New York City’s rental market is arguably the country’s worst. Its metro area’s housing shortage exceeds 400,000 homes. Median asking rent has risen 7.3% year over year in New York City. San Francisco rents have risen twice as fast at 16.9%. These cities now have the nation’s highest rents.
Beyond high rents and scarce housing supply, these cities share another feature: Their state or local governments have banned algorithmic rent-setting, indicting technology for rising rents.
Rent software like RealPage automates leasing, rent collection, and marketing while optimizing rents and minimizing vacancy losses, enabling property owners to improve profitability before resorting to higher rents. The software’s rent-pricing function assists landlords by analyzing vast amounts of information on the rental market, like vacancy rates and market rents, then recommending rates. The software factors in when leases expire and how vigorous local demand is.
That such technology can significantly ease managers’ work while reducing operating costs, and that efficiency gains from automation can indeed improve landlords’ profitability — some of which likely offset otherwise higher rents — is salutary and marvelous. Unfortunately, when policymakers confront rent-pricing tools whose inner workings they do not grasp, their instinct is to assume the software enables price fixing.
In 2024, the Department of Justice sued RealPage for “systematic coordination of rental housing prices” and later settled the case without proving collusion or anti-competitive harm.
Within a year and a half of the DOJ filing the lawsuit, cities lined up to ban rent-setting software. San Francisco became the first city, followed by at least thirteen more. New York and Connecticut enacted statewide bans, and lawmakers in 24 states introduced regulatory legislation. This sweeping anti-technology movement sprang from allegations of “price fixing” and “collusion.” These allegations persist, unsubstantiated.
Regulators and policymakers decry the process by which rent-setting algorithms aggregate “competitively sensitive” information, combine it with other dispersed market data, and use it to recommend rental prices. But what they condemn, algorithmic “coordination,” is precisely what F. A. Hayek would have credited the software with enhancing property managers’ ability to navigate the markets’ coordination problem. That problem is achieving allocative efficiency, directing scarce resources — here, rental units — toward their highest-valued uses.
And the accusation that algorithmic pricing relies on “competitively sensitive” information, including competitors’ rents, to recommend prices for units is, at bottom, an accusation that the software uses information generated by the rental market itself.
This is what the price system is for. As Hayek wrote, the price system’s power lies in “the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action.”
Policymakers fundamentally misunderstand what function market prices serve and how they are determined, thereby believing that algorithmic pricing somehow “fixes” rental prices.
CONGRESS HAS TAKEN A STEP TO FIX HOUSING AFFORDABILITY — IT CAN’T AFFORD TO GO BACKWARD
But price discovery, or how individual landlords determine rents for their properties, is based on relevant information about the conditions of the rental market. The more accurate and comprehensive that information is, the closer individual landlords can get to what their rent “ought to be” (i.e., the equilibrium rental price). Rent-setting software helps landlords gather and process the knowledge necessary to determine that price. Without this software, landlords simply spend more time and effort trying to obtain essential market data.
In New York City, where rental listings now receive 63.6% more inquiries on average compared to 2019, and other distressed rental markets, rent software could have been a market invention for managing regulation-perpetuated housing scarcity: helping prices better reflect market conditions and reducing the inefficiencies that otherwise arise. Yet regulators have no eye for the beauty of markets, or for the virtue of market innovation. Market failure is thus all they looked for to justify government intervention.
Vladlena Klymova is a policy analyst at the Taxpayers Protection Alliance.