Landlords Are Leveraging AI to Hike Rents

In recent years, many landlords have turned to a single software provider to determine rental prices, a practice that has contributed to widespread rent hikes. Federal prosecutors have labeled this as an "illegal information-sharing scheme," prompting action from some lawmakers in California to curb the practice. The president of the San Diego City Council has proposed a ban on the use of this pricing service by local apartment owners, arguing that it is driving up housing costs in the area.

San Francisco has already implemented a groundbreaking ban on the use of algorithmic tools to set rents or control occupancy levels. Other cities like San Jose and Philadelphia are considering similar policies. By November 2024, San Diego’s average rent had climbed to $2,336 per month, a 21% increase from 2020.

The U.S. Department of Justice, along with attorneys general from eight states, filed an antitrust lawsuit against RealPage, a Texas-based platform that offers rental pricing software. The lawsuit accuses RealPage of inflating rents by sharing sensitive data between landlords, which negatively impacts tenants. While RealPage asserts that its technology complies with regulations and benefits all parties, critics argue that it exacerbates housing shortages and fuels rising rents.

RealPage dominates the commercial revenue management software market, controlling 80% of the sector with products like YieldStar and its successor, AI Revenue Management (AIRM). These systems gather data from participating landlords and use complex algorithms to recommend pricing strategies based on market forecasting, affecting both landlords and their competitors.

San Diego City Council President Sean Elo-Rivera explained that the platform functions like a "dark room" where large companies can secretly collude to set prices. He believes that while the technology may appear to distance companies from direct coordination, this is merely an illusion.

In response to these allegations, RealPage maintains that its technology is legal and points to the housing supply shortage as the root cause of rising rents. However, federal authorities argue that the company’s practices artificially inflate rents, particularly in high-demand regions like California.

In addition to its current legal challenges, RealPage faced accusations in 2020 of using flawed algorithms for automated background checks, which led to tenants being incorrectly linked to criminal charges and unjustly denied housing.

As more cities move to restrict the use of algorithmic pricing, RealPage and similar companies are facing increasing scrutiny and pressure to change their practices.