A new report from the Biden administration finds that when landlords use algorithms to set rent, it results in renters paying more in cities across the U.S., with some of the starkest effects in Denver.
Rent-setting algorithms have been the focus of controversy and legal challenges.
Critics — including federal authorities and state elected officials — say that landlords are using the technology to artificially inflate rental prices.
Ongoing legal battles for one company setting the rent algorithms
RealPage uses algorithms to predict the optimal rent for landlords to charge — and it’s facing a number of ongoing legal challenges.
The algorithms allow landlords to indirectly exchange “nonpublic” data, which critics say is an act of collusion.
“Landlords are therefore joining together in a way that deprives the market of fully independent centers of decision-making on pricing,” argues a lawsuit filed against RealPage by the U.S. Department of Justice and numerous states, including Colorado Attorney General Phil Weiser.
RealPage has also been accused of pushing landlords to accept its recommendations, rather than offering discounts and concessions.
“RealPage replaces competition with coordination. It substitutes unity for rivalry. It subverts competition and the competitive process. It does so openly and directly—and American renters are left paying the price,” the lawsuit reads.
How the White House says algorithms affect rent in Denver
A new report from the White House’s Council of Economic Advisers digs further into the alleged impact of the algorithms.
In the Denver metro, more than 45 percent of multifamily rental units are under management by RealPage products. That’s according to CEA’s analysis of data from RealPage. Denver landlords use RealPage at higher rates than every other major metro except Atlanta and Dallas, the report found.
CEA then estimated the effect of the algorithm in different cities. In Denver, the algorithm may drive up rents in affected units by an average of $136 per month, according to the CEA analysis.
The estimates were based on earlier research by The Wharton School at the University of Pennsylvania. That study found rents are higher, and more units sit vacant, “in markets with greater algorithmic penetration during periods of economic recovery.”
The CEA estimated the impact in Denver was second highest among more than 20 metros in the report. However, the report warns that “the estimates are an approximation based on several simplifying assumptions and limited data.”
RealPage says it’s only giving recommendations
RealPage argues it only provides recommendations and doesn’t push companies to collude. It argues that the algorithm can also result in lower prices.
“Prohibiting use of such nonpublic information, as some politicians and special interest groups have recently tried to do, could result in using incorrect and inflated price information that may harm consumers and will logically result in less accurate market price data and less competitive pricing recommendations,” the company wrote in a recent report.
RealPage also challenged CEA's findings. Among other objections, it said that CEA overplayed RealPage's share of the market. While CEA said RealPage has close to half the Denver market, that is only counting larger apartment buildings.
When counting all rental units, RealPage has about 24 percent of the Denver market using its AI Revenue Management or YieldStar products, and 9 percent using its Lease Rent Options product.
"It’s past time to stop scapegoating RealPage for housing affordability problems when, as the report admits, the 'root cause of high housing costs is the under-supply of housing,' which we have been saying from the beginning," the company said in a written response.
Local lawmakers recently tried to ban rent algorithms
Earlier this year, state lawmakers tried to ban the use of rent algorithms in Colorado, but the bill died due to disagreements among Democrats in the Senate.
That bill had several sponsors from the Denver area: Rep. Steven Woodrow, Rep. Javier Mabery and Sen. Julie Gonzales, as well as Sen. Nick Hinrichsen of Pueblo, all Democrats.
