Not Exactly Living Rent-Free …

“Service to others is the rent you pay for your room here on earth.” – Muhammad Ali

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Good morning!

As followers of our work know, housing prices have remained stubbornly elevated for quite some time now, significantly contributing to higher inflation. According to some regulators, a company called RealPage is partly to blame for that. Now, recent regulatory developments in the company’s favor could stand to complicate the Federal Reserve’s fight against inflation.  

RealPage’s software applies AI-driven algorithms to non-public rent data provided by landlord clients. This aggregated data is then used to provide guidance to landlords about the most they are likely to be able to convince prospective tenants to pay. Some landlords even opt to allow RealPage to set prices for their properties with little or no oversight of their own. In other words, RealPage and its competitors help landlords more accurately determine how much they can get away with asking, or the maximum rent the market will bear. 

The District of Columbia was among the first to sue RealPage, filing a 2023 lawsuit against the company and 14 area landlords, accusing them of colluding in an unlawful price-fixing scheme that inflated rents in the D.C. area. Yesterday, one of the landlords agreed to pay $1,050,000 to settle its part of the lawsuit. 

RealPage is fighting a number of similar lawsuits: last August, eight states joined in a federal lawsuit accusing ReaPage of colluding with landlords to violate prohibitions against price-fixing, while a number of district attorneys and state attorneys general have filed their own lawsuits making similar allegations. A raft of plaintiffs have also filed civil lawsuits against the company. Meanwhile, the use of such rental algorithms was banned in multiple cities over the past year, including Jersey City, NJ, Philadelphia, Minneapolis, San Francisco, and Providence.

Still, the company remains one of the dominant players in this space. A December 2024 report from the White House Council of Economic Advisers suggested that “in the multifamily housing sector nearly 1 in every 4 rentals uses a RealPage pricing algorithm,” and estimated that RealPage software was responsible for an additional $3.8 billion in housing costs for renters in 2023. RealPage itself seeks to entice landlords by suggesting its software could result in a “revenue lift between 3% to 7%,” even during downturns.

The controversy around RealPage’s business model has attracted federal attention, arguably to its benefit. The Big, Beautiful Bill currently winding its way through Congress includes a 10-year ban on state and local governments passing laws that prohibit companies from using AI-powered automated systems, including but not limited to RealPage’s software. 

Nobody (except landlords, obviously) particularly likes the idea of inflating rents, of course, but it is worth noting that dynamic pricing of the type enabled by RealPage has long been considered legal and acceptable in other industries. Rideshare companies like Uber and Lyft use dynamic pricing, and airlines have been using dynamic pricing long before rideshares came along. 

There are differences. RealPage compiles a real-time centralized database of non-public numbers provided by the landlords themselves, which is then used to set prices for many of the landlords using its software. On the other hand, Uber and Lyft don’t share data with each other, and they each set prices independently. The same is true for United Airlines and American Airlines. 

Yet RealPage’s use of AI in its model has also legal implications for rideshare companies and airlines. As with AI in general, a major concern is that AI tends to be a “black box” that makes it difficult to determine how any given decision was reached. Regulations that target RealPage via its use of AI could therefore affect a range of industries – and those who invest in them. 

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Question:  As posed here last Friday, will slowing down be good for Nvidia in the long run?

Answer: Slowing? I believe this is a cyclical bottom for NVDA brought on by the transition between Hopper and Blackwell chips. The next two quarters should be blowout quarters!!

Catch up with FS Insight

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Given the snapback recovery following worse than expected ISM data Monday, I believe the process of pushing back higher has gotten underway, with the most likely area of strong resistance for SPX near all-time highs.

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The Bank of Japan’s announcement that it plans to halt its quarterly reductions in government bond purchases will arguably be good for risk assets like crypto on the margin.

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