Real Estate Tech is a Force for Good: Unbiased facts about the American housing crisis

By: Sharon Wilson Géno, NMHC President

In her inaugural post for the 'One Nation, Underhoused' blog series, NMHC President Sharon Wilson Géno shares facts and important data points related to misconceptions surrounding the use of revenue management software.

View and share the web version of this blog here: https://www.nmhc.org/news/nmhc-news/2024/real-estate-tech-is-a-force-for-good/

In this election year, it seems every aspect of America has become politicized – the economy, education, technology, healthcare and even housing, a basic human necessity. Unfortunately, housing has become a proverbial “political football” for policymakers at all levels and all branches of government to use by offering quick fix “solutions,” often for their own political gain. Many such proposals are based on perceptions that feed a particular political narrative, while ignoring facts and data—ultimately hurting renters, the very people they purport to support.

Like many of you, we have seen the allegations that the use of algorithms in the rent pricing process violates antitrust laws and has led to rent increases. Those unproven allegations have spurred investigations, lawsuits, congressional hearings and proposed legislation at the Federal, state and local levels that seek to ban the use of algorithmic pricing. These allegations mimic factually inaccurate reporting published only a few weeks before class action lawsuits were filed across the country.

While it is not appropriate for us to comment on claims made in pending lawsuits, NMHC offers the following facts and important data points about U.S. rental housing that have not been generally reported or understood by news media and policymakers.

1. We are facing a housing shortage in this nation which impacts every American regardless of geography, economic status, race and, yes, even their politics that is mainly responsible for the cost of rent. Mountains of recent research shows that the U.S. is currently short millions of homes. In fact, NMHC/NAA-commissioned research indicates we need to build 4.3 million apartments alone between 2022 and 2035 to meet current and future demand. We see evidence of this dire need for housing every day in media reports and on the streets of our cities, suburbs and rural communities. Experts of all political persuasions agree that the shortage of housing, along with increased costs, especially post-COVID, are the primary drivers of rent increases in any given community.

2. Revenue management software that incorporates pricing data has been used in various industries for decades. Collecting market pricing data and using algorithmic analysis is not new. It has been used for decades in a variety of industries. This common tool helps businesses to understand demand and, with additional factors, to help inform a price decrease or increase.

3.?Housing providers are responsible for determining rents, not algorithms. Rents are set based on the unique situation of each individual property and owner and are not driven exclusively by market pricing. Market pricing is just one of a multitude of factors—including the individual unit features and amenities, lender and investor requirements, the age of the property, the cost and risk of operating the property and a host of other considerations.

4. The Federal government has used market rent data and collected and aggregated rent information for decades in setting rents for the Section 8 program, including data available from some of the software systems now in question. The use of rental data to help determine pricing is a long-recognized, accepted best practice in rental housing. For example, the Federal government, through the U.S. Department of Housing and Urban Development (HUD), collects and analyzes rent data from multifamily owners across the country to determine what is called the Fair Market Rent (FMR) which is used to distribute the $32 billion Section 8 Voucher Program. HUD relies on data and analysis from some of the software companies now alleged to have engaged in anticompetitive behavior as part of the FMR determination process.

5. Large multifamily owners make up a comparatively small portion of the rental housing in the U.S. In fact, nearly 2/3 of the rental housing in the U.S. is owned and operated by small “mom and pop” housing providers with one to four units. For example, large multifamily owners who are on the NMHC Top 50 multifamily owner list make up only 10% of the total apartment stock.

6.?Rental housing ownership is a business with economic risk and thin margins over costs. With the exception of subsidized housing programs, the government does not provide money to build the housing we need. The lion’s share of rent pays for rapidly increasing operating expenses such as state and local taxes, maintenance and other operating costs—similar to costs incurred by homeowners. Insurance premiums alone rose 26% in 2023. Recent research shows that nationally, only 7 cents of every dollar of rent go to the housing provider.

As with all technology, when used well, revenue management software can be advantageous to consumers as it gives manufacturers, service providers and, in this case, rental housing providers real-time information to consider adjustments to their pricing based on market conditions. This data enables them to more effectively rent the right unit to the right customer at the right price and the right time. In this tight housing market, where we want to help those in the market access a rental home as soon as possible, revenue management systems can be a helpful tool. Let’s not “throw the baby out with the bathwater.”

Based in Washington, D.C., the National Multifamily Housing Council (NMHC) is where rental housers and suppliers come together to help meet America’s housing needs by creating inclusive and resilient communities where people build their lives. We bring together the owners, managers, developers and suppliers who provide rental homes for 40 million Americans from every walk of life—including seniors, teachers, firefighters, healthcare workers, families with children and many others. NMHC provides a forum for leadership and advocacy that promotes thriving rental housing communities for all. For more information, contact NMHC at 202/974-2300, email the Council at [email protected] , or visit NMHC's website at nmhc.org .