With home affordability within the Bay Area already spiraling uncontrolled, a federal court antitrust lawsuit against a property management software company has prompted San Jose officials to think about ways to guard renters from unfair pricing strategies.
City Council members Peter Ortiz, Omar Torres and David Cohen have proposed an ordinance that will ban rent or occupancy rate setting tools like RealPage, which the Justice Department accused of allegedly allowing landlords to collude on rent prices.
“Artificial intelligence should be a tool for innovation and progress, not for monopolistic practices that drive up housing costs,” Ortiz said.
In the antitrust lawsuit, filed jointly with the attorneys general of several states, including California, the software company is accused of allowing landlords to share competition data, giving them the chance to regulate their rents and make higher profits.
The government's lawsuit quotes a RealPage executive as saying, “It's better for everyone to succeed than for us to try to essentially compete with each other in a way that puts the entire industry under pressure.”
It also quotes a landlord who has used the software as saying: “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. This is classic price fixing…”
Scrutiny of property management software firms like RealPage began in 2022 after news outlet ProPublica conducted investigations into the corporate and the way its algorithm works, resulting in a flood of lawsuits, including against major multifamily developers and municipalities.
Before the antitrust lawsuit, RealPage denied any wrongdoing. In its defense, the corporate said landlords had control over whether to simply accept or reject rental recommendations and had 100% control over the rent amount.
As the case plays out in federal court, local politicians like Ortiz, Torres and Cohen said they felt compelled to act because the Bay Area's affordability crisis worsened.
“Dynamic pricing tools like RealPage are growing in popularity across the economy, providing market participants with the ability to maximize profits despite being cloaked in an inflationary environment,” a memo from the three council members said. “In the housing market, algorithmic rent setting has led to double-digit rent increases, more evictions, and worsened the city's housing shortage and homelessness crisis.”
Data from real estate analytics firm CoStar showed that the typical rent in Santa Clara County has increased 21% over the past nine years, to $2,990.
If San Jose were to enact a neighborhood ban of some sort, it could follow the instance of San Francisco, which passed an analogous ordinance last month to guard residents and lower rents, said Huascar Castro, housing and transportation director for Working Partnerships USA.
“There is a lot of irrefutable data showing that the share of housing stock owned by corporations is directly related to the effects of displacement,” Castro said. “This tool has been used to further exacerbate those effects and is being investigated as a form of price fixing.”
The interim regulation would allow the state attorney general and tenants to file civil lawsuits against landlords caught using the software – even though it doesn’t specify how they’d be caught – and will end in fines of as much as $1,000 per violation.
But before an ordinance is even considered, there’ll likely be questions and resistance about how town plans to implement it.
Anil Babbar, vp of local affairs for the California Apartment Association, said local officials mustn’t be responsible if a case is pending in federal court, fearing that property owners would need to bear the prices of enforcement.
“We don't have any data that shows or proves the occupancy rate in the city, so we don't know how big the problem is or what problem we're trying to solve,” he said.
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