San Diego bans ‘price-fixing’ software to set residential rents

San Diego voted Tuesday to ban software that it says is being used to illegally raise residential rents.

The city council targeted software used by Texas company RealPage, which has been in federal crosshairs since August when the Biden administration filed an antitrust lawsuit against it. The Justice Department claimed the software’s algorithm allows landlords to view confidential information across competitors to align prices, avoid competition and keep rents high.

San Diego, in an 8-to-1 vote, joins other cities that have banned the software, including Berkeley, San Francisco and Minneapolis. RealPage has sued Berkeley, is fighting the federal lawsuit and has not ruled out suing other cities that have banned its software.

“This software weaponizes private data, from what should be competing landlords, to figure out just how high they can push prices,” said Councilmember Sean Elo-Rivera at a press conference ahead of the vote.

RealPage attorney Michael Semko told the council it simply offers analysis of the rental market with a pricing suggestion, and less than 40% of the time do its clients go with the suggestion.

“We don’t set rents,” he said. “The only way to lower rents is to build more housing. I think the ordinance is overly broad, it’s vague and invites scrutiny.”

RealPage takes the data of millions of apartments, from hundreds of landlords, to give a user advice on what to charge a tenant. Landlords can still view signs outside of other apartment buildings or go on other complexes’ websites to see competing offers and figure out what to charge. The legal argument against RealPage is that it takes what should be confidential information from real estate management companies — such as exactly what a landlord is charging, instead of just viewing posted asking rents on websites — and incentivizes multiple landlords to collude on price.

RealPage denies collusion allegations. It says its software might recommend to keep rents lower, or flat. It also says cities that ban its software are infringing on the company’s free speech rights to offer advice on rents.

Lucinda Lilley, an apartment specialist who consults for several property management firms in San Diego County, told the Union-Tribune earlier this week that she does not use RealPage but was concerned about the ordinance because it constrains data gathering that businesses need. She said it sounded like the city didn’t want property managers to even conduct market surveys to figure out what rents are in the area.

“What’s concerning is how far they want to go,” Lilley said.

Elo-Rivera said the ordinance is only aimed at nonpublic competitor data, not public housing data sites, like Redfin and Zillow, or market surveys of rent prices. He said he worked closely with the city attorney to craft an ordinance not as broad as the Berkeley law, which didn’t expressly define the difference between noncompetitive, or nonpublic, data and public sources. The San Diego ordinance contains a carveout for landlords to use software from systems like RealPage after the data is 90 days old (nonpublic data not recommending rents).

He argued the threat of a lawsuit was not reason enough to back off.

“We can’t control whether or not folks sue,” Elo-Rivera said. “What I do know is I’m not going to be intimidated by big corporate executives and their threats to sue us to get us to try and not protect consumers.”

The San Diego ordinance says if a tenant finds out their landlord is using rental algorithm software, they may seek damages of up to $1,000. Lilley said that was a concern for property managers because the law is targeting them for buying software, as opposed to going after RealPage directly.

The ordinance does not specifically mention RealPage, only “algorithmic devices” used for rental rates, but the staff report cites RealPage several times as a justification for the action.

The San Diego City Council voted 4-1 in October to have city staff frame an ordinance targeting the rental software. Only Councilmember Raul Campillo voted against out of concern it would get in the way of nationwide or statewide legal action against RealPage. On Tuesday, he again cast the lone dissenting vote, this time because of concern over specific language he wanted to add concerning a subsection of the ordinance.

The law comes as San Diego County rent as been largely flat for more than a year. Real estate tracker CoStar said the average rent in the county, across all room types, was $2,513 a month, an annual rise of 0.6%, in mid-April. However, county rent has risen significantly since the start of the pandemic when average rent was $2,005 a month, representing a 25% gain in five years.

The council meeting was attended by about 50 people, almost all in favor of banning the software. They held signs that said “Stop Price Fixing” and “Housing for All.”

Alana Martinson, with Serving Seniors, said the low-income San Diegans her organization serves are devoting much of their fixed income to rent.

“Older adults on fixed incomes are especially vulnerable to rent hikes,” she said. “A $100 increase, based on an algorithm, not real market conditions, can be catastrophic.”

Recent UC San Diego graduate Nicole Lillie, who now works with youth-led nonprofit Our Time to Act, said many of her fellow graduates have left San Diego because they can’t afford to live here.

“Our society, and its systems, have placed profit over people,” she said. “Gluttonous corporations, and landlords, find a million ways to squeeze every last penny from renters. One of their newest tactics has been using algorithms to artificially inflate our rents.”

RealPage is facing additional lawsuits by the attorney generals of North Carolina and California. As San Diego’s city council was meeting, the North Carolina attorney general announced a settlement with one landlord, Cortland, who was sued for using RealPage. The company agreed to no longer use the software. North Carolina’s lawsuit against RealPage, and five other landlords, is ongoing.