SF poised to beat DOJ to the punch, ban rent-fixing software

The city of San Francisco has lost over 60,000 residents since the onset of the Covid-19 pandemic according to the census (3,660 in 2020; 55,136 in 2021; 4,605 in 2022). There’s been a bit of a resurgence since then; 2023 shows a net gain of a whole 276 people. But still, that’s a lot of missing persons in a city of a little over 800,000. Why is it that rent payments, while still lower than the recent peak in 2019, are still so high? Is there someone we can blame?

On Tuesday afternoon, the San Francisco Board of Supervisors moved one step closer to answering that question, by passing an ordinance authored by Supervisor Aaron Peskin banning the sale or use of any algorithmic device that sets, or even  recommends, rents or vacancy levels for residential properties in San Francisco. 

 If it’s signed by Mayor London Breed, which seems likely, San Francisco will be the first city in the country with legislation of this kind.

It’s possible that the case of San Francisco’s surprisingly resilient post-pandemic rental prices is due to other factors. But RealPage, a Texas-based software company that Peskin’s office estimates is used by as much as 70 percent of the rental housing in San Francisco, is probably not helping.  According to its own marketing materials, the company collects confidential property data from different landlords — the kind of data that landlords would otherwise work hard to hide from each other in a competitive marketplace, and uses this data to keep rents high by any means necessary, including: Setting price floors, keeping units vacant and timing the length of property leases so large numbers of units don’t come up for rent in the same geographical area at the same time.

In the past, this kind of behavior has been viewed as illegal price-fixing under the Sherman Act. Odds are high that at least some of it is illegal now. That’s what the Department of Justice contends, at least.

On Aug. 23, 22 days after Peskin introduced his legislation, the DOJ issued a complaint against RealPage, describing it as having “built a business out of frustrating the natural forces of competition.” The complaint goes on to describe a company so determined to keep rents high that it has a policy of reporting individual property managers who refuse to accept its recommendations to their superiors. The feds also found that the company works aggressively to keep rents from falling even when the market is obviously shifting, to the point where one client complained that it kept pressuring him to raise prices even as his building emptied out.

“It’s really important that so many lawmakers are taking a closer look at this,” said  Lee Hepner, senior legal counsel for the American Economic Liberties Project and a former Peskin legislative aide. Hepner first became aware of RealPage after ProPublica published an article about the company in 2022, and began working on a memo with a progressive local policy group called Local Progress, on ways that municipal and state governments could begin taking action on their own.

The San Francisco ban is based partly on the federal Preventing the Algorithmic Facilitation of Rental Housing Cartels Act from Sen. Ron Wyden (D-Ore.) (introduced in January, still in committee), which would outlaw the use of algorithmic price-setting software in the rental housing market nationwide. It was also partly based on state legislation that was drafted in Colorado, but didn’t pass.

Since he and his colleagues wrote the ordinance early this summer, says Hepner, representatives of other cities have already approached them about using it themselves. “This legislation is only effective to the extent that lawmakers understand the behavior that RealPage is engaged in. That can be tricky with emerging technology — there’s an asymmetry of information between a company and what the public is aware of.”