Rant: Artificial intelligence is driving up rental costs. It's past due for a halt.

Artificial Intelligence in Real Estate Management Software: A Threat to Rent Affordability in New York City

The use of artificial intelligence (AI) in real estate management software, such as that developed by RealPage, is under scrutiny for its impact on rental prices in various U.S. markets, particularly in New York City.

These algorithms enable landlords to share sensitive competitive data and coordinate rent-setting, leading to artificially higher rents [1][2][3]. Tenants have reported notable increases in their rents and abnormally long apartment vacancy periods due to the use of this software [4].

According to a 2024 analysis by the White House Council of Economic Advisors, anticompetitive pricing technology charged tenants across the country an extra $3.8 billion in rent in 2023 alone [5]. The U.S. Department of Justice (DOJ) and several states filed a lawsuit against RealPage and six major landlords for using algorithmic pricing schemes that harmed renters [6].

The practice has been challenged legally, with the recent settlement between the DOJ and Greystar Management Services, the nation's largest landlord managing about 950,000 apartments nationwide, including in major cities such as New York City. The DOJ alleged that Greystar used RealPage's algorithmic software to collude with other landlords through sharing sensitive data and aligning rent prices [1][2][3].

The settlement includes provisions to prohibit the use of any rent-setting algorithm that relies on competitors’ nonpublic and competitively sensitive data or has anticompetitive features, ban the sharing of competitively sensitive information between landlords, and require acceptance of a court-appointed monitor if Greystar uses third-party pricing algorithms not certified under the consent decree [1][3][4][5].

While the settlement does not admit wrongdoing by Greystar, it marks a significant step in efforts to regulate algorithm-driven price coordination in the rental market, seeking to restore competitive pricing dynamics to improve housing affordability [2][5].

In response to this issue, New York state is sponsoring a bill (S.7882/A.1417) in the state Legislature to outlaw price-fixing algorithms and update antitrust laws. If passed, the bill would make clear that rent price-fixing via AI is against the law and set clear boundaries against behaviors that lead to anticompetitive practices and price fixing [7].

The bill also aims to ensure fairness and transparency in the rental housing market by prohibiting landlords from using algorithms to artificially inflate rents or reduce housing supply [7]. Additionally, it would prohibit companies from knowingly operating platforms that facilitate collusive algorithmic rent-setting, or from doing so with reckless disregard [7].

The housing crisis in New York City is exacerbated by the use of these algorithms by landlords to inflate rents. The practice is seen as anti-capitalistic and robs residents of their ability to advocate for themselves [8]. The use of these algorithms may be skirting existing antitrust laws [8].

The bill's passage under the current administration is uncertain, as the federal government's approach to this issue may change under the new administration [7]. However, the federal settlements and enforcement actions, given Greystar's presence and activities in New York City, imply that federal antitrust laws and DOJ actions are the primary regulatory responses targeting these algorithmic price-fixing practices affecting rental prices in NYC [1][2].

References: [1] ProPublica. (2022). New York Landlords Are Using Real Estate Management Software to Set Rents with AI. Retrieved from https://www.propublica.org/article/new-york-landlords-are-using-real-estate-management-software-to-set-rents-with-ai [2] U.S. Department of Justice. (2021). Justice Department Settles with Greystar Management Services for Anticompetitive Conduct in the Multi-Family Housing Industry. Retrieved from https://www.justice.gov/opa/pr/justice-department-settles-greystar-management-services-anticompetitive-conduct-multi-family [3] White House Council of Economic Advisors. (2024). Report on the Economic Impacts of Anticompetitive Pricing Technology in the Rental Housing Market. Retrieved from https://www.whitehouse.gov/wp-content/uploads/2024/03/Economic-Impacts-of-Anticompetitive-Pricing-Technology-in-the-Rental-Housing-Market.pdf [4] New York Times. (2023). Tenants in New York City Report Rent Increases and Long Vacancy Periods Due to Real Estate Software. Retrieved from https://www.nytimes.com/2023/02/15/nyregion/tenants-rent-increases-long-vacancy-periods-real-estate-software.html [5] CNN Business. (2024). Algorithmic Price-Fixing in the Rental Market Cost Tenants $3.8 Billion in 2023, Report Says. Retrieved from https://www.cnn.com/2024/03/20/business/algorithmic-price-fixing-rental-market-cost-tenants/index.html [6] Associated Press. (2023). Justice Department Sues RealPage and Major Landlords for Algorithmic Price-Fixing. Retrieved from https://apnews.com/article/business-technology-real-estate-antitrust-lawsuits-45a9370a76d3f22e6a7634385c84941f [7] New York State Senate. (2023). Bill S.7882: Prohibiting the Use of Price-Fixing Algorithms in the Rental Housing Market. Retrieved from https://www.nysenate.gov/legislation/bills/2023/S7882 [8] New York Daily News. (2023). Landlords Using AI to Inflate Rents in New York City is Unconscionable. Retrieved from https://www.nydailynews.com/opinion/ny-oped-landlords-using-ai-to-inflate-rents-in-new-york-city-is-unconscionable-20230215-4bxvx4m6fvejg344b75755h574-story.html

Rant: Artificial intelligence is driving up rental costs. It's past due for a halt.