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Apartments at the Spring District in Bellevue, Wash. (GeekWire File Photo / Kevin Lisota)
With the changing of the guard in Washington comes uncertainty as to how the new administration will choose to address, or not, what the FTC under Biden had flagged as a key contributor to the ongoing housing affordability crisis in the U.S.: the widening use among rental property management companies of sophisticated “rent tech” software that suggests rent prices and occupancy levels.
The issue, as the former administration characterized it, centers on the substantial market share outfits such as RealPage and Yardi Systems have developed among landlords and rental management companies. Both offer “revenue management” software that scrapes data on rentals across a given city and uses algorithms to determine the optimal price to charge tenants.
According to their critics, such systems quite simply function to push up rents across the board wherever they operate, and their widespread use amounts to market collusion by means of price-fixing. Last August, the Department of Justice thought enough of this charge to file a lawsuit over RealPage’s practices (the lawsuit is still pending).
Even small unfair regionwide rent increases can represent a real problem, the FTC contends, in an environment in which fully half of all renters nationwide spend more than 30% of their income on rent and about one-fourth spend more than 50%.
While the legal battle unfolds at the national level, cities such as San Francisco and Philadelphia have already moved to restrict or ban the use of rent-setting algorithms. Meanwhile, the debate is now playing itself out in Seattle.
Now, while the legal questions will have to be addressed in the courts, in the meantime we can ask: what are we to make of these business practices, from an ethical perspective specifically?
To be sure, one can imagine the argument RealPage and the others would advance. Rental housing markets, they would say, are an open playing field in which supply meets demand. Currently, supply is tight. But the national population continues to grow, and people still need a roof over their heads. And so increasing demand dictates that the prices landlords can charge for any given unit increases accordingly. Luxury rentals will be at the very high end, but there will be a range of prices such that those on lower wages will still be able to find housing, in the form of what analysts rather euphemistically call “naturally occurring affordable housing”— that is, rentals in various stages of disrepair, though still (arguably) habitable.
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Absolutely, we ought to ban the very worst kind of abuses like outright discrimination and the type of tragedy-driven price gouging we have seen recently in Los Angeles, but everybody actually wins in the end if we let the market play out on its own, with rational actors using whatever tools available to make pricing and purchasing decisions. Indeed, when prices are more rationally determined, the algorithm advocates would argue, more of owners’ rental income will go back into improving housing stock for all.
So, on this maximalist laisse-faire view (let’s call it the Ayn Rand position by means of shorthand), local governments really ought to just get out of the way and let the disruptors cook. It’s better in the long run, and in the short term, some portion of rental market 1.0 continues to operate in cities just as it always has.
This is fine as far as it goes as the answer on an ECON 101 exam (or as the guiding premise of a thudding philosophical novel like Atlas Shrugged) but is this a sufficiently thoughtful viewpoint on which to found an ethical position? Is this a solid basis, in other words, for making a judgment about what’s right when it comes to apportioning the number of roofs over heads in the communities in which we live? To my eye, it’s not.
For starters, it leaves a whole lot out of the picture of the housing market it paints. That is, the notion of the market our Randian interlocutor presupposes is at best incomplete; in fact, it’s seriously flawed. This is because, when we really think about it, we see that the housing market isn’t just any market. It actually functions in a different way than the one for, say, Birkenstocks.
That is to say, we intervene in the market for housing all the time without really noticing that that’s what we’re doing. Demand for housing doesn’t take place in a vacuum, it takes place in an actual locality in which the collective has shaped the entire setup, most obviously through the building of roads and schools. The placement of good schools in particular areas massively shapes prices and rents, and thus those prices are not the product of the vaunted invisible hand at work entirely on its own.
Given that cities and towns intervene in the housing market all the time, further intervention to rein in potentially unfair price increases stands as just one of many types of intervention in which local municipalities are already involved. It’s not a break with the norm targeting a particular sector, it is the norm.
If we think about towns and cities as they really are, then, as markets where intervention is happening all the time, we begin to see that we are on well-established ground in asserting it is reasonable to consider collective decisions that set the terms for these markets and are aimed at equity and fairness. We are on solid footing, then, in saying it’s reasonable to think seriously about lowering the barriers that exist in places like Seattle currently preventing working people of all stripes from living in the places where they work, seek out education, worship, and so on.
The ins and outs of the national rental housing affordability crisis involve considerable complexity, no doubt. An economist will surely write in pointing out that because some of the companies employing RealPage are also developers, they need to make a certain amount in rent in order keep growing and building more housing, thereby making an overall beneficial contribution to solving the national housing shortage crisis.
That may very well be the case, and there are few short-term easy answers when it comes to housing affordability in an inflationary environment, but the relatively straightforward proposition I’ve been advancing here remains true nonetheless: viewed from the ethical perspective, places such as San Francisco and Philadelphia have had good reasons for taking action and more cities (looking squarely in your direction, Seattle) should strongly consider following their lead.
