San Francisco Authorities Enact Ban on Rent Price-Setting Software to Tackle Housing Costs

San Francisco's streets, famous for Dirty Harry, movie car chases, and the hippie movement, will no longer be linked with rental price-setting software. The city is poised to become the first in the U.S. to ban these tech tools, which are believed to contribute to landlord price fixing.

The San Francisco Board of Supervisors has unanimously passed an ordinance introduced by supervisor and mayoral candidate Aaron Peskin, prohibiting landlords from using specific software and algorithms to determine rents. This measure still requires the mayor's approval next month to become enforceable.

The ban will impact well-known software companies like RealPage and Yardi, used by landlords nationwide. These companies have faced controversy, lawsuits, and a DOJ investigation for allegedly driving up rent prices.

Peskin’s office stated that the new legislation prohibits the sale and use of software that combines non-public competitor data to set, recommend, or advise on rents and occupancy levels. It also allows the City Attorney or affected tenants to file lawsuits.

California's Housing Crisis

California is one of the most rent-burdened states, with renters comprising 44% of households. Rent control advocates have been fighting to repeal the Costa-Hawkins Rental Housing Act, a 1995 law that restricts rent controls on single-family homes and housing built after February 1, 1995.

Price-setting software is believed to have contributed to the affordability crisis nationwide. Peskin described such software as "automated price-fixing" and claimed the ban would help lower rents in San Francisco. He noted that "Wall Street has entered the housing market, a phenomenon seen locally."

Peskin Accuses Landlords of Keeping Units Vacant

Peskin said, "We want to increase the number of available units. RealPage has worsened our rent crisis and enabled corporate landlords to keep units vacant. We’re taking local action to ensure working renters can afford to live here."

Attorney Lee Hepner of the American Economic Liberties Project told CBS News' John Ramos that RealPage's business model is illegal, accusing them of manipulating the market to fix prices, raise rents, and stifle competition.

Rent Increases and Tenant Harassment

RealPage responded to CBS News Bay Area on July 17, arguing that media reports are misleading and that their software "contributes to a healthier and more efficient rental housing ecosystem."

Lenea Maibaum, a tenant organizer for the Housing Rights Committee and Veritas Tenants Association member, said RealPage and Yardi primarily work with corporate landlords owning many units. These landlords use various tactics to increase profits, including rent hikes, fees to circumvent rent control, and evictions.

Maibaum stated, "Tenants experience rent hikes, fees, and arbitrary evictions due to RealPage. It's a dangerous tool in the hands of corporate landlords. Since Veritas, then Brookfield Properties, took over my apartment building, we've seen dramatic rent increases and harassment of long-term tenants."

Algorithmic Pricing and Mom-and-Pop Landlords

RealPage software sets rental prices on 4.5 million U.S. housing units. Despite lawsuits, the company serves both corporate and small landlords. Analytics site enlyft.com reports that 71% of RealPage's clients are small landlords with under 50 employees, reaching a large portion of the rental market.

Even mom-and-pop landlords, who represent nearly 46% of the rental market with one to four units, are influenced by RealPage. When landlords check nearby rental prices on sites like apartments.com, they often see prices set by RealPage users.

However, many tenants prefer lower rent without amenities. By charging less than the RealPage algorithm suggests, mom-and-pop landlords can attract tenants who prefer fairer prices over extras.

Final Thoughts

RealPage and Yardi are not the only software options; many alternatives exist. However, algorithmic pricing, common in many industries, has entered real estate. Property management software is a significant business, worth over $25 billion today and expected to reach $32 billion by 2028. Landlords seek returns on their software investments and the increasing upkeep costs of their buildings. Yet, these algorithms often overlook the socioeconomic factors affecting tenants seeking affordable housing.

By pricing rentals below the escalating market but maintaining them well, landlords can keep units filled longer, reduce turnover, and outsmart the algorithm.

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