San Francisco Looks at Law to Ban Rent-Setting Algorithms

San Francisco Supervisor Aaron Peskin wants to stop landlords from using rent-setting software that housing advocates say helps push up prices.

The president of the Board of Supervisors has proposed a law that would bar San Francisco property owners from employing third-party revenue management firms that collect proprietary data on rents from participating landlords, then use algorithms to suggest rental rates, the San Francisco Chronicle reported.

The controversial practice by such companies as RealPage and Yardi has drawn calls since a 2022 expose by ProPublica for regulation across the nation. The federal government is poised to clamp down on the software, while state and district attorney generals have jumped into the fray.

If approved, San Francisco would be the first city in the nation to ban rent price setting algorithms.

Peskin’s proposed ordinance would make it illegal to sell, license or provide an “algorithmic device” such as a software program that uses algorithms to set or suggest rents or occupancy levels that landlords may obtain from tenants in the city.

The City Attorney’s Office and tenants could take legal action for violations, with landlord penalties of up to $1,000.

Peskin said the ordinance is a signal to other cities that “they can take these matters into their own hands.

“The United States Department of Justice and Attorney General in numerous states are realizing that RealPage and similar price-fixing algorithms are extremely deleterious to our housing market in cities around the country,” Peskin told the Chronicle. “We’re taking action locally to ensure our working renters can afford to live here.”

This year, President Joe Biden said during his State of the Union Address he would focus on “fighting rent gouging by corporate landlords.”

Last week, the Justice Department, after launching a criminal probe in March, announced it will file a lawsuit against RealPage, challenging what it described as “collusive conduct” in the housing market, according to Politico.

The complaint could also pinpoint landlords’ use of the software as a way to match vacancy rates in competing buildings, a practice that allegedly allows building owners to restrict supply, according to the Chronicle.

State and district attorney generals in Arizona and Washington, D.C. have sued RealPage and more than a dozen of its landlord clients. More than 20 lawsuits, mostly brought by renters in cities across the U.S., were consolidated in a Nashville federal court last year.

Last month, the Texas-based RealPage began laying off hundreds of workers as it faced the class-action lawsuit alleging large-scale price fixing.

Among the property owners named in the consolidated lawsuit was Toronto-based Brookfield, which became the largest apartment landlord in San Francisco after buying two multifamily portfolios from Veritas Investments early this year.

Brookfield declined to comment to the Chronicle about the proposed ban.

The consolidated lawsuit alleges that landlords and property managers using RealPage’s rent-setting software in San Francisco account for 70 percent of the city’s apartments, resulting in “San Francisco renters paying 12 percent more in rent today than they paid in 2016.”

The complaint also alleges that the San Francisco Apartment Association serves as a “conduit” for rent setting between RealPage and landlords. The association didn’t respond to requests for comment on Peskin’s proposal by the newspaper.

“RealPage’s revenue management software is purposely designed and built to be legally compliant,” a RealPage representative said in an email. “The complaints are based on a fundamental misunderstanding of how revenue management software works and the significant benefits that it offers for residents, property managers, and the rental housing ecosystem as a whole.

“Our customers retain 100 percent control over the rents they offer, and they accept, reject, or modify the software’s recommendations at widely varying rates,” the representative added.

— Dana Bartholomew