Clear Path for AI Software In Real Estate

Computer algorithms are great at processing vast amounts of data and then making either recommendations or decisions based on that data. AI is even better at that process. Yet somehow consumer groups feel like landlords have a disadvantage when it comes to data and therefore should not have the right to use that market data when it comes to setting rates for a rental property.

The latest legislation to pass through the US Congress has a Federal statute that aims to block the states and local governments from oversight of AI and automated decision systems for 10 years. 

This won’t block claims of anti-competitive behaviour. If successfully passed, this would give companies like Yardi, RealPage, and numerous others a clearer path to use their algorithms for the benefit of making pricing decisions based on supply and demand. 

If the data is being used for landlords to collude, then that would constitute a cartel which violates anti-trust laws. But the use of data for dynamic pricing, both up and down does not constitute collusion. The new legislation keeps the playing field favouring the development of technology to improve market efficiency. The states should not be blocking the use of technology.

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Episode Transcript

(00:01):
Welcome to the Real Estate Espresso podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. On today's show, we're talking
about the use of computer algorithms.
Computers are great at processing vast amounts of data
and making either recommendations or decisions
based on that data. AI is even better at that
process. Yet somehow, consumer groups

(00:22):
feel like landlords have an advantage when it comes to data,
and they should not have the right to use that market data
when it comes to setting rates for a rental property.
Those who don't understand technology often target the use
of technology as the culprit. This is the same technology that
helps shoppers find a product online at the lowest price.
It surveys the market and then reports the results.

(00:44):
What you do with the data is nota function of the technology.
Do you buy the product from a supplier you trust with a good
reputation, or do you buy at thelowest price no matter what?
Well, there was a rate setting lawsuit against Realpage.
There were a series in fact, of antitrust lawsuits alleging that
the company's algorithm amountedto a price fixing scheme among
landlords, leading to artificially inflated rental

(01:06):
prices for millions of tenants across the United States.
We reported on this lawsuit few months ago here on this show.
So here's a breakdown of the keyaccusations #1 is algorithmic
collusion. The core accusation is that real
pages revenue management software collects non public
sensitive data from competing landlords, but then uses that

(01:28):
data to generate recommended rental prices.
Prosecutors and plaintiffs allege that by using this common
algorithm and sharing data, landlords effectively coordinate
pricing decisions rather than competing independently.
The lawsuits claim that this system reduces competition in
the rental market. Instead of landlords competing
on price to attract tenants, they're guided by an algorithm

(01:48):
that tends to maximize revenue for all of the participating
landlords, often by recommendingprice increases and discouraging
concessions even when occupancy is down.
It's alleged that Real Page encourages landlords to use the
Auto Accept features for its recommendations, and it makes it
difficult for property managers to reject the software
suggestion, sometimes requiring explanations for rejections.

(02:11):
This reportedly pressures landlords to adhering into the
algorithm's pricing. Then there's information sharing
beyond the algorithm. The Department of Justice and
some state attorneys general have amended their complaints to
include allegations that landlords engage in direct
traditional information sharing with competitors to further
coordinate pricing strategies and how they utilize Real Pages

(02:31):
software. All of these amount to
allegations of a monopoly. The Department of Justice
lawsuit also alleges that Real Page has unlawfully maintained a
monopoly in the market for commercial revenue management
software for multifamily dwellings, holding about 80%
market share. So there's a number of parties
involved. Of course, there's Real Page the
US Department of Justice. Several state attorneys general,

(02:53):
including California, Colorado, Connecticut, Illinois,
Massachusetts, Maryland, Minnesota, North Carolina,
Oregon, Tennessee and Washingtonif all filed their own lawsuits
or joined the Department of Justice complaint.
And then there are the tenant class action lawsuits.
Many individual renters have filed class action lawsuits
seeking compensation for allegedovercharges.

(03:15):
Several major landlords, including Greystar, Livecor,
which is part of Blackstone Group, Camden Property Trust,
Cushman and Wakefield Courtland Management have been added as
defendants to the Department of Justice and the state lawsuits.
So these lawsuits are ongoing and Department of Justice and
state's Attorneys general are pursuing their claims.
Realpage and the defendants havedenied any wrongdoing, arguing

(03:38):
the software merely provides data-driven recommendations in a
competitive market and they retain ultimate control over the
pricing. One landlord, Cortland, has
entered into a proposed consent decree with the Department of
Justice agreeing to stop using competitor sensitive data to set
rents. The outcomes of these cases
could have significant implications for how technology
and algorithms are used to set prices in various industries,

(04:01):
particularly those in high market concentration.
The latest legislation to pass through the US Congress has a
federal statute that aims to block States and local
governments from oversight of AIand automated decision systems
for a period of up to 10 years. Now.
This will not block claims of any competitive behavior.
If successfully passed, this would give companies like Yardy

(04:24):
and Realpage and numerous othersa clear path to use their
algorithms for the benefit of making pricing decisions based
on supply and demand. If the debt is being used for
landlords to collude, well then that would constitute A cartel
which violates antitrust laws. But the use of data for dynamic
pricing, both up and down, does not constitute collusion by
itself. The new legislation keeps the

(04:45):
playing field level, favouring the development of technology to
improve market efficiency. The states should not be
blocking the use of technology. The fact is these data sets
exist. Whether a landlord uses software
tool for dynamic pricing or whether they use a printed
report from a dot matrix printerto make pricing decisions, the
fact is the same. The latest federal legislation

(05:07):
makes it clear that a patchwork of legislation that bars the use
of technology is not the answer.As you think about that, have an
awesome rest of your day. Go make some great things happen
and we'll talk to you again tomorrow.