This article was originally written on June 28, 2025.
Democratic socialist Zohran Mamdani’s recent victory over Andrew Cuomo in the New York City Mayoral Primary highlights rising concerns over rent inflation nationwide. With many progressive promises, including rent freezes, his intention is to address the housing affordability crisis in the city. Whether or not you align with Mamdani politically, this article will explore the economics behind rising rent prices over the last decade – AND how artificial intelligence plays a role.
The Great Recession (2008)
The 2008 financial crisis, triggered by the collapse of the US housing market, was a key cause of the financialization of rent. With people losing lots of money during the recession and in fear of another major housing market shock, renting a single-family unit was perceived as far less risky than owning one. That too, the lending environment was tight: it became hard for individual buyers to get access to a low-rate mortgage. Subprime mortgages had all but disappeared, forcing more people into the rental market. Moreover, 3.8 million Americans lost their homes to foreclosures; these properties, in low demand and high supply, were extremely cheap following the crisis.
This environment effectively paved the way for institutional investors, who realized they needed to diversify their stock-heavy portfolios, to enter the market. Don’t get me wrong, hedge funds and large investment firms were already in the housing market prior to 2008, but they were mostly involved in the condo market. 2008 was a pivotal shift, especially because the government subsidized these institutional investors in order to stabilize the economy. It was mainly the Department of Treasury and the Fed that collaborated on a range of programs to offer liquidity for these large companies. Companies like Blackstone, which specifically targeted foreclosed houses, were able to amass massive portfolios at insanely low operating costs.
Rent Algorithms
2008 provides solid context into what the market looks like, but an increasingly digital world has shifted rent pricing decisions from human judgement to data-driven analysis. For instance, RealPage, a company that gained prominence last year for being part of an antitrust lawsuit, developed an AI software that uses a combination of private and public data to optimize rent prices; the idea is that there is ZERO consumer surplus. Large-scale landlords who use the software feed it data about their own portfolio, which in turn makes the algorithm even more accurate for other investors. And it’s proven to work: Greystar, a large real estate investment firm, uses the software on tens of thousands of apartments, and outperformed the market by 5% during a large downturn.
When AI is making pricing decisions, the tenant’s bargaining power is practically nonexistent, as is the case in the Phoenix metropolitan area, where 70% of apartment units are managed by companies using RealPage. Now, rent is entirely detached from real-world wages and neighborhood stability, but instead dependent on algorithms. The concern, though, is that when nearly every landlord is relying on the same data, the platform essentially works as a third-party facilitator of price collusion, artificially inflating prices and displacing low-income individuals. Legally speaking, there’s very little ground to prove it. But, if lawsuits against companies like RealPage are successful, there will be broad implications beyond the real estate market. Concert and airplane tickets are prime examples of third-party software working to maximize large corporations’ profits.
New Jersey Assembly Bill A4916
With a legislative pushback beginning to emerge, all hope is not lost. The reason I wrote this article is actually because I came across a bill, introduced in the New Jersey State Assembly by Luanne Peterpaul and Margine Donlon, that “prohibits use and sale of algorithmic devices for setting rent price or occupancy of residential dwelling units.” Just 3 days ago, Seattle passed a similar proposal banning rent-setting software, marking an active shift by policymakers towards reducing rent inflation nationwide.
Sources
https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
https://www.kuow.org/stories/seattle-landlords-will-soon-be-banned-from-using-rent-setting-software
Image: https://denverite.com/2024/04/10/colorado-moves-to-crack-down-on-algorithms-raising-rent/