The New Housing Inflation Scapegoat

Biden’s antitrust cops spy conspiracy in a price discovery tool

WSJ editorial. 

"Meet the Biden Administration’s latest inflation scapegoat: Artificial intelligence. Seriously. The Justice Department is suing software developer RealPage for allegedly conspiring to fix rents with AI models that help landlords estimate market rates. 

Soaring rents are squeezing Americans and have outpaced overall inflation. Rents on average have increased by some 25% since the start of the pandemic and even more in regions with fast-growing populations such as Miami and Phoenix. The Biden antitrust cops smell a conspiracy.

“The modern machinery of algorithms and A.I. can be even more effective than the smoke-filled rooms of the past,” declared assistant AG for antitrust Jonathan Kanter at a press conference unveiling charges against RealPage. This is the first major lawsuit by the U.S. government to allege that algorithms or AI models violate antitrust laws.

Justice claims RealPage enables landlords to conspire to raise rents. In reality, RealPage’s tools resemble technologies that many businesses use to adjust prices based on changes in customer demand, market supply and competitor prices. Such algorithms improve price discovery and make markets more efficient.

RealPage gathers data from landlords about apartment vacancy rates, predicted future occupancy, rental prices, executed leases and their terms. It trains an AI model on this data to suggest rents to landlords that reflect market conditions to maximize their income. Charging too much can result in vacancies. Charging too little leaves money on the table.

As the lawsuit notes, RealPage does what landlords already do but with more accuracy. “Landlords regularly solicit and obtain nonpublic information about inquiries by prospective renters, occupancy, and rents from their direct competitors,” Justice notes, including weekly phone calls, emails, in-person visits, Google Drive documents and other intermediaries.

But Justice says RealPage goes over the antitrust line by collecting and sharing information for landlords. Instead of calling up other landlords or reviewing websites like Zillow to determine what apartments are leasing for, landlords can pay RealPage for a more accurate estimate of what a particular apartment will rent for based on its characteristics.

Justice says “landlords are therefore joining together in a way that deprives the market of fully independent centers of decision-making on pricing.” Well, no. Landlords are still independently deciding rents regardless of the recommendations from RealPage’s models.

In a typical price-fixing scheme, sellers conspire to increase prices above market rates. Instead, RealPage is merely helping landlords ascertain market rates. It isn’t directing landlords to raise rents. Its technology doesn’t have the penetration in most real estate markets to fix rents anyway.

RealPage collects information on about 16 million of the 50 million or so rental units nationwide. But only landlords with about three million units use its tools. Justice says RealPage’s penetration in some “submarkets” can range from 29% to more than 60%. But the government doesn’t furnish evidence that rents have increased more in those markets.

Justice is asking the federal court to enjoin RealPage from continuing its “anticompetitive practices,” which would effectively mean dismantling its business. One ironic result could be higher rents since landlords may be slower to respond to easing market conditions in areas with growing supply.

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What’s really going on here is an attempt to distract voters from frustration over the Biden Administration’s inflationary policies. “Some corporate landlords collude with each other to set artificially high rental prices, often using algorithms in price-fixing software to do it,” Kamala Harris pronounced last month.

It doesn’t require a Ph.D. in economics to understand that ballooning rents are caused by demand exceeding supply. Higher interest rates have caused more Americans to rent while local government zoning and rent controls restrict supply. Landlords are also passing on higher insurance and maintenance costs.

As usual, politicians blame businesses rather than fix their own misguided policies."