🏡💚 AI is raising your rent

In my last newsletter, I wrote about tech ideology and how Mark Zuckerberg’s rightward political shift is having ripple affects in the funding for housing justice organizations across California. In the past few weeks, there’s been even more reporting about this, including a piece in the Wall Street Journal and the San Francisco Business Times. In the short-term, this presents major challenges for some organizations that have been critical to building the tenant movement, fighting to end homelessness, and supporting the emergence of community land trusts. But that’s not the only way tech is impacting housing.

In the summer of 2021, a group of real estate tech executives gathered at a conference to discuss and celebrate a new signature product: an algorithm that would help landlords push for higher and higher rents from tenants. The company, RealPage, was touting the dramatic increase in apartment rents that they were attributing to their new software called YieldStar.

“Never before have we seen these numbers,” said one executive. When another was asked what role he thought the new software played in the uptick in rent prices, he said, “I think it’s driving it, quite honestly. As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”

Affirming this through a video testimonial, the director of revenue management at JVM Realty, Kortney Balas, says, “The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it.”

Other promotional materials claim that buildings using YieldStar consistently “outperform the market.” But more than just outperforming market, this algorithm is increasingly setting the market. According to ProPublica, one neighborhood in Seattle had 70% of apartments overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.

The software is much more than just a computer program helping landlords look at other rental listings. Here’s how it works:

In order to use YieldStar, landlords provide RealPage with their own private data about their rental applications, rent prices, lease renewals, occupancy estimates, and more. This information from all local landlords gets pooled and run through the algorithm to forecast prices and generate rent recommendations.

Ultimately, this amounts to a price fixing scheme that is driving up housing costs higher and higher. The fact that this is obvious collusion among supposed ‘market competitors’ is only obscured by the fact that it is mediated by a computer program, instead of having all of the local landlords physically gathering in a room to discuss and agree upon the rents they will all set to maximize profits.

Last year, California and seven other states joined the federal Justice Department in an antitrust lawsuit targeted at RealPage, citing anticompetitive practices that maximize price increases and landlord power, and alleging that RealPage maintains a monopoly on revenue management software for multifamily housing. At the end of last year, the White House Council of Economic Advisors released an analysisestimating that algorithmic rent software cost renters an estimated $4 billion in 2023.

This has spurred a response in cities and states across the country, which are already   grappling with a housing affordability crisis, and now having to contend with algorithmic price fixing to boot. San Francisco became the first city in the country to ban the use of algorithms to set rent prices. That was soon followed by ordinances in Berkeley, San Diego, Minneapolis, Providence, Jersey City, Seattle, and most recently Hoboken, New Jersey. In April, the city of Berkeley was sued by RealPage before its ordinance took effect; rather than undergo a costly legal battle, city officials voted to pause the ban until 2026.

A coalition of tenant organizations and tech equity groups (including the TechEquity Collaborate) came together to help run statewide legislation that would put a stop to this in California. The bill, SB 52 (Pérez), or the Ban AI Rent Hikes Act, would do pretty much exactly what the title says: it would ban the use of algorithms that coordinate between landlords to recommend rental prices. That bill (supported by our coalition!) is still alive and making its way through the Assembly, currently in the Appropriations Committee.

I should also say — it’s not just housing. AI pricing algorithms are coming for everything. Recent reporting also reveals airlines are using algorithms to set passenger fares, and lawsuits last year allege that hotels are using them to inflate room prices.

Algorithmic pricing is just one use case in the many we’ve seen through the explosive surge in artificial intelligence. Although the attention on AI has focused on large language models like ChatGPT, it’s all part of the same race to win the next frontier of capital investment when almost all others have been spent. That means getting in while the getting’s good, hyping the potential, and figuring out where the profits are highest. It also means an incredible amount of energy use.

As many people know, the massive increase in demand for data centers also means a massive increase in energy demand. Recent reporting shows how this is driving up utility bills for everyone, with some states like Ohio and Virginia feeling the worst of it. This has led to some new developments in the energy industry that I think is being widely underestimated and overlooked. For one, it has spurred Tech to get into power generation. Amazon, Google, Apple, and Microsoft have all started investing in power plants that provide energy on the wholesale electricity market.

While we obviously need a lot more energy generation to power the grid, I think we should all be concerned about what it means for these tech corporations to grow their share in owning and controlling our energy system. And it’s hard to give them much credit for contributing to energy supply when their main motivation is because their projected energy demand is going through the roof with their dreams for data center growth. And it’s not like this is making them any “greener”: Google’s emissions are up 51% due to AI electricity demand, and Microsoft’s emissionsjumped over 23% last year. It’s probably a little too on the nose, but it is a cruel irony that a company named after the largest rainforest and one of the biggest carbon sinks in the world is now one of the main driving forces behind the voracious demand for more and more energy.

And the truly maddening thing? Utilities are happy about it all — more customers! The energy industry is “salivating” off of the potential for new growth and investment. In just about a decade, we’ve gone from concerns of a “death spiral” from rooftop solar customers leaving the grid, to utility-scale boom times with speculative investments in data centers. I don’t want to relitigate the arguments over rooftop solar and issues of equity, but I think it’s a good illustration of how backwards our priorities are. At the same time that many climate advocates are working to try to reduce energy demand through things like energy efficiency, upgrading appliances, and designing our communities to be less carbon intensive, capitalists are celebrating the massive projected increase in energy demand from AI.

Yes, AI has many ethical implications on society and culture, and I think many of us probably wrestle with our comfort in interacting with and using it. But I also think some of the focus on that can really obscure the economic story of what AI means in late stage capitalism when most physical industries have exhausted the returns on investment and the financialization of everything is running out of juice. The digital bubble seemed like it was deflating too, with increasingly insane bubbles trying to serve as speculative outlets to make a quick buck (remember NFTs???). But AI has stepped in and is going to be deployed in both obvious and unseen ways in our lives. And we’re going to pay the price.

A look inside (your brain?) a data center. Source: CNET

WHAT WE’RE READING

• Rent Going Up? One Company’s Algorithm Could Be Why. (ProPublica) — this is the really important piece from 2022 that brought attention to the RealPage issue, highly recommend

• Big Tech’s A.I. Data Centers Are Driving Up Electricity Bills for Everyone(NYTimes)

• Two years after a wildfire took everything, Maui homeowners are facing a new threat: Foreclosure (Grist)

• San Francisco’s Ultrarich Are Blocking a Zohran-Style Agenda (Jacobin)

• San Francisco fast-tracks all-electric standard for major renovations (Canary Media)

• The Growing Fight for Green Economic Populism (In These Times) — great piece from Ruthy and Batul at Climate & Community Institute

• This Massachusetts town banned gas — and housing boomed anyway (Canary Media)

• Abundance for the 99 Percent (Jacobin)

Feel free to reply any time! I always enjoy hearing from people and getting any feedback/questions/additional thoughts.

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