Antitrust, Market Information and Rental Housing

Some government responses to post-COVID inflation have been frankly demagogic. Blaming inflation on massive, newfound corporate “greed,” as is often done, is perhaps the most foolish of all. When did so many corporations suddenly become “greedy?” Were corporations previously seemingly altruistic? Doesn’t every buyer of a widget try to buy at the lowest price, and doesn’t every seller try to sell at the highest price? Sellers are no more “greedy” than buyers.

A recent attempt to explain inflation in one industry, that of rental housing, is equally unfounded. But it is less clear that way because it is superficially based on law. Between March 2020 and July 2023, the national average monthly rent rose from $1,614 to $2,038, an average annual increase of about 7%. The market’s explanation for such increases is insufficient supply growth in the housing market after COVID-19, along with strong demand from millennial and Gen Z adults who have learned that it remains cheaper to rent than to own a home in the fifty largest US metro areas. (see April 2024 Bank study). However, during President Joseph Biden’s 2024 State of the Union address, the President had a different explanation for rising rents: a sudden cartelization of landlords. declared the President, “[w]We are cracking down on big landlords who violate antitrust laws by fixing prices and raising rents.”

In accordance with the President’s speech, the Department of Justice is investigating software such as RealPage, which property managers buy to recommend rentals for their multifamily properties. Using a proprietary algorithm, RealPage and competing companies analyze data points that describe current market conditions. The result is a suggestion for an optimal rental price. The property owner is of course free to ask for more than the proposed rental price (if, say, she thinks her building has a special locational advantage that is not captured by the software) or to accept less (if, say say, she wants a rental and a very good potential tenant comes along). And, of course, no prospective lessee is legally bound to accept the rent the lessor asks, any more than she is bound to pay MSRP for a car.

The justice investigation was completed by Sen. Ron Wyden (D., Ore.), who introduced Law on Prevention of Algorithmic Facilitation of Rental Housing Cartels to prevent owners from purchasing market analysis software. [Sen. Widen’s eight co-sponsors, all Democrats, are Bernie Sanders (Vt.), Amy Klobuchar (Mich.), Richard Blumenthal (Conn.), Peter Welch (Vt.), Mazie Hirono (Hi.) , Laphonza Butler (Cal.), Jeff Merkley (Ore.), Tina Smith (Minn.), and Martin Heinrich (N.M.).] The substantive section of the bill states that “it shall be unlawful for an owner of rental property…to subscribe, contract, or exchange anything of value in exchange for the services of a coordinator, and such act shall be deemed to be a violation of the Sherman Act.” So far, so good – this provision alone makes it appear that coordination of prices between owners is what is being outlawed (as it already is and should be). But “Coordinator” is defined in the first section of the Bill as “any person who operates a software or data analytics service that performs a coordinating function for each rental property owner, including a rental property owner who performs a coordinating function for their benefit. The combined effect of these provisions is to make the sale of analytics data illegal to rental property owners.

Regarding Senator Wyden, the AI ​​genie probably can’t (and definitely shouldn’t) be put back in the bottle. It is ubiquitous. Are you a used car dealer? You can subscribe to AutoTrader GOLD CarGurus, among other sites – all will analyze sales by location, model and condition in order to calculate the optimal selling price for the vehicles in your inventory. Other industries offer similar applications. Perfect Price allows car rental firms to set dynamic prices so they don’t run out of cars during a sporting event, but don’t overspend on their seats during the lull. PriceLabs it does the same for hotel rooms. Wise Athena is consumer goods software that helps marketers determine product pricing and make promotional (special sales) decisions. The government itself uses exactly the same intelligence (See GoCarma and other software) when setting high prices on its highways in order to optimally use the toll lanes. Set the fare too high and the lanes stay empty. Set them too low and they get stuck too. In all these cases, software that provides accurate market intelligence is to be applauded, not banned. Why shouldn’t owners be able to take advantage of this intelligence?

The Senate bill obviously assumes that the creation and sale of market intelligence is the equivalent of a cartel. But as Florida International University law school professor Ediberto Roman has noted, “

Indeed, knowing the current state of the market makes markets more efficient and allows for the maximization of consumer surplus. CNN published Goldman Sachs estimates that the widespread use of “generative artificial intelligence” (the name for this type of software) is likely to increase global GDP by nearly $7 trillion and increase productivity by a full 1.5% over the next 10 years. Market information that would take a landlord weeks to compile (at a low confidence level) can now be made available in minutes at a very high confidence level, thus reducing costs and helping to curb of inflation. And maintaining rental housing (neither cheap because the price is too high nor too scarce because the price is too low) reduces social and economic frictions.

More and more accurate information is a good thing. Preventing its sale is a Luddite strategy that is permitted and should remain permitted by our antitrust laws.