Big Cities Fight Rents Based on Algorithms

 

"The federal government's price-fixing lawsuit against rental-software firm RealPage could take years to resolve. Rather than wait, some cities and states are already cracking down on the company.

San Francisco and Philadelphia passed laws in recent months to restrict the use of algorithmic rent-pricing systems at residential properties. Legislators in San Diego, New Jersey and other cities and states are considering new laws.

The growing push to regulate technologies in the apartment industry comes amid government allegations that the rental software offered by RealPage illegally coordinates rent pricing at around three million apartments nationwide.

In August, the Justice Department and eight state attorneys general sued RealPage in one of the most sweeping legal actions ever taken by the U.S. government against a private company in the rental-housing industry.

The department alleges the company illegally collects and crunches confidential data to help landlords set rents, an arrangement prosecutors said results in inflated rents for tenants, while also violating antitrust laws.

RealPage denies the allegations and says its landlords aren't required to use its price recommendations. But the company already has agreed to make at least one change in response to some of the new legislation, allowing its users to opt out of the nonpublic-data component of its service.

While the government's civil suit and related class-action lawsuits plod through the courts, liberal lawmakers are going on the offensive. They are under pressure from voters to rein in housing costs and have made rent-pricing software a top target.

"We are living in a time where we're not waiting for AI and algorithms to get here. They're here," said Nicolas O'Rourke, a city councilman in Philadelphia. O'Rourke sponsored the bill banning the use of certain rent-pricing software that passed the council in a 17-to-0 vote in October.

Two progressive policy-advocacy groups, Local Progress and the American Economic Liberties Project, drafted a memo this year that formed the basis for antirent-software ordinances passed in San Francisco and Philadelphia.

Similar laws have been drafted or discussed throughout the country, including in Chicago; San Jose, Calif.; San Diego; and Jersey City, N.J. State legislatures in New Hampshire, New York, New Jersey, Rhode Island and Colorado also have considered new measures to regulate rent algorithms.

Real estate has traditionally enjoyed less antitrust scrutiny than other big business sectors. Regulators long viewed the property industry as relatively fragmented and less prone to the potentially negative effects of corporate concentration seen in banking, computer technology or other major business sectors.

As housing costs have soared, that view is changing. In recent years the Federal Trade Commission, the Justice Department and state attorneys general have probed the anticompetitive or anticonsumer effects of large companies and organizations engaged in the home-sales industry and in single-family home rentals.

Some local governments, meanwhile, have introduced new rent controls or proposed banning large companies from buying single-family homes.

It is unclear whether a Trump administration will continue this heightened real-estate scrutiny. But both incoming Vice President JD Vance and attorney general nominee Matt Gaetz have praised current FTC Chair Lina Khan, who pursued antitrust actions against tech giants such as Meta Platforms and Amazon.com. In a post on X this year, Gaetz referred to himself as a "Khanservative."

Capstone, a Washington, D.C., policy risk advisory for large corporations and investors, is telling clients to expect the RealPage case to continue.

"We believe the case sits squarely at the intersection of big tech and consumer pricing, attractive targets for the next administration," said Makenzy Mohrman, a director at the firm.

The property industry views much of the recent regulation wave as a sideshow to the housing-supply shortage, which many economists believe underlies the rising housing costs seen in the U.S.

"There's agreement on all sides of the aisle that we need to build more housing, so why vilify the folks that are actually going to do that?" said Sharon Wilson Geno, president of the National Multifamily Housing Council, an apartment-industry trade group in Washington. Many of the group's members use software to price rents.

The new San Francisco and Philadelphia laws won't totally ban rent-setting software.

Instead, they target any system's use of nonpublic data, such as that sourced from individual landlords, rather than market data available to the general public. The laws also give tenants and local prosecutors the power to bring lawsuits against landlords who fail to comply.

RealPage said it is giving landlords the option to opt out of using nonpublic data in its software, which accounts for a minority of the data used to set rents, the company said.

It isn't clear how much nonpublic data influences the rents landlords ultimately charge, but that could come to light over the course of the Justice Department's case.

RealPage said its software isn't responsible for higher rents than would otherwise exist.

"Ill-informed legislation seeking to ban the responsible use of nonpublic price data will not lower rent prices," said Jennifer Bowcock, a RealPage spokeswoman. Lawmakers said getting RealPage to stop using confidential data was a step toward correcting an imbalance between tenants and large landlords armed with data and algorithms.

"We definitely consider that a victory," said Nate Horrell, a legislative aide for Aaron Peskin, president of the San Francisco Board of Supervisors." [1]

This is a general trend: wealthier people, like landlords in this case, will buy more expensive and powerful software services to create an opportunity to take advantage of the inability of others (in this case, tenants) to compete. Political backlash will destroy such opportunities.

 

1. Big Cities Fight Rents Based on Algorithms. Parker, Will.  Wall Street Journal, Eastern edition; New York, N.Y.. 20 Nov 2024: B.1.