Blaming AI for high rents misses the real housing problem

Originally published at The Austin American-Statesman.

​Austin is one of the country’s most-watched housing markets. This is because it highlights what can happen when a city allows more housing to be built. Yet the national debate over housing affordability has increasingly been hijacked by a convenient scapegoat: claims that AI-powered pricing software is “fixing” rents.

This fixation on pricing software avoids the forces actually driving rents upward and, in some parts of the country, downward: supply and demand. If cities want real solutions, leaders should stop blaming data tools for high rents and instead focus on the barriers preventing the construction of housing that people need.

Claims that algorithmic pricing tools “set” rents or compel landlords to raise prices have captured headlines, but they don’t hold water — because they ignore basic incentives. Landlords lose money when units sit vacant, regardless of what software they use. 

Recent settlements involving rent-pricing software have resulted in no findings of wrongdoing or admissions of liability. Federal courts have been clear: Analyzing data to suggest prices is not the same as controlling them. In competitive markets, landlords still bear the cost of pricing above what renters are willing to pay. As the 9th U.S. Circuit Court of Appeals put it, “Obtaining information from the same source does not reduce the incentive to compete.”

Despite the use of 21st-century tools, market fundamentals still determine rent levels.

Those fundamentals point to a single, unavoidable truth: America has a massive housing shortage — and no amount of software regulation can change that. Zillow notes that the U.S. housing shortage is 4.7 million units nationwide. When millions more people need homes than there are available, rents rise. If algorithms truly “caused” high rents, we would expect cities that restrict them to be more affordable. Yet those areas are often where rents are rising the most. 

In New York and San Francisco, rental housing is heavily regulated and data-driven pricing tools face tight restrictions. In both cities, rent growth continues to outpace national trends. New York's median rent is up 18% since the start of 2020, and San Francisco remains one of the most expensive rental markets, despite a ban on rental pricing technology taking effect in October 2024.

That’s no coincidence. These cities also share another trait: decades of underbuilding driven by zoning restrictions, lengthy approvals and political resistance to growth. San Francisco adds housing at one of the slowest rates in the U.S., and New York City routinely approves far fewer units than economists say are needed to meet demand. Tight supply, not technology, is the common denominator.

Now look at Austin. Some critics have claimed that its rent levels demonstrate the “dangers” of algorithmic pricing, yet the data tell a very different story. 

Austin has been building at a rate unmatched by almost any other major metro. From 2021 to 2023, the Austin region permitted more new apartments per capita than any other major Texas metro, with 10 new apartments per 1,000 residents. The effect has been undeniable: Austin rents are falling because it is building more housing.
There is no mystery to be solved. When supply grows faster than demand, prices fall. 
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When supply is choked off, prices tend to rise. The pricing tools being blamed help property managers understand market conditions by analyzing historical trends and anonymized data. 

Political temptation to target tech companies distracts from the real levers policymakers control. In many cities, 40% or more of the residential land is locked into single-family zoning, making it illegal to build apartments, townhomes or smaller, more affordable options.

Blaming software won’t put a roof over a single family’s head. Reforming zoning laws, reducing minimum lot sizes, streamlining approvals, lowering property taxes, and allowing housing supply to respond to demand will. If leaders are serious about affordability, they must stop chasing politically convenient narratives and start removing the barriers that make housing scarce. 

​The path forward is clear: Allow more homes to be built where people want to live. Until we address government failures behind undersupply, America’s housing affordability problem will persist.