Portuguese: Flawed policies, not algorithms, cause rent inflation – Daily Independent

Aurelien Portuez

As the Biden administration struggles to navigate treacherous economic waters, it is increasingly apparent that blame is misplaced. The printing of trillions of dollars to finance controversial policies inevitably and predictably led to the most significant period of inflation. Fiat currency, not technological development, creates inflation. The administration needs to know this inconvenient truth.

Instead of taking responsibility for unsound monetary policies and flawed regulatory measures, the administration has singled out corporate greed and algorithms, especially those used in the rental market, as the main culprits of inflation.

In July, Vice President Kamala Harris said on the campaign trail that she planned to “take on” corporate landlords. In his 2024 State of the Union address, President Biden similarly stated that his administration is “cracking down on large landlords who violate antitrust laws by fixing prices and raising rents.”

Backed by a number of legislative proposals in Congress, the administration is putting the blame for the spike in rental prices squarely on the shoulders of algorithmic software companies that landlords use to help set competitive rents that balance the need to fill vacancies with market conditions. The Department of Justice recently sued the algorithm-based software in question.

As an algorithmic antitrust scholar, I believe the administration’s anti-algorithm narrative is misleading and dangerous because it distracts from the real issues and risks stifling technological innovation in a variety of sectors, not just real estate.

The use of algorithms is standard practice in all industries, from airlines to hotels, grocery stores and toll road authorities. These tools allow businesses to make informed pricing decisions based on supply and demand dynamics. The real estate industry is no different.

Administration and Congressional activism against this technology suggests that algorithmic price competition is tantamount to algorithmic price fixing: algorithms enhance price competition rather than undermine it. However, the idea that algorithms are designed to fix prices or favor price increases remains undocumented, and research has begun to question this assumption. Indeed, computational price monitoring by algorithms increases competition between companies’ pricing strategies.

In other words, lawmakers blame tools that foster a more competitive industry by limiting the ability of algorithm-driven price competition in favor of less vigorous and demanding human-based models.

If such technology requires antitrust scrutiny, companies may hesitate to adopt or develop such solutions for fear of regulatory reprisals. This can hinder 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 is the result of too much money chasing too few goods and services. The administration’s policies of printing trillions of dollars and engaging in lavish spending programs flooded the economy with liquidity, fueling demand without a corresponding increase in supply. This classic recipe for inflation was further exacerbated by regulatory measures that stifled supply, particularly in the housing market.

Limits on rental prices and restrictive zoning laws created artificial scarcity, driving up the cost of housing. Impact fees, excessive permitting costs and strict building codes have made construction more expensive and less attractive to developers. Although well-intentioned, property tax policies and energy efficiency mandates have contributed to rising costs. By making housing more difficult and expensive to build, these policies constrained supply and pushed prices up.

Instead of demonizing technological tools and the businesses that use them, the administration should focus on addressing the causes of inflation. This includes reining in unwise monetary policies and reducing regulatory burdens that stifle supply. Policymakers can help ease supply shortages and naturally lower prices by encouraging investment in housing and other critical sectors.

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

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

To effectively combat inflation, 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.

Editor’s note: Aurelien Portuese is a research professor at George Washington University. He is the author of Algorithmic Antitrust. Reader reactions, pro or con, are welcome [email protected].