Landlords Are Utilizing AI to Increase Rents—and Cities Are Beginning to Push Again

If you happen to’ve hunted for residences lately and felt like all of the rents had been equally excessive, you’re not loopy: Many landlords now use a single firm’s software program — which makes use of an algorithm based mostly on proprietary lease info — to assist set lease costs.

Federal prosecutors say the observe quantities to “an illegal information-sharing scheme,” and a few lawmakers all through California are transferring to curb it. San Diego’s metropolis council president is the most recent to take action, proposing a ban that may forestall native residence homeowners from utilizing the pricing service, which he maintains is driving up housing prices.

San Diego’s proposed ordinance, which is presently being drafted, comes after San Francisco enacted a first-in-the-nation ban on “the sale or use of algorithmic gadgets to set rents or handle occupancy ranges” for residences in July. San Jose is considering an analogous method.

Related bans have handed or are being thought-about throughout the nation. In September, The Philadelphia Metropolis Council passed a ban on algorithmic rental price-fixing with a veto-proof vote. New Jersey has been considering its personal ban.

In August, The Division of Justice and the legal professional generals of eight states — California, North Carolina, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington — filed an antitrust lawsuit towards RealPage, the main rental pricing platform based mostly in Texas. The criticism alleges that “RealPage is an algorithmic middleman that collects, combines, and exploits landlords’ competitively delicate info. And in so doing, it enriches itself and compliant landlords on the expense of renters who pay inflated costs…”

RealPage has been a significant impetus for all the actions. Some officers accuse the corporate of thwarting competitors that may in any other case drive rents down, exacerbating the state’s housing scarcity and driving up rents within the course of.

“We’re disillusioned that, after a number of years of training and cooperation on the antitrust issues regarding RealPage, the (Justice Division) has chosen this second to pursue a lawsuit that seeks to scapegoat pro-competitive know-how that has been used responsibly for years,” the corporate’s assertion learn partially. “RealPage’s income administration software program is purposely constructed to be legally compliant, and we’ve got an extended historical past of working constructively with the (division) to point out that.”

“Each day, tens of millions of Californians fear about holding a roof over their head and RealPage has instantly made it harder to take action,” stated California Legal professional Basic Rob Bonta in a written assertion.

A RealPage spokesperson, Jennifer Bowcock, informed CalMatters {that a} lack of housing provide, not the corporate’s know-how, is the actual downside — and that its know-how advantages residents, property managers, and others related to the rental market. The spokesperson later wrote {that a} “ misplaced concentrate on nonpublic info is a distraction… that may solely make San Francisco and San Diego’s historic issues worse.”

As for the federal lawsuit, the corporate known as the claims in it “devoid of benefit” and stated it plans to “vigorously defend ourselves towards these accusations.”

In 2020, a Markup and New York Times investigation discovered that RealPage, alongside different firms, used defective pc algorithms to do automated background checks on tenants. Consequently, tenants had been related to legal expenses they by no means confronted and denied properties.

Is it worth fixing—or teaching landlords?

Based on federal prosecutors, RealPage controls 80% of the marketplace for business income administration software program. Its product is known as YieldStar, and its successor is AI Income Administration, which makes use of a lot of the identical codebase as YieldStar, however has extra exact forecasting. RealPage informed CalMatters it serves solely 10% of the rental markets in each San Francisco and San Diego, throughout its three income administration software program merchandise.

Right here’s the way it works:

So as to use YieldStar and AIRM, landlords have traditionally offered RealPage with their very own non-public knowledge from their rental functions, lease costs, executed new leases, renewal provides and acceptances, and estimates of future occupancy, though a current change permits landlords to decide on to share solely public knowledge. This info from all collaborating landlords in an space is then pooled and run by means of mathematical forecasting to generate pricing suggestions for the landlords and for his or her rivals.

The San Diego council president, Sean Elo-Rivera, defined it like this:

“Within the easiest phrases, what this platform is doing is offering what we consider as that darkish, smoky room for large firms to get collectively and set costs,” he stated. “The know-how is getting used as a manner of holding an arm’s size from one massive firm to the opposite. However that’s an phantasm.”

Within the firm’s personal phrases, from firm paperwork included within the lawsuit, RealPage “ensures that (landlords) are driving each potential alternative to extend worth even in essentially the most downward trending or surprising circumstances.” The corporate additionally stated within the paperwork that it “helps curb (landlords’) instincts to reply to down-market circumstances by both dramatically decreasing worth or by holding worth.”

Affect on tenants

Thirty-one-year-old Navy veteran Alan Pickens and his spouse transfer almost yearly “as a result of the lease goes up, it will get unaffordable, so we search for a brand new place to remain,” he stated. The northeastern San Diego residence complicated the place they only relocated has two-bedroom residences marketed for between $2,995 and $3,215.

They stay in an space of San Diego the place the U.S. Justice Division says information-sharing agreements between landlords and RealPage have harmed or are more likely to hurt renters.

The division in August filed its antitrust lawsuit towards RealPage, alleging the corporate, by means of its legacy YieldStar software program, engaged in an “unlawful scheme to decrease competition among landlords in apartment pricing”. The criticism names particular areas the place rents are artificially excessive. Past the a part of San Diego the place Pickens lives, these areas embody South Orange County, Rancho Cucamonga, Temecula, and Murrieta and northeastern San Diego.

Within the second quarter of 2020, the typical lease in San Diego County was $1,926, reflecting a  26% enhance over three years, according to the San Diego Union-Tribune. Rents have since risen much more within the metropolis of San Diego, to $2,336 per thirty days as of November 2024 – up 21% from 2020, according to RentCafe and the Tribune. That’s 50% greater than the nationwide common lease.

The attorneys basic of eight states, together with California, joined the Justice Division’s antitrust swimsuit, filed in U.S. District Courtroom for the Center District of North Carolina.

The California Justice Division contends RealPage artificially inflated costs to maintain them above a sure minimal stage, stated division spokesperson Elissa Perez. This was notably dangerous given the excessive value of housing within the state, she added. “The illegally maintained income that outcome from these worth alignment schemes come out of the pockets of the individuals that may least afford it.”

Renters make up a larger share of households in California than in the remainder of the nation —  44% right here in comparison with 35% nationwide. The Golden State additionally has the next share of renters than any state apart from New York, in line with the latest U.S. Census data.

San Diego has the fourth-highest percentage of renters of any major city in the nation.

The current ranks of California legislators, nevertheless, have included few renters: As of 2019, CalMatters could find only one state lawmaker who did not own a home — and located that greater than 1 / 4 of legislators on the time had been landlords.

Research present that low-income residents are extra closely impacted by rising rents. Nationally between 2000 and 2017, the proportion of earnings that People with no school diploma spent on lease ballooned from 30% to 42%. For faculty graduates, that share elevated from 26% to 34%.

“In my estimation, the one winners on this scenario are the richest firms who’re both utilizing this know-how or creating this know-how,” stated Elo-Rivera. “There couldn’t be a extra clear instance of the wealthy getting richer whereas the remainder of us are struggling to get by.”

The state has invested in RealPage

Personal fairness large Thoma Bravo acquired RealPage in January 2021 by means of two funds which have lots of of tens of millions of {dollars} in investments from California public pension funds, together with the California Public Workers’ Retirement System, the California State Lecturers’ Retirement System, the Regents of the College of California and the Los Angeles police and hearth pension funds, in line with Personal Fairness Stakeholder Venture.

“They’re invested in issues which are instantly hurting their pensioners,” stated Ok Agbebiyi, a senior housing marketing campaign coordinator with the Personal Fairness Stakeholder Venture, a nonprofit non-public fairness watchdog that produced a report about corporate landlords’ influence on rental hikes in San Diego.

RealPage argues that landlords are free to reject the value suggestions generated by its software program. However the U.S. Justice Division alleges that attempting to take action requires a collection of steps, together with a dialog with a RealPage pricing adviser. The advisers attempt to “cease property managers from appearing on feelings,” in line with the division’s lawsuit.

If a property supervisor disagrees with the value the algorithm suggests and needs to lower lease somewhat than enhance it, a pricing advisor will “escalate the dispute to the supervisor’s superior,” prosecutors allege within the swimsuit.

In San Diego, the Pickenses, who’re anticipating their first youngster, have given up their health club memberships and downsized their vehicles to stay within the space. They’ve thought-about transferring to Denver.

“All of the extras just about should go,” stated Pickens. “I imply, we love San Diego, however it’s getting onerous to stay right here.”

“My spouse is an legal professional and I served within the Navy for 10 years and now work at Qualcomm,” he stated. “Why are we struggling? Why are we struggling?”

This text was originally published on The Markup and was republished below the Creative Commons Attribution-NonCommercial-NoDerivatives license.