions about fair competition and the sustainability of housing costs. As laws begin to evolve in response to these concerns, the effectiveness of regulations on AI-driven pricing mechanisms will be closely watched.
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