Colorado Democrats have decided to blame AI algorithms for the cost of rent in Denver. This legislative effort is misguided.

A bill banning these algorithms, which aggregate and study market data to help property owners determine their pricing, has already passed the state House, and Colorado’s Attorney General Phil Wesier has joined a Justice Department lawsuit against a pricing software company. 

It’s true this kind of software generally creates less variability in prices. If landlords set rents by taking their best guess based on incomplete information, some will undercharge and some will overcharge. When rent is set by the whim of a landlord, rather than actual market conditions, this variability can be unfair and inequitable. 

One study concluded that pricing algorithms have increased monthly rents on 4.2 million units nationwide by an average of $25. Obviously, landlords who weren’t using the algorithms were more likely to charge too little than too much. If this were the study’s only finding, the criticisms against pricing software would be more valid. 

Crucially though, the same study also found pricing algorithms make property managers “more responsive to market conditions” in general, “with adopters lowering rents more rapidly than non-adopters during economic downturns.” In other words, landlords who use pricing software are quicker to raise or lower prices as market conditions change.

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This software isn’t making those conditions worse for renters. If it does suggest double-digit increases in some areas, it’s because conditions were already worse, and landlords just hadn’t realized it yet. And when the economy struggles, the software directs landlords to lower rents, bringing relief to family’s budgets just when it is needed the most.  

When stocks get overinflated due to excessive investor optimism, the market experiences a “correction.” The same thing appears to be happening in some rental markets. It’s not pleasant, but it’s necessary. Setting prices based on the most accurate available information enables a more efficient allocation of resources. Over time, that benefits everyone. If rents go up, it encourages developers to build more apartment buildings. Supply rises to meet demand, and prices drop again. This is Economics 101. 

In many cities, zoning laws and other regulations make it difficult for supply to catch up to demand. Thankfully, Denver has adopted sensible policies that enabled it to build new housing faster than almost any other metro area in the country. When the city’s population started to rise in the early 2000s after decades of stagnation, Denver responded by adopting a new zoning code to incentivize more housing construction. Between 2011 and 2021, developers built more than 36,000 new multifamily units, more than triple the number constructed during the previous decade.

This strategy has paid off. Colorado had a rough few years during and after the pandemic, but that trend reversed once construction picked back up and inflation cooled off. Rents rose by around 1% nationally between the end of 2023 and the end of 2024, but dropped by 1.5% in Denver as newly built units hit the market. When trying to improve the housing market, it’s important to think about how supply and demand evolve over time, not just what they look like at a particular moment. And if the study on pricing algorithms holds true, renters whose landlords use this software will have gotten that discount sooner than anyone else. 

Pricing software can’t loosen a city’s zoning laws, streamline its construction permitting process, stimulate its economy, beautify its neighborhoods, get criminals off its streets, improve its schools, or change any of the other factors that determine where the supply and demand curves for rental units will cross to produce the market price. All it does is aggregate market signals to suggest to landlords what that price should be. This is especially valuable in a market like housing, which often takes years to respond to market conditions. Building units takes time. By helping to ensure homeowners reduce their prices quicker, pricing software can expedite this process, bringing more homes to market when they are so desperately needed. 

If you want to change zoning, permitting, neighborhood amenities, crime, or education, work with people in those areas. Banning a pricing algorithm won’t help with those areas. What pricing software will do is nudge a market that needs all the help it can get. Housing is the foundation of our economy, and our lives, any tool that will make that market more efficient is one worth using.  

Nathanael Peach is associate professor of economics at Fort Lewis College’s Katz School of Business in Durango.