Thomas C. Willcox: Don’t blame AI for Pennsylvania’s high rent

Pennsylvanians might be more politically divided than ever before, but there’s one thing they can all agree on: the rent is too darn high.

In The Commonwealth, rents are expected to jump by more than six percent in 2025, well above the national average of 4.8 percent. This lack of affordability has led Pennsylvania politicians to do what they do best: point fingers. 

Easiest to blame is something new and complicated. Here it is “algorithmic pricing” — in particular, artificial intelligence-based software used by property owners to help price their units.

Pennsylvania localities have begun banning such software. However, simple research shows that algorithmic pricing is a benefit to competitive pricing, not a vehicle for price-fixing. 

Two reports — a March 2024 study by the Pennsylvania Housing Finance Agency and one by Property records firm — note, among other things, that Pennsylvania rents have gone up an average of eight percent since 2010, but make no reference to algorithmic pricing as a cause.

However, by the logic of various politicians, algorithmic pricing eliminates competition and drives up rent. There’s just one problem: there’s no evidence of such price-fixing. 

As Real Page — the most widely used of these new algorithmic software companies — explains, the starting point for price recommendations is the property’s historical internal transaction data and the supply and demand data for the region in question. In other words, this technology is merely helping its customers better understand what the market is currently bearing.

By no means are they bound by the recommendations the technology makes — and by no means does this software have a monopoly on the marketplace.

Even RealPage is used by property owners who control less than ten percent of living units, and even then, RealPage estimates that landlords reject its rent recommendations more than half the time. That is hardly an example of collusion.

There are a number of factors that go into determining how much you pay for rent, from supply to demand to whether an apartment building has a pool. Go on Zillow or Apartments.com and you’ll find a range of rent prices not just in the same town but in the same neighborhood. AI software is best thought of as one additional factor for landlords to consider, not the single factor that determines everything.

Algorithmic pricing is like longstanding product price compilations such as the Kelley Blue Book for used cars, which are unquestionably pro-competitive. Imagine that we were to see a sudden and unexpected surge in used car prices, to the point that owning or even leasing a car became unaffordable for many Americans. Now imagine that instead of blaming regulations or a lack of automotive supply or kinks in the supply chain, politicians pointed the finger at Kelley Blue Book. Everyone would agree that this contention is absurd. The same reasoning should apply with algorithmic pricing in the housing industry.

The single biggest factor behind rising rents is not improved pricing technology, it is simply that we don’t have enough housing. 

The Suburban Realtors Alliance estimates that Pennsylvania alone needs about 100,000 more homes to satisfy current demand.  The Keystone State also has one of the oldest housing stocks in the country, with the average home being 57 years old, or sixteen years older than the average resident.

Zoning and construction regulations that make it difficult to build new homes. Such regulations are passed by politicians — the same politicians who are now trying to shift the blame to algorithmic pricing. 

The lack of new homes drives up mortgage costs, which incentivizes older Pennsylvanians with fixed rates to stay put rather than move and pay more. This means the young have even fewer houses they can choose to buy, making them more likely to rent — and driving up rent costs even further. In fact, more wealthy millennials have left Pennsylvania than almost any other state. This means fewer construction workers on hand to build new homes.

Think of it as a perfect storm, and Washington isn’t exactly helping. Massive federal spending is a major driver of inflation, including rent increases.

Pennsylvania doesn’t need another legal crusade against another private-sector scapegoat. It needs to unleash its construction sector by keeping and attracting young workers and knocking down barriers to development. As Property Records put it, “[p]olicymakers must consider innovative housing solutions, such as expanding affordable housing programs and promoting responsible development, to ensure the cities remain inclusive and livable for all.”

In short, for better rental prices, Pennsylvanians deserve real relief, not political theater. Their leaders should take note.

Thomas C. Willcox is an antitrust lawyer and former deputy with the antitrust section of the Pennsylvania Attorney General’s office.