Misguided policies, not algorithms, cause rental inflation

As the Biden administration struggles to navigate treacherous economic waters, it has become increasingly evident that the blame is being misplaced. The printing of trillions of dollars to fund controversial policies inevitably and predictably led to the most significant period of inflation. Fiat currency, not technological developments, creates inflation. The administration should know this inconvenient truth.

Instead of taking responsibility for unsound monetary policies and misguided regulatory measures, the administration has scapegoated corporate greed and algorithms, particularly those used in the rental market, as the primary culprits for inflation.

In July, Vice President Kamala Harris said on the campaign trail that she plans on “taking on” corporate landlords. In his 2024 State of the Union address, President Joe Biden similarly declared his administration is “cracking down on big landlords who break antitrust laws by price-fixing and driving up rents.”

Supported by a slew of legislative proposals in Congress, the administration is placing the blame for soaring rent prices squarely on the shoulders of the algorithmic software companies that landlords use as an aid in setting competitive rental rates that balance the need to fill vacancies with market conditions. Recently, the Justice Department sued the algorithmic-based software in question.

As an algorithmic antitrust scholar, I think the administration’s anti-algorithm narrative is misleading and dangerous as it diverts attention from the real issues at hand and risks chilling technological innovation across various sectors, not just real estate.

Using algorithms is standard practice across industries, from airlines to hotels, grocery stores and tollway authorities. These tools enable businesses to make informed pricing decisions based on supply-and-demand dynamics. The real estate industry is no different.

The administration and Congress’ activism against this technology assumes that algorithmic price competition equates to algorithmic price-fixing: Algorithms enhance price competition rather than undermine it. However, the idea that algorithms are designed for price-fixing or conducive to price increases remains undocumented, and research has started questioning that assumption. Indeed, algorithms’ computational monitoring of prices increases competition among companies’ pricing strategies.

In other words, legislators are blaming the tools that promote a more competitive industry by limiting the ability of algorithm-driven price competition in favor of less vigorous and exacting human-based models.

If such technology invites antitrust scrutiny, companies may hesitate to adopt or develop similar solutions, fearing regulatory reprisal. This could impede progress and limit the potential benefits that algorithmic pricing can offer consumers and businesses, hindering the growth of a dynamic and competitive market.

The administration’s narrative conveniently ignores the causes driving inflation. At its core, inflation results from too much money chasing too few goods and services. The administration’s policies of printing trillions of dollars and engaging in lavish spending programs have flooded the economy with liquidity, fueling demand without a corresponding increase in supply. This classic recipe for inflation has been further aggravated by regulatory measures that stifle supply, particularly in the housing market.

Rental price caps and restrictive zoning laws have created artificial scarcity, driving up housing costs. Impact fees, excessive permitting costs and stringent building codes have made construction more expensive and less attractive to developers. While well-intentioned, property tax policies and energy efficiency mandates have contributed to rising costs. By making it more difficult and costly to build housing, these policies have constrained supply and pushed prices upward.

Rather than demonizing technological tools and the businesses that use them, the administration should address the causes of inflation. This involves reining in unsound monetary policies and reducing regulatory burdens that inhibit supply. Policymakers can help alleviate supply shortages and bring prices down naturally by encouraging investment in housing and other critical sectors.

Recognizing that the private sector is not the enemy but a partner in achieving economic stability is crucial. Companies that use algorithmic pricing tools do so to navigate complex market dynamics and provide competitive services to consumers. Punishing these firms for their efficiency and innovation is counterproductive and detracts from the real issues.

The administration’s narrative that inflation is driven by corporate greed and algorithmic pricing in the rental market is inaccurate and harmful. This scapegoating diverts attention from the administration’s role in creating inflation through unsound monetary policies and restrictive regulations constraining supply.

To combat inflation effectively, the administration must foster a more favorable economic environment by reducing regulatory burdens, encouraging investment and partnering with the private sector to increase supply. Only by addressing the root causes of inflation can we hope to achieve sustainable economic stability and prosperity.

Aurelien Portuese, the author of “Algorithmic Antitrust,” is a research professor at George Washington University. He wrote this for InsideSources.com.