If you recently looked for an apartment and got the impression that all the rents were equally high, you're not crazy: many landlords now use one company's software – which uses an algorithm based on proprietary information on leases – to help set rental prices.
Federal prosecutors say the practice amounts to “an illegal information-sharing scheme” and some lawmakers across California are moving to curb it. San Diego's City Council president is the latest to do so, proposing a ban that would prevent local apartment owners from using the pricing service, which he says drives up housing costs.
San Diego's proposed ordinance, which is currently being drafted, comes after San Francisco adopted a first ban in the country on “the sale or use of algorithmic devices to set rents or manage occupancy rates” of residences in July. San Jose is considering a similar approach.
Similar bans have been passed or are being considered across the country. In September, the Philadelphia City Council adopted a ban on algorithmic rental price setting with a vote without veto. New Jersey is considering its own ban.
In August, the Justice Department and the attorneys general of eight states – California, North Carolina, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington – filed an antitrust complaint against RealPage, the leading Texas-based rental pricing platform. The complaint alleges that “RealPage is an algorithmic intermediary that collects, combines and exploits owners’ sensitive and competitive information. And in doing so, he enriches himself and docile landlords at the expense of tenants who pay inflated prices…”
RealPage has been a major driver for all of these actions. Some officials accuse the company of thwarting 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 several years of education and cooperation on antitrust issues surrounding RealPage, the (Justice Department) has chosen this time to file a lawsuit seeking to make a pro-competitive technology used responsibly for years a scapegoat.” » the company's statement read in part. “RealPage's revenue management software is intentionally designed to be compliant with the law, and we have a long history of working constructively with the (department) to demonstrate this. »
“Every day, millions of Californians worry about keeping a roof over their heads and RealPage has directly made it more difficult,” California Attorney General Rob Bonta said in a written statement.
A RealPage spokeswoman, Jennifer Bowcock, told CalMatters that the real problem is the lack of housing supply, not the company's technology, and that its technology benefits residents, property managers and clients. other people associated with the rental market. The spokesperson later wrote that “a misplaced focus on non-public information is a distraction…that will only worsen San Francisco and San Diego's historic problems.”
As for the federal lawsuit, the company called the allegations “meritless” and said it plans to “vigorously defend itself against these accusations.”
In 2020, a Markup and New York Times survey discovered that RealPage, alongside other companies, used faulty computer algorithms to conduct automated background checks on tenants. As a result, tenants were associated with criminal charges they had never faced and were denied housing.
Is it about price fixing or controlling owners?
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 much of the same code base as YieldStar but offers more accurate forecasting. RealPage told CalMatters that it serves only 10 percent of the rental markets in San Francisco and San Diego, through its three revenue management software products.
Here's how it works:
In order to use YieldStar and AIRM, landlords have historically provided RealPage with their own private data from their rental applications, rent prices, new leases signed, renewal offers and acceptances, and future occupancy estimates , although a recent change allows owners to choose to share only public data. This information from all participating landlords in an area is then aggregated and analyzed via mathematical forecasting to generate pricing recommendations for landlords and their competitors.
San Diego Council President Sean Elo-Rivera explained it this way:
“Simply put, this platform provides what we consider to be a dark, smoky space for large companies to come together and set prices,” he said. “Technology is used as a way to maintain a dependency distance between big companies and everyone else. But it's an illusion.
In the company's own words, from company documents included in the lawsuit, RealPage “ensures that (the owners) exploit every possible opportunity to increase prices, even under the most bearish or adverse conditions.” unexpected”. The company also said in the filings that it “helps curb (owners') instincts to respond to bearish market conditions, either by significantly lowering prices or maintaining them.”
Impact on tenants
Alan Pickens, 31, a Navy veteran, and his wife move almost every year “because the rent is going up, it's becoming unaffordable, so we're looking for new housing,” he said. The northeast San Diego apartment complex where they just moved has two-bedroom apartments listed for $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.
The department filed an antitrust lawsuit against RealPage in August, alleging that the company, through its former YieldStar software, engaged in a “illegal system aimed at reducing competition between owners in terms of apartment prices“. The complaint cites specific areas where rents are artificially high. Beyond 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 average rent in San Diego County was $1,926, an increase of 26% over three years. according to the San Diego Union-Tribune. Since then, rents have increased further in the city of San Diego, reaching $2,336 per month in November 2024, an increase of 21% compared to 2020. according to RentCafe and the Tribune. This is 50% more than the national average rent.
Attorneys general from eight states, including California, joined the Justice Department's antitrust suit filed in the U.S. District Court for the Middle District of North Carolina.
The California Department of Justice claims RealPage artificially inflated prices to keep them above a certain minimum level, department spokeswoman Elissa Perez said. This is particularly detrimental given the high cost of housing in the state, she added. “The illegally maintained profits that result from these price matching schemes flow out of the pockets of those who can least afford them. »
Tenants represent a larger share of households in California than in the rest of the country – 44% here versus 35% nationally. The Golden State also has a higher percentage of renters than any other state other than New York, according to the latest US census data.
San Diego has the the fourth highest percentage of renters of any major city in the country.
However, recent ranks of California lawmakers include few renters: as of 2019, CalMatters could only find one state legislator who didn't own a home – and found that more than a quarter of the legislators at the time were landlords.
Studies show that low-income residents are hit harder by rising rents. Nationally, between 2000 and 2017, the percentage of income that Americans without a college degree spent on rent increased from 30% to 42%. For college graduates, this percentage increased from 26% to 34%.
“In my opinion, the only winners in this situation are the wealthiest companies that are using this technology or creating 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 by.”
The State invested in RealPage
Private equity giant Thoma Bravo acquired RealPage in January 2021 through two funds 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 Regents of the University of California and the Los Angeles Police and Fire Department. funds, according to the Private Equity Stakeholder Project.
“They are investing in things that directly harm their retirees,” said K Agbebiyi, senior housing campaign coordinator at the Private Equity Stakeholder Project, a nonprofit private equity watchdog that produced a report on corporate owners' impact on rent increases in San Diego.
RealPage claims that owners are free to reject price recommendations generated by its software. But the U.S. Department of Justice says getting there requires a series of steps, including a conversation with a RealPage pricing advisor. The advisors attempt to “prevent property managers from acting on emotions,” according to the department’s lawsuit.
If a property manager disagrees with the algorithm's suggested price and wants to lower the rent rather than increase it, a pricing consultant will “escalate the dispute to the manager's supervisor,” prosecutors say in the filing. pursuit.
In San Diego, the Pickenses, who are expecting their first child, gave up their gym membership and downsized their cars to stay local. They considered moving to Denver.
“All the extras 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 in the Navy for 10 years and now work at Qualcomm,” he said. “Why are we struggling? Why do we fight?
This article was originally published on The Markup and was republished under the Creative Commons Attribution-NonCommercial-No Derivatives license.
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