It’s costing tenants billions of dollars every year.
Landlord LiAIson
It turns out that many of the country’s landlords are using the same artificial intelligence tool to jack up your rent.
Packaged as part of the popular property management software RealPage, the AI is nominally intended to give rent price recommendations to landlords.
But as we’ve seen elsewhere, the catch-all term of “AI” can be used to obfuscate what’s really going on under the hood. According to a new report by the White House Council of Economic Advisers (CEA) and covered by Popular Information, the AI tool, called “AI Revenue Management,” is being used to facilitate collusion between these proprietors, allowing them to inflate rental prices by a total of more than $3.8 billion every year.
This, the CEA argues in its report, and the Department of Justice alleges in its lawsuit against RealPage, is a form of “price coordination” — which is illegal.
Joint Effort
According to the CEA report, nearly 1 in every 4 multifamily rental properties use a RealPage pricing algorithm.
In some municipalities like Atlanta and Denver, that proportion is higher than 50 percent, where the price increase caused by landlords using the RealPage AI is as high as $181 per month.
When competitors in a market explicitly agree to set a price for a type of good or service, that’s price fixing. The practice is federally outlawed by the Sherman Act, because it’s considered an anti-competitive move that leads to higher costs for consumers.
The RealPages AI works as a price fixer for “landlords collectively,” the CEA argues, because its algorithm “will recommend prices that are higher than the profit-maximizing price each landlord would set independently.”
In effect, the AI lets landlords act as a cartel without ever needing to directly communicate, thus making price-fixing difficult to prove.
House Always Wins
As Popular Information notes, RealPages argued in response to the DOJ lawsuit that it can’t be accused of facilitating price coordination because customers “always have 100 percent discretion to accept or reject software price recommendations.”
A separate class action suit against the software maker, however, presents evidence that RealPage and its landlord clients “have established a rigorous monitoring and compliance system to ensure cartel members adhere to RealPage [AI-optimized] pricing,” as quoted by Popular Information.
The CEA report concludes that the true cost of the AI-set rent prices is likely much higher than the $3.8 billion figure, because its calculations only accounted for the inflated costs by landlords that directly used RealPage’s tool. Other landlords not part of the group using the AI recommendations could raise their prices in response to their competitors.
“Regardless, our estimate indicates that eliminating this cost would meaningfully decrease price mark-ups for rental housing across the country,” the report reads.
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