If you’ve been looking for apartments recently and felt like all the rents were the same, you’re not alone: Many landlords are now using one company’s software (which uses an algorithm based on proprietary rental information) to calculate rental prices to help determine. Layout reports.
Federal prosecutors say the practice amounts to “an unlawful information-sharing scheme,” and some lawmakers across California are trying to curb it. The San Diego 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 in July issued a first-in-the-nation ban on “the sale or use of algorithmic devices to determine rents or manage occupancy” for residential properties. 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 approved a ban on algorithmic rent-fixing with a veto vote. New Jersey has considered its 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, the leading rental pricing platform in Texas. The complaint alleges that “RealPage is an algorithmic intermediary that collects, combines, and exploits competitively sensitive information from landlords. And by doing so, it enriches itself and law-abiding landlords at the expense of tenants who pay inflated prices…”
RealPage has been an important impetus for all actions. Some officials accused the company of thwarting competition that would otherwise drive down rents, worsening the state’s housing shortage and driving up rents.
“We are disappointed that, after several years of education and cooperation on the antitrust matters relating to RealPage, the Department of Justice has chosen this moment to file a lawsuit that seeks to undermine pro-competitive technology that has been on the market for years.” used responsibly, as a scapegoat.” read the company’s statement in part. “RealPage’s revenue management software was purposely built to meet regulatory requirements, and we have a long history of working constructively with the (department) to demonstrate that.”
“Every day, millions of Californians worry about keeping a roof over their heads and RealPage has immediately made it harder to do that,” California Attorney General Rob Bonta said in a written statement.
A spokesperson for RealPage, Jennifer Bowcock, told CalMatters that a lack of housing supply, not the company’s technology, is the real problem — and that its technology benefits residents, property managers and others involved in the rental market. The spokesperson later wrote that a “misplaced focus on non-public information is a distraction… that will only make San Francisco and San Diego’s historic problems worse.”
As for the federal lawsuit, the company called the claims “without merit” and said it plans to “vigorously defend against these allegations.”
In 2020, a Markup and New York Times investigation found that RealPage, along with other companies, used faulty computer algorithms to conduct automated background checks on tenants. As a result, tenants were linked to criminal charges they never faced and were denied homes.
Is it price fixing or coaching landlords?
According to federal prosecutors, RealPage controls 80% of the market for commercial revenue management software. The product is called YieldStar and its successor is AI Revenue Management, which uses much of the same code base as YieldStar, but with more accurate forecasts. RealPage told CalMatters that it serves only 10% of the rental markets in both San Francisco and San Diego with its three revenue management software products.
Here’s how it works:
To use YieldStar and AIRM, landlords have historically provided RealPage with their own private data of their rental applications, rental rates, executed new leases, renewal offers and acceptances, and estimates of future occupancy, although a recent change gives landlords the option to opt out. choose to share only public data. This information from all participating landlords in an area is then aggregated and run through mathematical forecasts to generate price recommendations for the landlords and their competitors.
San Diego Council President Sean Elo-Rivera explained it this way:
“In the simplest terms, what this platform does is provide what we think of as that dark, smoky space for big companies to come together and set prices,” he said. “The technology is used as a way to keep distance from one big company to another. But that is an illusion.”
In the company’s own words, based on company documents included in the lawsuit, “RealPage ensures that (landlords) take every possible opportunity to increase the price, even in the most downward trend or unexpected circumstances.” The company also said in the filings that it “helps curb landlords’ instincts to respond to downturned market conditions by dramatically lowering prices or holding prices steady.”
Impact on tenants
Thirty-one-year Navy veteran Alan Pickens 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 just moved has two-bedroom apartments advertised for between $2,995 and $3,215.
They live in an area of San Diego where the Justice Department 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 outdated YieldStar software, engaged in an “unlawful scheme to reduce competition among landlords over the price of apartments.” The 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, Murrieta and northeastern San Diego.
According to the San Diego Union-Tribune, the average rent in San Diego County was $1,926 in the second quarter of 2020, reflecting a 26% increase over three years. According to RentCafe and the Tribune, rents in the city of San Diego have since risen even further to $2,336 per month in November 2024 – a 21% increase from 2020. That’s 50% higher than the national average rent.
The attorneys general of eight states, including California, have joined the Justice Department’s antitrust lawsuit, which was filed in the 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 level, according to department spokesperson Elissa Perez. This was especially damaging given the high cost of housing in the state, she added. “The illegally maintained profits from these price-matching schemes come out of the pockets of the people who can least afford them.”
Renters make up a larger share of households in California than in the rest of the country: 44% here compared to 35% nationally. The Golden State also has a higher percentage of renters than any state other than New York, according to the latest Census data.
San Diego has the fourth highest percentage of renters of any major city in the country.
However, the recent ranks of California lawmakers include few renters: As of 2019, CalMatters could find only one state lawmaker who did not own a home — and found that more than a quarter of lawmakers at the time were landlords.
Research shows 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 increased from 30% to 42%. For university graduates, that percentage has increased from 26% to 34%.
“In my estimation, the only winners in this situation are the wealthiest companies that use or create this technology,” Elo-Rivera said. “There couldn’t be a clearer example of how the rich get richer, while the rest of us struggle to make ends meet.”
The state has 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 and the Regents of the University. of California and the Los Angeles Police and Fire Departments, 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 compiled a report on the impact of business owners on rent increases in San Francisco. Diego.
RealPage states that landlords have the freedom to reject the price recommendations generated by its software. But the Justice Department claims this requires a series of steps, including a conversation with a RealPage pricing consultant. The consultants try to “dissuade real estate managers from reacting to emotions,” according to the department’s lawsuit.
If a property manager disagrees with the price the algorithm suggests and wants to lower the rent instead of increasing it, a pricing consultant will “escalate the dispute to the manager’s superior,” plaintiffs allege in the lawsuit.
In San Diego, the Pickenses, who are expecting their first child, have given up their gym memberships and downsized to their cars to stay in the area. They have considered moving to Denver.
“All the extras should pretty much go away,” Pickens said. “I mean, we love San Diego, but it’s going to be 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 having a hard time? Why are we having a hard time?”
This story was produced by The markup and reviewed and distributed by Stacker.
