EVERY SHACK, A PALACE! The Problems Created for Consumers by Algorithmic Price Fixing in the Housing Industry

ALGORITHMIC PRICE FIXING

In recent years, the housing industry has seen a surge in rental prices fueled by various economic factors. One critical but often overlooked contributor to this soaring cost is algorithmic price fixing—an issue that has come under intense scrutiny in light of criminal investigations into companies like Cortland Management. Allegations against Cortland Management and its reliance on software from RealPage raise serious concerns about how this form of price manipulation harms consumers. This essay will explore the problems created for renters by algorithmic price fixing, enumerate the issues stemming from this practice, and illustrate these challenges using the Cortland Management case.

Understanding Algorithmic Price Fixing

Algorithmic price fixing occurs when companies use sophisticated software platforms that aggregate data from competitors to inform their pricing decisions. In the case of Cortland Management, the company allegedly utilized the RealPage system, which makes rental price recommendations based on a wide array of data, including pricing trends from multiple landlords across a large geographical area. According to accusations, landlords often adopted these recommendations roughly 80-90% of the time, leading to collusion that resulted in artificially inflated rents.

Consequences for Consumers

1. Increased Rental Costs: The most direct impact of algorithmic price fixing is the significant increase in rental prices. Data indicated that rents in Atlanta, where Cortland owns many properties, rose by approximately 80% since 2016, despite rising vacancies that would typically lead to lower rents. This stark contradiction highlights how algorithmic recommendations can disengage supply from demand dynamics, placing undue financial strain on renters.

2. Reduced Housing Affordability: As rental prices rise, many consumers—particularly low- and middle-income families—find it increasingly difficult to afford housing. The escalation in costs forces them to allocate more income towards rent, often pushing them beyond the 30% of income threshold that is deemed manageable. The FTC reported that nearly half of renters now pay more than this threshold, exacerbating the affordability crisis and leading to potential displacement.

3. Erosion of Market Competition: Algorithmic price fixing undermines the competitive nature of the housing market. By standardizing rental recommendations across numerous corporate landlords, the algorithm reduces the unique pricing strategies typically employed by individual landlords. As a result, rents become homogenized, leaving consumers with fewer options and potentially stifling innovation in rental offerings and pricing.

4. Difficulty in Switching Providers: When prices are artificially inflated due to collusion, the incentive for tenants to "vote with their feet" diminishes. Renters may feel stuck in their current arrangements, even if they find that other units are cheaper or more suitable—especially in tight rental markets where options are limited. This dynamic further consolidates power among landlords who engage in algorithmic practices.

5. Legal and Regulatory Challenges: The prosecution of companies like Cortland Management opens the door to a broader reconsideration of how algorithmic pricing tools are regulated. However, moving through legal systems can take significant time, and many consumers may suffer before adequate protections and regulatory frameworks are put in place.

6. Lack of Transparency: Algorithmic pricing often lacks transparency, making it difficult for consumers to understand how prices are set. This opacity can lead to distrust among renters, who may feel they are being exploited without knowledge of the underlying mechanisms driving their costs.

The Role of Cortland Management and RealPage

Cortland Management’s alleged participation in the RealPage pricing scheme epitomizes the broader issues at play. As evidence mounts showing that RealPage software has influenced pricing in as many as 16 million housing units nationwide, the potential for systemic impact becomes evident.

The investigation led by the DOJ into Cortland and the larger rental market may set a precedent for how algorithmic pricing tools are governed. If the allegations are substantiated, the ripple effects could encourage corporate accountability and lead to stricter regulations around the use of such algorithms within the housing market, ultimately promoting fairness for consumers.

Conclusion

Algorithmic price fixing poses significant problems for consumers in the housing industry, as evidenced by the ongoing scrutiny of firms like Cortland Management. From inflated rental prices to the erosion of market competition and tenant power, the implications of collusion facilitated by algorithmic systems reverberate widely, affecting millions of renters. Addressing this issue will require a robust regulatory response aimed at safeguarding consumer interests and restoring genuine competition in the housing market. As the conversations surrounding these practices gain momentum, it is imperative that both the FTC and DOJ act decisively to ensure that the burgeoning reliance on technology does not undermine fairness in the housing industry.