I love technology. I'm a web developer, early adopter, tech enthusiast. Robots, computers and high tech devices are all super shiny symbols of modern life, and I for one welcome our new robotic overlords. It feels very strange to be writing this article. However, some recent research has shown me that technology in the rental industry isn't just used for sharing photos and paying rent online anymore. Computers and software programs for landlords are meant to minimize liability and maximize income. Unfortunately they're being used as a new face on old discriminatory practices and are huge contributing factors in recent skyrocketing rent rates.
The biggest landlords in the US are all publicly-traded corporations. They've got to keep their shareholders happy by maximizing rental income. Their sheer size draws the attention of fair housing watchdogs. They want to cut their human labor overhead by eliminating trained agents. From a corporate perspective it's quite obvious why these enormous investment corporations choose to automate as much of the job as possible. Computers are a very appealing scapegoat. They are, on the surface, completely objective. It's easy to support sensitive decisions by blaming a computer, forgetting that computers are all programmed by humans and therefore susceptible to human failings.
Computers Determine Rent Rates.
When your average small private landlord wants to set the rent rate for a vacant apartment or a lease renewal, he or she will often check the asking price of other apartments in the immediate vicinity. This is all well and good in a neighborhood full of other small private renters. However, many large-scale property owners are using revenue management software such as Rainmaker LRO and YieldStar to set their asking prices at the absolute highest they will go.
This means that there is no set asking price for these apartments. Rather, there will be a range depending on time of year, length of lease, number of occupants, number of other competing units in the area, and a multitude of other factors. If a landlord had planned to ask $2000 but the computer suggests $2079, they'll probably choose to ask the higher price. Many modern US renters aren't courageous enough to try and haggle with a landlord. Any chance at negotiation is shot once you add the intimidation factor of prices set by an "all-knowing" computer. Companies like RentConfident are working to bring back the art of negotiation to the rental market, but until they gain greater traction rent rates are basically free to spiral upwards unchecked with a boost from these revenue management systems.
These systems are great for satisfying the landlords' shareholders, and it would be fine if it was restricted to just large corporate apartment complexes. Currently they are the only ones that use this kind of software. However, it also has a ripple effect on the neighboring buildings that don't use computerized pricing. If you have been basing your rents at 60% of those at luxury building down the street and that building suddenly doubles their rents, you'll probably do the same. In rental housing, keeping up with the Joneses means everyone's rent goes up, regardless of what happens with renters' paychecks.
Computers Dictate Who Gets an Apartment.
Fair housing lawsuits are the landlord's equivalent of monsters under the bed. Every landlord must confront their own personal biases when deciding which tenants will be the least likely to pay their rent or most likely to destroy their apartments. Some landlords come out better than others when faced with this sort of decision.
As a result, it's easy to see why landlords have widely adopted background screening policies that not only provide payment and criminal history on renters, but actually give them a yes/no decision as to whether or not someone should be approved. (See for example Experian's "Decisioning Credit Profile Report for Tenant Screening" PDF.) It's a completely hands-off method of deciding who is worthy of occupying their property.
Now, this one is a tricky one for me to discuss, given that RentConfident is a company that rates landlords based on their past behavior. However, the process of designing our rating system has given me a somewhat unique perspective on automated tenant screening systems. I worked very hard to make sure that the Confidence Factor and Star Scores were as objective as possible. However, the biases of the creator are always going to be inherent in any computerized scoring system. Personally I think landlords that break the law are not good people to rent from. There are certainly many out there that would disagree with this viewpoint. All this is to say, I am not an entirely innocent bystander in the land of computer-assisted judgment of others.
Most of these tenant screening services allow landlords to set their own criteria for an approval. However, no matter if the criteria are set by landlords, their managers, their agents, or by the credit bureaus that provide the reports, someone is making the decision of where to set the limits. Those biases will inevitably result in someone having a much harder time finding housing than is really merited by their history. After all, there's a lot of ways to get to a credit score of 600 and not all of them reflect accurately on how reliably someone is at paying their rent.
HUD recently issued a memorandum (PDF) stating that it is illegal for landlords to have a blanket policy that excludes all ex-convicts by default. It's my opinion that they should also rule out blanket policies that depend on automated tenant screening systems.
Computers Are Replacing Real Estate Agents.
Real Estate tech blog Inman recently ran a competition in Colorado that pitted experienced Realtors against a computer to see which performed better at picking homes on the market to present to buyers. Their results? The computer won. (You can see the details at their article here, or once it goes behind their paywall, here.)
Not only did it win, but the buyer couldn't determine which properties had been sent to him by human agents and which had been sent by the robot.
Technology has already been inserting itself into the housing industry for some time now. Agentless digital brokerages like Redfin exist comfortably with the knowledge that computers can search through the MLS as well as humans can, if not better. The satellite-controlled SentriLock system is used to hold keys to homes on the market so that agents can access them for showings. If that system were to crash, huge swaths of property would suddenly become inaccessible.
Chicago landlords have already marginalized the role of the leasing agent to the point where any high school graduate can do the job. Building superintendents with minimal knowledge of English have been renting apartments in their buildings for years. I think Chicago leasing agents need to thank their lucky stars that Craigslist is so apathetic about its listings. A centralized, MLS-like database of apartment listings with the right amount of artificial intelligence could run them out of business.
More importantly, the only agents that truly represent tenants in Chicago are a scant handful of full-fledged real estate brokers that could very well be making more money selling houses. Leasing agents working for apartment locator services represent landlords, or at best, both sides of the transaction. Rental-focused Realtors - the ones that owe confidentiality and obedience to renters and can help negotiate rents on their behalf - are most often chosen by renters with lots of special needs. They're also at the greatest risk of being eliminated by automation. Some smaller cities don't have the apartment locator industry that we have in Chicago. If real estate agents were to be replaced with robots nationwide, representation for renters would pretty much vanish completely.
Computers Can Track Every Aspect of Tenants' Lives.
Home automation systems can be a great quality-of-life improvement for homeowners. Devices ranging from self-adjusting thermostats to motion-detecting lights and blinds that open automatically every morning. They're in high demand among homeowners, who can install them themselves. However, when home automation is installed in an apartment by a landlord, it doesn't take a genius to figure out what can go wrong.
A quick search of Google shows large numbers of cases where landlords have been caught planting spy cameras in tenants' apartments. Yet rental industry startup Remotely is offering apartment surveillance tools for apartment property managers, calling them "maintenance monitoring" tools.
As an alumna of the property management industry I can see the value in Remotely. I'd love to have reports of potential flooding, smoke alarms, blown circuit breakers and renters who are cranking the heat way too high.
However, the rest of me is really uneasy about the prospect of landlords being able to track every time I use my key, every time a turn on the lights, what time I wake up, which power outlets I'm using, and what time I take a shower. While this sort of technology has been restricted to luxury apartments, Remotely is setting a price point that targets small private landlords. I think the potential for abuse is far too high.
I firmly believe that there is no such thing as bad innovation, only bad implementation. After all, gunpowder was first used for fireworks. I can see how pro-tenant legislation has made automation very attractive to landlords and REIT shareholders.
Much of this technology has been adopted from existing tech that we have come to know and love. Revenue management software, for instance, takes its roots in airfare and hotel pricing systems. Agent-like robots that comb through home listings are the descendents of the web crawling software that powers modern search engines. Housing, however, is not a quick plane flight or a beeping gadget to buy on Amazon. It's a very personal commodity, a long term commitment and an absolute human need.
While I know that investment property requires a businesslike approach, some amount of human compassion must remain. That's why I group RentConfident with service providers like attorneys and social workers rather than with high tech startups. It's why I am leery of tech tools for the rental industry that paint with too broad of a brush. I wholeheartedly support digital innovation in the apartment industry, but I believe such developments must be adopted only after full investigation of their impact on renters from all walks of life.
Have you encountered a landlord that relied too heavily on technology? I'd love to hear your story! Drop me a comment below or on our Facebook page.
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