Are algorithms manipulating rent prices in North Carolina? Here’s what to know

After a multi-million dollar settlement between North Carolina Attorney General Jeff Jackson and landlord LivCor, algorithmic rent-setting software is in the spotlight once again as critics say it helps landlords push rents high for thousands of tenants across the state.

Algorithmic pricing software is developed by real estate technology companies such as RealPage and provides rent recommendations based on information supplied by landlords. Landlords do not have to follow the suggestions, but Executive Director of North Carolina Tenants Union, Nick Macleod, argues it suggests the highest rent since the software has access to a trove of private data. 

Landlords pay for this service, enter vacancy rates, lease renewals and rent prices and in return get access to a big portion of their competitor’s data. Macleod further notes that this software functions as a form of rent collusion by aggregating proprietary data from competing landlords and recommending rent increases designed to maximize revenue.

“To some extent, all tenants in North Carolina are impacted by this…because the AI pricing creating these mega landlord cartels drives up rent everywhere across the board, and so even for the landlords who are not engaging in RealPage — it still is driving up rents, because now the market will bear this higher rent. What’s happening here is like sort of a large-scale market distortion where the power by consolidation of the polluting landlords means that market rate rent is not being set by a free and open market,” Macleod told The News & Observer. 

The LivCor settlement 

LivCor, a landlord company funded by private equity firm BlackRock, controls 3,500 apartments across North Carolina. In the settlement, the company agreed to stop using algorithmic pricing to set rents, share data with other landlords to set recommended rent prices or attend RealPage-hosted meetings of competing landlords. 

“I am hopeful that some of the $7 million settlement will go toward protecting consumers against unfair and deceptive trade practices through the Attorney General’s office, right, and adding to that capacity is really crucial, and as always, enforcement is a really critical piece of this,” Macleod said.

Macleod explained that public data consists of information available to anyone, such as advertised rents on Zillow or apartment listing websites. Private data includes information that is only known to landlords, such as lease renewal rates, occupancy levels and internal pricing. 

“Think about how many people are just renewing a lease, and then they have a rent increase out of lease renewal that never is going to be public because it’s just between the landlord and the tenant, and so what RealPage is facilitating is it’s basically making order of managing more data available, and data that is supposed to be proprietary to a given landlord, right, and rather than its sharing that across everybody who’s subscribing to RealPage and putting in their own data,” Macleod said. 

Macleod noted that in a healthy market landlords provide a service that is incentivized to provide the best quality service for the lowest possible cost to attract customers. 

Increasing rents after using RealPage

Over the past few years, RealPage has been sued by the federal government, which alleged it unlawfully decreases competition among landlords, according to a Washington Post investigation.

The article found 10 counties where more than 1 in 3 multifamily units are managed by a property company allegedly using a rent-setting program from RealPage. The article later says the lawsuit states one landlord using RealPage revenue management technology started increasing rents within a week of using the program, raising prices more than 25% in 11 months.

In Raleigh and Cary, 43% of multifamily housing units are managed by companies in rent-setting lawsuits. In Charlotte, it is 34% of multifamily housing units, according to the Post.

The LivCor case helps establish that existing antitrust laws apply to AI-driven rent-setting systems, providing a precedent for future enforcement actions, according to Macleod. 

He said it’s important the Attorney General continues ongoing enforcement, and hopes these settlements move the state past the place “where the experience of being a tenant in North Carolina is one of vulnerability and precarity, and ‘oh God, I got to find a place, and if not, I’m going to sleep under an overpass.’”

For Macleod, he believes landlords have unequal leverage compared to tenants who lack the private market data. He believes more tenants need to organize together to gain bargaining power through unions. 

“The challenge — as is so often the case with these things — is that the regulatory mechanisms move fast enough to enforce antitrust laws and ensure that this kind of thing doesn’t happen when it is happening very, very, very quickly.”