Bans on rent-pricing algorithms could backfire, lead to higher prices
Northwestern lawmakers are considering cracking down on rent-setting algorithms. (Getty Images)
The Pacific Northwest boasts natural splendors and world-class companies from Amazon and Microsoft to Nike and Columbia Sportswear. But a severe problem undercuts the region's momentum: a deeply undersupplied housing market. Oregon and Washington need a combined 1.6 million new housing units to keep up with demand.
Driven by the housing shortage, home ownership is out of reach for 80% of Washington families. One-third of the state's residents listed housing affordability as the top legislative priority.
In Oregon, the number of households has outpaced the number of new housing units in six of the last seven years. Oregonians now pay on average more than 40% of their income in mortgage payments, up from 28% in 2017.
The numbers speak for themselves: The parts of the U.S. that expanded housing supply the most are now seeing home prices fall. As Derek Thompson, co-author with New York Times columnist Ezra Klein of the much-discussed book Abundance, recently noted, rents skyrocketed in Austin, Texas, during COVID. The city responded by expanding its housing inventory by more than any city in the county. The result: Rents in Austin dropped by 7%.
Unfortunately, rather than reducing red tape, policymakers too often shoot the messenger whenever housing demand pushes prices higher. Recently, lawmakers in Portland, Olympia and Salem have advanced proposals to ban property managers from using rent-pricing algorithms as a part of their efforts to attract new residents.
The efforts have put a company known as RealPage under the microscope. Critics are claiming that the business is engaging in price-fixing without understanding what its analytical tools do. But data is critical for the housing market to be responsive to shifts in demand for the types and locations of places to live. More information helps suppliers and consumers.
RealPage supports property managers with accurate pricing for the market to help diffuse underpricing that could risk narrow profit margins over the long haul. The pricing data also helps root out overpricing that leads to vacancies. In the end, it's a resource. Individual property managers know their own offerings best and pricing software does not replace human decision-making. Users overrule RealPage's recommendations in more than half of all instances.
The anti-algorithm proposals also raise significant questions for the Pacific Northwest's economy. The region is uniquely resilient thanks to its tech and manufacturing sectors. These industries will be under massive threat if lawmakers impede efficiency-driving systems and market analysis tools. Using sophisticated algorithms, Amazon adjusts prices on products sold on its site 2.5 million times per day. Supporting robust competition means encouraging new players with support systems that allow them to break through in what are often static consumer spaces.
The urge to regulate first and ask questions later also dampens the housing market. In Washington, for example, state leaders have put climate initiatives at the top of the pecking order through a rule requiring all new homes and apartments to be built with electric heat pump systems, which would drive up the cost of building new homes and require builders to purchase new systems that have been scarce. Voters reacted by blocking the measure, but local officials are dragging their feet on following through on the initiative.
As Abundance authors Thompson and Klein point out, housing is an area where the best of intentions can lead to the worst of outcomes. Over-regulation made it virtually impossible to build more housing in San Francisco and New York. Overall, construction market experts have estimated that onerous rules imposed at the federal, state and local levels account for $93,870 of the sales price of a new single-family home.
Oregon is on the precipice of potentially authorizing state-owned land for housing development ventures – and federal land access can also help erode the housing crisis. But this is just one step of many at the state level that will be greatly needed to improve housing supply.
Software bans keep consumers in the dark about market opportunities and put zero shovels in the ground. A smarter regulatory framework that leads to more homes, not more lawsuits, is the relief that aspiring homeowners in the Pacific Northwest need today.
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