Rent-Setting Algorithms Added $3.8B To Tenants' Bills In 2023

Apartment rents set with the assistance of algorithms cost renters an estimated extra $3.8B in 2023, according to a new report from the White House Council of Economic Advisers.

The report estimates tenants pay roughly $70 more per month in buildings where software tools are used to maximize rental rates.

The CEA report specifically criticized RealPage and its AI Revenue Management tool, which it estimates is used to set rents at nearly one in four rental units nationwide, as creating an “anticompetitive effect of price coordination.” 

"When algorithmic recommendations are based on profit-maximizing prices for a set of landlords collectively, the algorithm will recommend prices that are higher than the profit-maximizing price each landlord would set independently," the report’s authors wrote. 

That cooperation between landlords is at the center of the antitrust lawsuit brought against RealPage by the Department of Justice in August.

RealPage Senior Vice President Jennifer Bowcock disputed the CEA's findings in a statement to Bisnow Wednesday.

"They claim to have access to RealPage’s data, and they do not," she said. "Their conclusions are based on the erroneous assumption that all property managers are setting coordinated rents, but that is not how RealPage’s revenue management software (RMS) works."

The CEA report found that rents are inflated by roughly 4% nationally for units that are algorithmically priced. The effect is uneven across cities, with Atlanta seeing the highest increase in rents for units using RealPage’s technology of $181 per month, while prices only increased $17 per month in New York, the CEA found. 

Denver renters can expect to pay an additional $136 per month as a result of price coordination, and Dallas, at a $132 per month increase, rounds out the top three most impacted cities. 

The report’s authors said their estimates likely understated the true costs to renters because it only captured cost increases at units using RealPage’s software, but landlords outside the system are also likely to have benefited from rising rents. 

The technology company has consistently denied that its rental tool, which was formerly known as YieldStar, is anticompetitive or in violation of any antitrust rules. 

"RealPage’s RMS is purposely designed to be legally compliant, and despite the false allegations to the contrary, our customers have always had complete discretion to accept or reject their bespoke pricing recommendations," Bowcock said. 

A class-action lawsuit against the company over its rent-setting technology was first filed by some of the country’s largest property managers in 2022. The DOJ — along with attorneys general from North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington — filed a similar suit in August and a separate criminal investigation was opened.

Philadelphia and San Francisco passed laws this year banning algorithmic rent-setting as the technology becomes more widespread.  

RealPage claimed a victory earlier this month after it said the DOJ ended its criminal investigation of the firm, but the other civil cases continue making their way through the courts. 

The AI Revenue Management tool "does not fix prices, and the report does not provide any evidence to support that assumption," Bowcock said Wednesday. "Even DOJ has admitted that customers reject the pricing recommendations more than half the time, on average."