Inflation is the surest way to trigger a Pavlovian response from politicians, whereby they blame monopolists, middlemen, greedy entrepreneurs, profiteers, and price gougers. In 1793, French Revolutionaries fueled inflation by running persistent deficits that they monetized. Their response was to instill fear — courtesy of the guillotine — by blaming productive French citizens for being greedy. Luckily, the guillotine has long been ditched, but the common tropes used by the Biden administration and its allied members of Congress to deflect blame for inflation have not.
While the money supply has increased by more than 30 percent since 2020, and the Federal government deficit is above 5 percent of national income with no end in sight, Democrats have preferred to blame the private sector. Their most recent target is RealPage, a US software provider that analyzes supply and demand dynamics in the rental real estate market to help landlords price their properties. President Biden went so far as to say “we’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents.” Sen. Ron Wyden (D-OR) and nine Democratic co-sponsors introduced the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act earlier this year. This type of Advil politics, where the government attempts to treat the symptoms instead of the underlying causes of inflation, comes with costly unintended consequences.
Without flexible pricing strategies, fluctuations in consumer demand cause inefficient excess demand or excess supply for goods and services. For instance, airfares are higher during summer and lower during the off-peak season to avoid flying empty planes. By using data to optimize their pricing strategy, airlines are able to operate at higher capacity and, therefore, at a lower cost. More recently, software and artificial intelligence developments have helped apply those revenue management methods to other sectors. For example, Uber can optimize supply and prices such that an Uber driver spends much less time without a passenger than a cab driver used to.
By providing valuable information about pricing, companies like RealPage can reduce rental vacancies. This means a greater supply available to renters and lower rents. It is certainly true that RealPage will sometimes recommend its clients raise rents if demand is sufficiently high to warrant it. Yet increasing rents in these contexts prevents demand from being more than capacity, allocates resources to clients valuing them the most, and incentivizes entrepreneurs to increase the supply of rentals.
Overall, RealPage is no different from many other companies engaged in revenue management. Take Perfect Price, which allows car rental companies to determine dynamic pricing. Or Pace, which does the same for hotels. What, then, is the problem progressives have with RealPage?
Following a number of class-action lawsuits by renters, the Biden Justice Department is now investigating RealPage. It also opened a criminal probe into the company in March 2024. In both cases, the company is accused of facilitating collusion between landlords who collectively adopt rents set by RealPage. These arguments are unconvincing on several grounds.
First, rentals constitute a minority of the US housing market, with the rentership rate below 35 percent. This leaves little room for landlords to charge monopoly prices as it would induce many Americans to switch to homeownership.
Second, the rental real estate market is very competitive, with individual investors owning around 40 percent of all rental units in the US.
Third, RealPage faces competition from other real estate revenue management companies, such as Yardi.
Finally, if revenue management companies helped fix anti-competitive prices, they would incentivize landlords to chisel by charging lower rents than advised by RealPage, thus undercutting competition from RealPage’s other clients. Instead, 90 percent of RealPage clients have adopted the company’s pricing suggestions. That is not evidence of anti-competitive behavior.
Landlords can charge non-competitive prices only if they can restrict the market supply. If increases in rents had been driven by RealPage helping landlords charge monopoly prices since 2020, the rental vacancy rate should have increased after 2020. Instead, it declined from 6.8 percent in 2019 to 5.8 percent in 2022. This indicates that other factors, such as monetary and fiscal policies that increased overall demand for goods and services, are the likely culprits behind rent increases.
In the free market, the price system lays the cards on the table. Entrepreneurial success means lower prices; the acid of competition erodes inefficiencies. Politics, on the other hand, is the art of making market roadblocks that are unseen to the public. Imposing new costly regulations will not make housing more affordable — unleashing the housing supply by deregulating zoning and overly strict building codes will. There is still time for the players in Washington, DC to reverse course.
