We all know the rent is too damn high, and we all know there are plenty of reasons for that, including speculation, greed, economic inequality, a lack of affordable housing, limits on rent control—but also, it turns out, an algorithm.
ProPublica reporters spent months on an in-depth investigation in 2022 showing how a company called RealPage has helped landlords to allegedly conspire to keep units off the market and fix rents at an artificially high level:
The software’s design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nation’s largest landlords to indirectly coordinate pricing, potentially in violation of federal law.
Experts say RealPage and its clients invite scrutiny from antitrust enforcers for several reasons, including their use of private data on what competitors charge in rent. In particular, RealPage’s creation of work groups that meet privately and include landlords who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said.
At a minimum, critics said, the software’s algorithm may be artificially inflating rents and stifling competition.
RealPage is getting sued. State officials all over the country are investigating. Four US senators, including Elizabeth Warren and Bernie Sanders, wrote to the company CEO saying:
Since 2020, rents have increased 20 percent nationally, exacerbating what was already a severe affordable housing crisis. While the underlying cause of the housing crisis is a supply shortage of nearly seven million affordable homes, private equity firms and other institutional investors have taken advantage of these conditions and fueled the fire under American renters. In recent years, the increased involvement of these entities in the housing market has spelled a dramatic number of evictions and exorbitant rent hikes for their tenants. Now, new reporting indicates that your company is creating tools to push affordable housing for families further out of reach by “artificially inflating rents and stifling competition,” creating a rent-hike race to the top. …
YieldStar’s recommendation that landlords keep units vacant when tenants are unable to meet its asking price undermines efforts to ensure that the housing market is fair and free from discrimination. Keeping rental prices artificially high predictably and disproportionately hurts lower-income tenants, tenants of color, female-headed households, and persons with disabilities. It also undermines efforts to increase housing affordability by expanding the housing supply: zoning reforms and federal investments to increase the supply of housing will not bring rents down if landlords are colluding through algorithms to keep new units empty.
The software allows landlords to see what rent other landlords are charging almost instantly and, critics say, encourages them to jack up prices together, so nobody undercuts anyone else. If tenants can’t or won’t pay the higher rent, the software encourages landlords to hold the units off the market.
That sort of behavior is exactly what the federal and state antitrust laws were written for more than 100 years ago.
But so far, Congress hasn’t banned to activity, the Justice Department hasn’t shut RealPages down, and no state has outlawed the software.
San Francisco might be the first.
Sups. Aaron Peskin and Connie Chan have introduced legislation that would “prohibit the sale or use of ‘algorithmic devices’ to set, recommend, or advise on rents or occupancy levels for residential rental units in San Francisco.”
That, Peskin told me, is within the authority of local government. “It’s the most important, fastest thing the city can do right now to make San Francisco more affordable,” he said.
So RealPage is fighting back—because if San Francisco can regulate this software, so can Berkeley, Oakland, Los Angeles, Chicago, New York, Philadelphia … the list goes on and on.
San Francisco was the first to regulate Airbnb, and that model of local control spread. Fixing rents is a lucrative business, and RealPage has hired a lobbying firm to try to block the supes from passing the bill (and maybe the mayor from signing it.)
The company is represented by Theo Ellington, of Strategies360, who the SF Standard recently called a “local activist.” In a detailed letter to the supes, he argues that the media reports and investigations are way overblown, because RealPage only makes suggestions and doesn’t set anyone’s rent:
RealPage customers make decisions about their unique strategies and set their parameters for pricing recommendations. RealPage revenue management software then provides bespoke pricing recommendations to customers based on their unique strategies and property histories.
That’s not what RealPage executives say. From ProPublica:
“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role had the software played?
“I think it’s driving it, quite honestly,” answered Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
So far, according to what’s on the public record, the local landlord groups have been pretty quiet. But that could change.
The legislation goes to the Land Use and Transportation Committee Monday/29, and it passes, to the full board Tuesday/30.
It will be interesting to see if anyone on the board votes against it.
