Is big data driving up rents?

“Algorithms” and “big data” may be frequently heard buzzwords – but they can have a real impact on the US economy.

To gauge that impact, look no further than rent prices. Many landlords now outsource their pricing decisions to software that, based on the analysis of giant troves of rental market data, tells its users how much to increase rent for each renewal and what to ask for newly vacated apartments.

However – not to get all boomer “back in my day” on you, but things didn’t always work this way. Many building owners would make deep cuts to rents when the market was headed south, and once believed keeping apartment buildings as full as possible was the best way to maximize profits.

Enter: algorithms and big data, especially driven by two property management software companies – RealPage and Yardi Systems. These companies showed many landlords that higher rents + lower occupancy rates = higher profits.

• Case in point: A large apartment-management company began raising its rents through RealPage’s pricing system a few years ago. Occupancy levels at its buildings dropped from 98% to 95%, but the company was more profitable than it had been previously, the WSJ reports.

📸 Big picture: The national median monthly asking rent has increased 43% over the past ten years, from $1,286 in 2013 to $1,837 in Q1 2023.

👀 Looking ahead… Two ongoing lawsuits, one against RealPage and one against Yardi, allege algorithmic pricing systems illegally enable an exchange of confidential info to set rents across buildings and markets. The DOJ’s antitrust division has also been investigating RealPage’s practices and is considering potential enforcement action, per the WSJ.