Landlords are using AI to raise rents, and cities are starting to push back

If you’ve recently searched for apartments and felt that all rents are equally high, you’re not crazy. many landlords now use one company’s software that uses an algorithm based on property rental information to help set rent prices.

Federal prosecutors say the practice amounts to an “illegal information-sharing scheme,” and some lawmakers across California are trying to crack down on it. San Diego’s city council president is the latest to propose a ban that would prevent local apartment owners from using the pricing service. which, according to him, increases housing costs.

San Diego’s proposed ordinance, which is currently in the works, comes after San Francisco took effect; first nation prohibition in July for settlements “to set rents for the sale or use of algorithmic devices or to manage occupancy levels.” San Jose is observing similar approach.

Similar bans have been passed or are being discussed across the country. Philadelphia City Council in September adopted a ban on algorithmic rental price fixing with the right of veto. New Jersey is debating his own ban.

In August, the Department of Justice and the attorneys general of eight states—California, North Carolina, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington; filed an antitrust lawsuit Against RealPage, a leading Texas-based rental pricing platform, the complaint alleges that “RealPage is an algorithmic intermediary that collects, aggregates and exploits sensitive landlord information at the expense of tenants…”.

RealPage has been a big push for all the action, with some officials accusing the company of undermining competition that would otherwise drive down rents, exacerbating the state’s housing shortage and driving up rents in the process.

“We are disappointed that, after years of education and cooperation on antitrust issues related to RealPage, (the Justice Department) has chosen this moment to file a lawsuit that attempts to scapegoat a competitive technology that has been used responsibly for years.” The company’s statement read in part. “RealPage’s revenue management software is purpose-built for legal compliance, and we have a long history of working constructively with (the agency) to demonstrate that.”

“Every day, millions of Californians worry about keeping a roof over their heads, and RealPage has directly made it harder to do so,” California Attorney General Rob Bonta said in a written statement.

RealPage spokeswoman Jennifer Bowcock told CalMatters that the housing shortage, not the company’s technology, is the real problem, and that its technology benefits residents, property managers and others involved in the rental market. that “an undue focus on non-public information is a distraction … that will only exacerbate the historic problems of San Francisco and San Diego.”

As for the federal lawsuit, the company called the claims in it “without merit” and said it plans to “vigorously defend against these allegations.”

2020 An investigation of Markup and the New York Times found that RealPage, along with other companies, used flawed computer algorithms to perform automated background checks on tenants, resulting in tenants facing criminal charges they never faced and giving up their homes.

Is it price fixing or host training?

According to federal prosecutors, RealPage controls 80% of the commercial revenue management software market.Its product is called YieldStar, and its successor is AI Revenue Management, which uses the same code base as YieldStar but has more accurate forecasts.RealPage told CalMatters that it serves only 10% of the rental markets in San Francisco and San Diego across its three income management software products.

Here’s how it works.

To use YieldStar and AIRM, landlords have historically provided RealPage with their personal information from their rental applications, rental rates, new leases signed, renewal offers and acceptances, and future occupancy evaluations, although a recent change allows landlords to choose to share only public information. data. This information from all participating landlords in the area is then aggregated and run through mathematical predictions to generate pricing proposals for the landlords and their competitors.

San Diego Council President Sean Elo-Rivera explained:

“In the simplest terms, what this platform does is provide what we think of as a dark, smoky room for big companies to come together and set prices,” he said A way to keep the length. But it’s an illusion.”

In the company’s own words, from company filings included in the lawsuit, RealPage “ensures that (landlords) take every opportunity to raise the price even in the most bearish or unexpected circumstances.” The company also says in the filing that it “helps deter (landlords ) instincts to respond to declining market conditions by either sharply lowering the price or maintaining prices.’

Impact on tenants

Alan Pickens, a 31-year-old Navy veteran, and his wife move almost every year, “because the rent is going up, it’s becoming unaffordable, so we’re looking for a new place to stay,” he said.The Northeast San Diego apartment complex where they new have moved in, has two-bedroom apartments advertised from $2,995 to $3,215.

They live in an area of ​​San Diego where the U.S. Department of Justice says information-sharing agreements between landlords and RealPage have harmed or are likely to harm tenants.

In August, the agency filed its antitrust suit against RealPage, alleging that the company, through its legacy YieldStar software, engaged in “an illegal scheme to reduce competition between landlords in housing pricingThe complaint mentions specific areas where rents are artificially high. Outside of the part of San Diego where Pickens lives, those areas include South Orange County, Rancho Cucamonga, Temecula and Murrieta, and Northeast San Diego.

In the second quarter of 2020, the median rent in San Diego County was $1,926, reflecting a 26% increase over three years. according to the San Diego Union-Tribune. Rents in San Diego increased further to $2,336 per month as of November 2024, up 21% from 2020. according to RentCafe and the Tribune. It is 50% higher than the average national rent.

Attorneys general from eight states, including California, joined the Justice Department’s antitrust suit, which was filed in the U.S. District Court for the Middle District of North Carolina.

The California Department of Justice alleges that RealPage artificially inflated prices to keep them above a certain minimum, department spokeswoman Elisa Perez said. This was particularly damaging given the high cost of housing in the state, she added , which results from these price equalization schemes, comes out of the pockets of those who can least afford it.”

Tenants constitute a larger share of households in California than the rest of the country, at 44% compared to 35% nationwide.The Golden State also has a higher percentage of renters than any other state besides New York, according to The Latest US Census data.

San Diego has Fourth highest percentage of renters of any major city in the country.

The recent ranks of California lawmakers, however, include several tenants; As of 2019, CalMatters could find only one state legislator who did not have a home — and found that more than a quarter of lawmakers at the time were homeowners.

Studies show that low-income residents are more affected by rising rents.Nationally, between 2000 and 2017, the percentage of income that Americans without a college degree spent on rent rose from 30% to 42%. : For college graduates, that percentage rose from 26% to 34%.

“In my estimation, the only winners in this situation are the richest companies that either use this technology or create this technology,” Elo-Rivera said. “There couldn’t be a clearer example of the rich getting richer while the rest of us struggle to get along.”

The state invested in RealPage

Private equity giant Thomas Bravo acquired by RealPage in January 2021 through two foundations that have hundreds of millions of dollars in investments from California public pension funds, including the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, the University of California Regents and the Los Angeles Police and Firefighters Retirement Funds, according to the Private Equity Stakeholder Project :

“They invest in things that directly harm their pensioners,” says K. compiled a report on corporate hostsimpact on rental campaigns in San Diego;

RealPage claims that landlords are free to reject price recommendations generated by its software, but the US Department of Justice claims that attempting to do so requires a series of steps, including a conversation with RealPage’s pricing advisor managers to act on emotions,” the department’s lawsuit said.

If a property manager disagrees with the price suggested by the algorithm and wants to lower the rent rather than raise it, the pricing consultant “will escalate the dispute to the manager’s superiors,” prosecutors allege in the lawsuit.

In San Diego, the Pickens, who are expecting their first child, gave up gym memberships and downsized their cars to stay in the area.They considered moving to Denver.

“All the extras pretty much have to go,” Pickens said. “I mean, we love San Diego, but it’s getting hard to live here.”

“My wife is a lawyer and I served 10 years in the Navy and now I work at Qualcomm,” he said. Why are we fighting?’

This article was originally published on The Markup and reprinted under Creative Commons Attribution-NonCommercial-No Derivatives license