Across the country, landlords are turning to a new tool to raise rents and further exacerbate the housing crisis: software algorithms. Third party service providers like RealPage offer recommendations to landlords that promise to boost their profits while driving up housing costs. These recommendations are based on sensitive, proprietary data or publicly-available data sets regarding local housing markets. In some metro areas, the use of rent-fixing software algorithms has played a significant role in double-digit rent increases.

The danger of algorithmic rent-setting is exacerbated by a trend toward consolidation in local housing markets, as more units wind up in the hands of large, institutional landlords and rental property managers. But software algorithms can facilitate rent increases even in less concentrated housing markets. Pending lawsuits allege that landlord trade associations have facilitated the use of software algorithms among small- and mid-sized owners of rental properties.

RealPage’s clients allegedly comprise about 90 percent of the U.S. market for investment-grade multifamily rental housing units, restricting housing opportunities and limiting renter mobility. While landlords profit from increased pricing efficiency, renters pay the costs of anticompetitive rent-setting. At a real estate conference in Nashville, when asked about whether RealPage’s software had any effect on 14.5 percent rent increases in some markets, RealPage VP Andrew Bowen responded, “I think it’s driving it, quite honestly. Conservative estimates of RealPage usage in Phoenix, AZ, and Tucson, AZ, showed overcharges of 12% and 13%, respectively, across tens of thousands of units.

Rent-setting algorithms also lead to higher rates of eviction. According to one landlord client of RealPage, adopting RealPage’s rent recommendations increased “turnover rates” by 15 percentage points, meaning tenants had to find new apartments because of the untenable rent increases.

This system allows landlords to conspire to limit supply and drive up rents without explicitly sharing data with each other, exploiting a loophole in laws that prohibit price-fixing. In effect, they create a cartel to keep rent prices high. Landlords who contract with RealPage follow its recommendations almost 90 percent of the time. RealPage enforces behavior across the cartel by imposing consequences for rejecting its recommendations, including by kicking out landlords that deviate too often.

The result: Inflated rents, artificially constrained housing supply, and higher profits for corporate landlords and RealPage alike.

This joint memo with Local Progress dissects the problem of algorithmic price fixing in rental housing markets – responsible for driving up rents – and lays out solutions to combat it.