In an only-in-San Francisco moment, the Board of Supervisors ban software suggesting rent prices and occupancy levels
Antitrust cases have been aimed at a real estate software company called RealPage, claiming that through its YieldStar product, landlords are working together to share rental pricing data and occupancy rates to raise rents.
These algorithmic devices raised concerns in a 2022 ProPublica investigation and have paved the way for a Department of Justice probe and lawsuits by tenants and prosecutors nationwide arguing that the technology amounts to collusion. San Francisco took notice.
Although RealPage has been besieged with legal dustups, never before has a city sought an outright ban on this controversial software. That was changed when Supervisor Aaron Peskin introduced an ordinance prohibiting its use.
The board unanimously approved the ordinance on its first reading. In a formality, the measure will be read again for final approval of the board on September 3, whereupon it will head to the desk of Mayor London Breed. If she signs it, the ban will go into effect 30 days later.
What RealPage says
The Texas-based company has stated that landlords ultimately decide rent prices. Despite claims to the contrary, it denies that it ever recommends vacancies.
RealPage spokesperson Jennifer Bowcock told SFGATE that the fixation on nonpublic data use is a “distraction that will only make San Francisco’s historical problems worse,” and encouraged lawmakers to identify real solutions to ease the affordable housing crisis by building more.
And what, exactly, is the oft-stated term “price-gouging” mean anyway?
It’s impossible for someone selling something to command more money than what a buyer is willing to pay. If you own a $1.5 million home, can you sell it for $10 million? You can list it for whatever you’d like, but won’t find a buyer for it. The owner of a 1997 Ford Escort can advertise their vehicle for $50,000, but will anybody purchase it?
While tenants’ advocates see a ban on algorithms as a win that will make the market fairer and more competitive, we trust the free market. For our part, we have cautioned housing providers to resist the temptation to raise rents too high. Better to find an excellent tenant that pays a lower rent on time, than to lose rental income and let a vacant unit languish because it is overpriced.
So, we may take exception with the scoop from RealPage that rents are ultimately set by the landlord. At the end of the day, tenants are the arbiter of rent levels.
Having said that, we are proponents of raising rents to market rate, especially in anticipation of Proposition 33.
The Justice for Renters Act will go in front of voters in November and if passed, will do away with vacancy decontrol, meaning local governments could place restrictions on how much rents can be raised after units become vacant.
Rest assured, San Francisco will be among the first locales to jump on the opportunity to decide what is a fair rent amount to charge for a vacant unit.
In the eventuality that Proposition 33 passes, we recommend that housing providers future-proof their business by taking a hard look at what their rents are now and if below market rate, explore ways to align the rent to what prospective tenants are willing to pay.
Notice we say “market rate,” which is not driven by algorithms or some sort of system to artificially create a spike in rents. We know that many cash-strapped landlords are getting the short end of the stick, receiving hundreds of dollars less in rent than what they should get.
Our office is happy to have a dialogue with owners about accomplishing the goal of optimizing cash flow in a manner that is legal and equitable for landlords and tenants alike.
Our parting thoughts
San Francisco has a technology sphere that is the envy of the rest of the world. Rather than embracing technology, the city is stifling it, and this is disturbing. The global tech hub is trying to force property owners to use typewriters instead of notebooks. This is a fantasy and will not work.
Moreover, there is nothing inherently impermissible about using data to make informed decisions.
There are disrupters in the economy that impact housing and if we attempt to try to stop it, I think we will end up creating a situation that we wish we didn't try to impact.
~ Daniel Bornstein in an interview with Al Jazeera
Although San Francisco is a pioneer in reigning in on technology that funnels through algorithms to spit out suggestions for what rents should be charged, we would not be surprised that this ban will not be adopted by other Bay Area locales.
In a game of follow the follower, a city will pass an ordinance and a neighboring municipality will follow suit by drafting a similar, if not a carbon copy, of the law.
San Francisco is failing abysmally in its state-mandated goal to build housing and rather than focusing on the root issue, the Board of Supervisors have diverted their attention to add new layers of regulation to existing housing stock.
We find this to be a squandering of their time and resources.
From SFGATE: Hoping to cut San Francisco rents, supervisors approve software-pricing ban
From the New York Times: Landlord used software to set rents. Then came the lawsuits