PERSPECTIVES
BY DREW HAMRICK , Sr . VP of Government Affairs
The Myth Of Computerized Price Fixing In Rental Housing
There ’ s a growing misconception that large residential property management companies charge above market-rate rent by using computerized pricing algorithms . This claim is the basis of both a highly publicized class action lawsuit and a US Department of Justice probe / PR campaign . The more complicated reality is rental price fixing does not happen . The less dramatic truth is that algorithmic pricing models allow rental housing providers to maintain lower vacancy rates , which both increases profitability and lowers rent prices .
Competitors communicating about future prices is illegal for a good reason . If one provider ( one big enough to have an impact on the market ) agreed to artificially raise rates with another provider ( one also big enough to have an impact on the market ), they ’ d have the potential to “ fix prices .” Coordinated price setting by competitors can create monopoly-like powers , which always hampers a free market .
However , the problem lies in communication about future prices . Information about current or past prices ( whether it be a year ago , a day ago or a second ago ) does not manipulate the market but merely measures it . Accurately measuring a market is good for suppliers and consumers and critical to the functioning of any free market .
Opponents of algorithmic pricing models spend all their time arguing that communicating through a computer is no different than exchanging information on the phone ( true ) and that , if enough of the market used the same program , the users would collectively achieve a large share of the market ( also true ). However , they completely ignore that all this computerized communication is about current and past prices - not future prices .
While trial-and-error pricing is a reasonable strategy to measure the market for many businesses , it eliminates housing and revenue by the
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Accurately Measuring A Market Is Good For Suppliers And Consumers And Critical To The Functioning Of Any Free Market ."
day for property managers . If you ' re in the business of selling shoes and you mistakenly price them too high , the next day you cut your prices and sell the shoes . Nothing is lost other than the relatively small cost of delaying the sale by a day . Renting homes is not like selling shoes . Every day that a rental housing unit sits vacant is a day of rent lost forever . Pricing a rental unit too high incurs the cost of permanent loss of inventory .
4 | TRENDS AUGUST 2024 www . aamdhq . org