The San Francisco Board of Supervisors this week approved a ban on algorithmic price setting in the rental housing market, a measure targeting real estate management software from the likes of RealPage and Yardi that has been blamed in part for high rents.
San Francisco Board of Supervisors President Aaron Peskin introduced the ordinance on July 16, 2024, arguing such software "enables price collusion among large corporate landlords for the purpose of rent-gouging."
“Banning automated price-fixing will allow the market to work and bring down rents in San Francisco,” said Peskin [PDF], who has in the past supported down-zoning that limits the supply of available real estate in San Francisco, pushing up costs for people.
Other factors beyond algorithmic price setting and lack of housing supply can contribute to rental pricing, including private equity rental investment, housing costs, and construction costs.
Rent-fixing software has allowed corporate landlords to hike rents while restricting supply in cities
The ban – believed to be the first of its kind in the United States – awaits final approval from the Board of Supervisors on September 3, 2024.
"San Francisco has just taken a pioneering step to ensure housing markets are functioning properly, and that greater housing supply converts to lower prices for renters,” said Lee Hepner, senior legal counsel at the American Economic Liberties Project, in a statement. "Amid a generational housing crisis, RealPage’s rent-fixing software has allowed corporate landlords to hike rents while restricting supply in cities across the country."
The city ordinance states, "It shall be unlawful to sell, license, or otherwise provide to San Francisco landlords any algorithmic device that sets, recommends, or advises on rents or occupancy levels that may be achieved for residential dwelling units in San Francisco."
An "algorithmic device" under the ordinance "uses one or more algorithms to perform calculations of nonpublic competitor data concerning local or statewide rents or occupancy levels, for the purpose of advising a landlord whether to leave their unit vacant or on the amount of rent that the landlord may obtain from a tenant."
It's the nonpublic competitor data that is being disallowed for rent setting. According to ProPublica, "RealPage acknowledged that it feeds its clients’ internal rent data into its pricing software, giving landlords an aggregated, anonymous look at what their competitors nearby are charging."
That's probably a violation of US antitrust law, according to University of Arizona law professor Barak Orbach. "The use of nonpublic sensitive business information of firms to generate optimization recommendations for other firms is a facilitating practice that likely violates Section 1 of the Sherman Act," concluded Orbach in a research paper published in April.
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Following ProPublica's findings, RealPage and Yardi were sued in antitrust price fixing claims. Last November, the US Justice Department and the US Federal Trade Commission filed statements of interest in cases against the two companies, arguing that the lawsuits should not be dismissed because price fixing rules apply to pricing algorithms. And in March, Politico reported that the DoJ had opened an investigation into RealPage.
Presently, the consolidated case [PDF] against RealPage has reached in-principle settlement agreements that await approval. The Yardi case (Duffy v. Yardi Systems Inc et al) remains ongoing.
A RealPage spokesperson told The Register that San Francisco should focus on housing affordability and increasing the supply of rental units.
"While we share the San Francisco Board of Supervisors’ goal of helping renters, this ordinance will do nothing to make housing more affordable in the city, where there is a severe supply shortage of rental units that needs to be addressed," said Jennifer Bowcock, SVP of communications and creative. "Across our three revenue management software products, RealPage serves only 10 percent of the rental market in San Francisco.
"Our software is purposely built to be legally compliant and can be configured to comply with the new ordinance should it pass a final vote. The ordinance’s misplaced focus on nonpublic information is a distraction that will only make San Francisco’s historical problems worse by banning an important component of pricing technology that RealPage uses responsibly and that benefits residents, property managers, and the rental housing ecosystem as a whole." ®