Dynamic pricing, often referred to as real-time or surge pricing, is a pricing model strategy powered by algorithms and data analytics where the cost of a product or service fluctuates based on market demand, competitor prices, time of day, or other variables.,

Surprisingly, dynamic pricing is prevalent in the real estate rental market. We touched on dynamic pricing as it relates to short-term rentals in our previous post.

Although less common compared to short-term rentals, dynamic pricing is increasingly being used in large apartment complexes and managed rental properties. Landlords or property management companies use algorithms to adjust rent rates based on factors like:

1. Local Market Demand: Rent prices increase when demand is high, such as during the start of a school year in college towns or when new residents move into urban areas for work.
2. Vacancy Rates: If a property has low occupancy, landlords might reduce rents or offer incentives to fill units quickly. Conversely, high occupancy may lead to rent hikes.
3. Lease Start and End Dates: Rental prices can fluctuate based on the timing of the lease; leases starting in popular months (e.g., spring or summer) may cost more.
4. Competitor Analysis: Landlords compare their pricing with nearby properties to stay competitive while maximizing profit.

Pros for Renters include:

1. Renters willing to move during off-peak seasons (like winter) can secure better deals.
2. Apartments with lower demand may offer special promotions or discounts.

Cons for Renters include:

1. Prices can surge in high-demand periods, making it challenging to budget for housing.
2. Renters may feel disadvantaged if the algorithms overly favor landlords’ profits.

Ethical and Practical Considerations

Dynamic pricing in apartment rentals raises ethical questions, especially around affordability and accessibility. For example:

• Fair Housing: Rent increases tied to algorithms might inadvertently exclude low-income renters from certain areas.
• Transparency: Travelers and renters often feel that fluctuating prices lack clarity, leading to dissatisfaction.

In summary, dynamic pricing has revolutionized how apartment rentals are marketed and managed. While it benefits property owners by maximizing revenue, it can be a double-edged sword for renters, who face unpredictable price changes. Understanding the patterns of dynamic pricing can help new renters plan strategically to secure better deals in the market.

Collusion or What?

I believe that using dynamic pricing to determine rental prices is a form of collusion. This pricing ignores each apartment complexes individual situations. For example, an old apartment complex with smaller spaces and amenities results to charge the same rate as a newly-built building nearby using the area’s comparative value. This is unfair to renters.

And Yes, real estate rentals, especially large apartment complexes and corporate landlords, could face accusations of collusion when using dynamic pricing algorithms, and such cases are already drawing scrutiny. I pray that tighter controls and scrutinies be applied to these issues.

Here’s a breakdown of how this might happen and the potential legal implications:

How Dynamic Pricing Could Lead to Collusion

1. Shared Pricing Algorithms
Many property management companies use the same third-party software (e.g., RealPage, YieldStar) for dynamic pricing. These algorithms analyze market data and competitor prices to recommend rental rates. If multiple landlords in the same area rely on the same system, their pricing strategies might align, potentially inflating rents across the board.
2. Data Sharing
Dynamic pricing tools often aggregate and share data between competitors, including real-time information about occupancy rates, pricing trends, and local demand. This sharing could inadvertently lead to coordinated price increases, even without direct communication between landlords.
3. Market Domination
In cities dominated by a few major property managers, dynamic pricing algorithms can create an environment where prices rise collectively, effectively limiting competition and leaving renters with fewer affordable options.

Examples and Accusations of Collusion in Real Estate Rentals

In recent years, there have been allegations of anti-competitive behavior tied to dynamic pricing in real estate. They include:

1. The RealPage Lawsuits
   In late 2022, RealPage—a popular rental pricing software—was accused of facilitating rent price coordination among landlords. Tenants and advocacy groups alleged that the company’s software enabled landlords to charge higher rents by sharing market data and using algorithms that effectively reduced competition. Several lawsuits were filed, claiming that RealPage’s practices amounted to price-fixing, violating U.S. antitrust laws.
2. Potential Impact on Renters
   If landlords in a competitive market follow the same pricing recommendations, renters face uniformly higher prices, as there’s no incentive for any landlord to lower rents to attract tenants.
3. Antitrust Violations. U.S. antitrust laws, such as the Sherman Act, prohibit price-fixing and other forms of collusion that harm consumers. While traditional collusion involves direct communication between competitors, using the same pricing software can create an implicit form of coordination, which courts are now exploring.
4. Gray Area in Technology. Unlike explicit agreements to fix prices, dynamic pricing relies on algorithms. However, if those algorithms produce results akin to collusion, they may still be deemed illegal under antitrust law.
5. Impact on Housing Affordability. Ethical concerns arise when dynamic pricing tools are used in essential sectors like housing, where inflated rents can push lower-income residents out of the market, exacerbating affordability crises in urban areas.

How Industries Can Avoid Collusion Accusations

1. Independent Decision-Making: Landlords and property managers should avoid blindly relying on third-party algorithms. Using dynamic pricing as a guide rather than a rule can reduce the risk of coordinated outcomes.
2. Transparency with Tenants: Clearly communicating the factors driving rent changes (e.g., local demand, amenities) can foster trust and reduce the perception of price manipulation.
3. Regulatory Oversight: Governments may need to enforce stricter rules around data sharing and algorithm usage in industries like housing, ensuring that technology serves the public good rather than inflating prices unfairly.
4. Avoiding Shared Software: Landlords can use proprietary pricing models or seek unique solutions that don’t aggregate competitors’ data, reducing the risk of perceived collusion.

Conclusion

While dynamic pricing offers efficiency and profitability for landlords, its use in the real estate rental market raises concerns about potential collusion, particularly when the same algorithms influence multiple competitors. These concerns highlight the need for stricter regulation and ethical implementation of pricing technology to protect renters from unfair price inflation. As legal challenges unfold, they may reshape how dynamic pricing is used in this critical industry.

Recourse for Renters both in the Short and Long runs?

Renters facing the impacts of dynamic pricing and potential collusion have several short-term and long-term recourse options to protect themselves and advocate for fair housing practices. These include personal strategies, legal avenues, and advocacy efforts to address unfair rental practices.

Short-Term Recourse for Renters

1. Shop During Off-Peak Seasons. Renters can save money by timing their lease to coincide with lower-demand periods, such as winter or mid-school year, when landlords are more likely to offer discounts.
2. Negotiate Rent and Lease Terms.

Many landlords, particularly individual owners, are open to negotiation. Renters can request lower rates, rent-free periods, or incentives like free parking.

Pointing out local competition or citing comparable rents can strengthen the renter’s position.3. Monitor Pricing Fluctuations

3. Use tools like Rentometer or similar services to compare local rental rates and determine if a landlord’s pricing is excessive.

• Watch for sudden spikes or patterns in rent hikes that seem coordinated among competitors, which may be evidence of pricing collusion.

4. Opt for Smaller Landlords or Privately-Owned Units

Larger apartment complexes are more likely to use dynamic pricing software. Renting from smaller landlords or private owners may provide more stable, negotiable pricing.

5. Document and Report Unfair Practices

If a renter suspects collusion or unfair rent hikes, they can: • File a complaint with the Federal Trade Commission (FTC) for suspected anti-competitive practices. • Report price gouging to local housing authorities, particularly in areas where rent control laws exist.

6. Use Renters’ Rights Organizations

Renters can consult organizations like Tenant Unions or Legal Aid Societies to seek advice, legal representation, or assistance in negotiating disputes.

Long-Term Recourse for Renters

1. Advocate for Rent Control Legislation

Rent control laws cap rent increases, limiting the impact of dynamic pricing. Renters can:

Support or join campaigns for rent control in their city or state.

Vote for local representatives who prioritize affordable housing policies.

2. Push for Greater Transparency

Renters can demand that landlords and property management companies disclose the factors influencing rental pricing, especially when algorithms are involved. Transparency builds accountability and curtails exploitative practices.

3. Participate in Class-Action Lawsuits

In cases like the ongoing lawsuits against RealPage, renters harmed by suspected collusion can join class-action lawsuits to seek damages and hold companies accountable. These legal challenges can create systemic change in how dynamic pricing tools are used.

4. Seek Legal Remedies for Discrimination

Dynamic pricing algorithms might unintentionally discriminate against certain groups, violating Fair Housing Laws. Renters can report such cases to the U.S. Department of Housing and Urban Development (HUD) or pursue legal action.

5. Encourage Public Regulation of Algorithms

• Renters and advocacy groups can push for laws requiring oversight of pricing algorithms in essential sectors like housing. For instance, governments could mandate audits of algorithms to ensure compliance with anti-trust laws and fairness principles.

• In some areas, renters could advocate for laws similar to those in the EU, which emphasize algorithmic accountability and transparency.

6. Foster Community Advocacy

• Joining tenant unions or grassroots housing movements can amplify renters’ voices. Organizations like the National Low Income Housing Coalition (NLIHC) work to combat predatory pricing and housing inequality.

Examples of Successful Renter Advocacy

1. New York Rent Stabilization
New York City has rent stabilization laws that cap how much landlords can increase rent annually for certain apartments. These protections were won through decades of tenant advocacy.
2. California’s Rent Cap Law (AB 1482)
In 2020, California implemented statewide rent caps that limit annual rent increases to 5% plus inflation. Renters and housing advocates were instrumental in passing this law.
3. Legal Challenges Against RealPage
Class-action lawsuits against RealPage and landlords accused of using collusive pricing tools may set legal precedents for renters nationwide. Success in these cases could lead to tighter regulations and fairer practices.

Practical Tips for Renters

• Understand Your Lease: Look for clauses that could lead to unexpected charges or rent hikes.
• Use a Lease Term Calculator: Determine whether a longer or shorter lease term saves more money based on dynamic pricing trends.
• Stay Informed: Follow housing advocacy groups or news related to housing policies in your area.

Conclusion

Renters can protect themselves in the short term by leveraging negotiation tactics, timing their leases strategically, and seeking legal advice. Long-term solutions require systemic change, such as supporting tenant advocacy efforts, promoting rent control, and pushing for transparency in dynamic pricing algorithms. By combining individual action with collective advocacy, renters can fight back against unfair practices and secure more equitable housing markets.

Dynamic Pricing, no doubt, is a form of collusion. I can understand why it can be used for new renters for short-term rentals. But should Dynamic Pricing be used to determine rent for existing renters in long-term rentals? Stay tuned as we extend this topic further.