San Francisco Board of Supervisors has passed on first reading a ban on artificial intelligence software that advises landlords on rent pricing or occupancy levels of units in the city — a practice which some say promotes unfair rent gouging.
The AI software gives landlords suggestions of how high to set a unit’s rent — or whether to keep it vacant — by using the rental data of their competitors. The fear is multiple landlords working together to keep prices high.
“In the old days, collusion between competitors happened in a smoke-filled back room,” Supervisor Aaron Peskin said at the meeting. “But nowadays, by using the software, real estate owners share nonpublic competitor data into a common data pool, which is then used to set rents and occupancy terms.”
Under the ban, entities selling such software or using it to set residential rent prices in San Francisco could face a civil action and charges of up to $1,000 per violation.
Often used by large landlords, the software has increased rates of rent, vacancy and eviction, according to the board’s agenda packet.
The packet also stated companies making the software, such as RealPage and Yardi, have faced lawsuits across the country alleging their products have enabled illegal rent-fixing.
During the supervisors’ regular meeting Tuesday, Peskin said the ban would be the first of its kind in the United States.
“Banning algorithmic price gouging is pro-housing policy,” Peskin said. “Let’s build housing for renters, not for real estate investors.”
Before preliminarily passing the legislation, members of the board’s Land Use and Transportation Committee heard a presentation from Lee Hepner, senior legal counsel for the American Economic Liberties Project.
According to Hepner, RealPage software prices 8% of rental housing units across the U.S. — enough to engender “high levels of market manipulation.”
“Banning algorithmic price gouging is pro-housing policy. … “Let’s build housing for renters, not for real estate investors.”
Supervisor Aaron Peskin
Hepner also said the AI relies on landlords disclosing data about their units to RealPage. Though it would not normally be in landlords’ interests to share such information, they offer it, because they receive the benefits of their competitors’ data in return.
According to May 2023 figures from RealPage, 6.1% of rental units in the San Francisco metropolitan statistical area use AI Revenue Management or YieldStar, two of its products. Since that’s such a small part of the market, RealPage contends, price-fixing and collusion cannot occur through its devices.
Instead, RealPage claimed the software benefits both landlords and residents. The company also said its products can recommend that rent prices decrease, increase or stay the same, but do not require that users apply those recommendations.
“The truth shows the distorted narratives and lawsuits have no merit,” the company said in information presented to the board.
Six of the city’s 11 supervisors sponsored the legislation. Outlawing the devices still pends supervisors’ final approval and their return from August recess, a representative of Peskin’s office said.
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