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With home affordability in the Bay Area already out of control, a federal antitrust lawsuit against a property management software company has prompted San Jose officials to consider ways to protect renters from unfair pricing strategies.
City Councilmembers Peter Ortiz, Omar Torres and David Cohen have proposed an ordinance that would ban rent or occupancy-setting tools like RealPage, which the Department of Justice recently accused of allegedly allowing landlords to collude on rental prices.
“Artificial intelligence should be a tool for innovation and progress, not for monopolistic practices that drive up housing costs,” Ortiz said.
The antitrust suit, filed in conjunction with several state attorney general offices–including California’s — alleges that the software company allowed landlords to share competitive data, allowing them to align their rents and push for greater profits.
The government’s complaint cites a RealPage executive saying, “There is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.”
It also quotes a landlord who used the software, saying, “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term. That’s classic price fixing…”
The scrutiny of property management software companies like RealPage began in 2022 after the news outlet ProPublica’s investigation into the company and how its algorithm functions, leading to a barrage of lawsuits, including against major multifamily real estate developers and communities.
Prior to the antitrust suit, RealPage denied any wrongdoing. In its defense, the company said landlords had control over whether to accept or reject rental recommendations, and decided their own rental amounts 100% of the time.
While the case plays out in federal court, local leaders like Ortiz, Torres and Cohen said they feel compelled to act as the affordability crisis deepens in the Bay Area.
“‘Dynamic pricing’ tools such as RealPage have grown popular across the economy, offering market actors the ability to maximize profits disguised by an inflationary environment,” a memo authored by the three councilmembers stated. “In the context of the housing market, the use of algorithmic rent-setting has yielded double-digit rent increases, increased evictions, and an exacerbation of the City’s housing affordability and homelessness crisis.”
Data from real estate analytics firm CoStar showed that the median rent in Santa Clara County has risen 21% in the past nine years, to $2,990.
If San Jose were to enact some form of local ban, Huascar Castro, the housing and transportation director at Working Partnerships USA, said it would follow in the footsteps of San Francisco, which approved a similar ordinance last month to help protect residents and bring down rents.
“There is a lot of irrefutable data that shows that the amount of housing stock that is owned by corporate real estate has a direct tie to existing displacement impacts,” Castro said. “This tool has been used to further exacerbate these impacts and is being investigated as a form of price-fixing.”
The preliminary ordinance drawn up would allow the city attorney and tenants to file civil action against landlords who are caught using the software—though how they would be caught is not laid out —with penalties of up to $1,000 per violation.
But before an ordinance is even considered, it will likely face some questions and opposition over how the city would enforce it.
Anil Babbar, a senior vice president of local affairs at the California Apartment Association, said local officials should not be responsible when there is an active federal case, and worried that property owners would bear the enforcement costs.
“We don’t have any data to justify or show what the utilization rate is in the city, so we don’t know how extensive of a problem it is or what problem we’re trying to fix,” he said.
Originally published at Devan Patel