Landlords are using AI to raise rents — and cities are starting to back off

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 the rental information they hold — to help set prices rent, Markup reports.

Federal prosecutors say the practice amounts to “an illegal information-sharing scheme,” and some California lawmakers are pushing to crack down on 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 enacted a the first ban in the nation on the “sale or use of algorithmic devices for setting rents or managing occupancy levels” for residences in July. San Jose is considering a similar approach.

Similar bans have passed or are being considered across the country. In September, the Philadelphia City Council adopted a ban on algorithmic rental pricing with a vote against the veto. New Jersey took note 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 vs. RealPage, the leading Texas-based rental pricing platform. The complaint alleges that “RealPage is an algorithmic intermediary that collects, combines and exploits competitively sensitive information of owners. And in doing so, it enriches itself and compliant landlords at the expense of renters who pay inflated prices…”

RealPage was a major boost to all stocks. Some officials accused 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 many years of education and cooperation on antitrust issues regarding RealPage, (the Justice Department) has chosen this moment to initiate a lawsuit that seeks to scapegoat the pro-competitive technology that was used responsibly for years.” company statement read in part. “RealPage’s revenue management software is intentionally built to be compliant with the legislation, and we have a long history of constructive engagement with (the department) to show that.”

“Every day, millions of Californians worry about keeping a roof over their heads, and RealPage has directly made that more difficult,” California Attorney General Rob Bonta said in a written statement.

A spokeswoman for RealPage, Jennifer Bowcock, told CalMatters that the housing shortage, not the company’s technology, is the real problem — and that its technology benefits residents, property managers and others associated with the rental market. The spokesman 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 “meritless” 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 flawed computer algorithms to perform automated background checks on renters. As a result, tenants were associated with criminal charges they never faced and denied their homes.

Is it pricing or owner training?

According to federal prosecutors, RealPage controls 80 percent 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 codebase as YieldStar, but has more accurate forecasting. RealPage told CalMatters that it serves just 10 percent of the rental markets in both San Francisco and San Diego with its three income management software products.

Here’s how it works:

To use YieldStar and AIRM, landlords have historically provided RealPage with their own private data from their rental applications, rental prices, newly executed leases, renewal offers and acceptances, and future occupancy estimates, although a recent change allows landlords to to choose share only public data. This information from all participating landlords in an area is then pooled and run through mathematical predictions to generate price recommendations for landlords and their competitors.

San Diego Council President Sean Elo-Rivera explained:

“In the simplest terms, what this platform does is provide what we think of as that dark, smoke-filled room for big companies to come together and set prices,” he said. “Technology is used as a way to keep distance from one big company to another. But this is an illusion.”

In the company’s own words, from company documents included in the lawsuit, RealPage “ensures that (owners) leverage every possible opportunity to increase the price even in the most downtrends or unexpected conditions.” The company also said in the filing that it “helps reduce (owners’) instincts to respond to downward market conditions, either by dramatically lowering the price or holding the price.”

Impact on tenants

Thirty-one-year-old Navy veteran Alan Pickens and his wife move almost every year “because the rent is going up, it’s getting unaffordable, so we’re looking for a new place to live,” he said. The Northeast San Diego apartment complex where they just moved has two-bedrooms listed for $2,995 to $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 could harm tenants.

In August, the department filed an antitrust lawsuit against RealPage, alleging that the company, through its legacy YieldStar software, engaged in a “illegal scheme to reduce competition between landlords in setting apartment prices“. The complaint names 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, Murrieta and Northeast San Diego.

In the second quarter of 2020, the median rent in San Diego County was $1,926, reflecting a 26% increase over three years, according to the San Diego Union-Tribune. Since then, rents have increased further in the city of San Diego to $2,336 per month in November 2024, up 21% from 2020. according to RentCafe and the Tribune. That’s 50% higher than the national average rent.

Attorneys general from eight states, including California, have joined the Justice Department’s antitrust suit, 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 floor, department spokeswoman Elissa Perez said. This was particularly damaging given the high cost of housing in the state, she added. “The ill-gotten gains that result from these price-matching schemes come out of the pockets of the people who can least afford it.”

tenants represents a larger share of households in California than the rest of the country — 44 percent here, compared to 35 percent nationally. The Golden State also has a higher percentage of renters than any state other than New York, according to the report the latest census data.

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

The recent ranks of California lawmakers, however, have included few tenants: As of 2019, CalMatters he could find only one state representative who did not have a home— and found that more than a quarter of legislators at the time were property owners.

Studies show that low-income residents are hit hardest by rising rents. Nationally, between 2000 and 2017, the percentage of income that Americans without a college degree spent on rent rose from 30 percent to 42 percent. For college graduates, this percentage increased from 26% to 34%.

“In my estimation, the only winners in this situation are the richest companies that either use this technology or create 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 Thomas 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 University of California Regents and the Police Pension, and Los Angeles Fire Department. funds, according to the Private Equity Stakeholder Project.

“They are invested in things that directly hurt their retirees,” said K Agbebiyi, a senior housing campaign coordinator at the Private Equity Stakeholder Project, a non-profit private equity watchdog that produced a report on corporate ownersimpact on rent increases in San Diego.

RealPage claims that owners are free to reject price recommendations generated by its software. But the Justice Department says trying to do so requires a series of steps, including a conversation with a RealPage pricing advisor. Counselors try to “stop property managers from acting on emotion,” according to the department’s process.

If a property manager disagrees with the price the algorithm suggests and wants to lower the rent rather than raise it, a pricing advisor “will escalate the dispute to the manager’s superior,” prosecutors allege in the lawsuit.

In San Diego, the Pickens, who are expecting their first child, ditched their gym memberships and downsized their cars to stay in the area. They thought about moving to Denver.

“Everybody extra needs 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 worked in the Navy for 10 years and now I work at Qualcomm,” he said. “Why do we fight? Why do we fight?”

This story was produced by Markup and reviewed and distributed by Stacker.