Santa Ana’s City Council approved an ordinance on March 12 that prohibits the use of algorithmic rent-setting software. Critics claim such software programs allow property managers to work together and increase rates beyond what would be charged in the market.
If you have questions or concerns about the legal aspects of charging rent, Anthony Burton helps those renting residential real estate with a wide range of issues. Learn more by calling us at (949) 244-4207.
Setting or Fixing Prices?
The ban directly impacts multifamily properties, adding more municipal oversight to how and why landlords set rents, reports OC Briefs. For renters, the new ordinance shows the city will use technology regulation to try to make housing more affordable. Landlords and investors will need to review their current pricing tools and contracts with software vendors.
Council members voted unanimously in February to support the ban, but they needed a final vote to adopt the new law.
The ordinance’s goal is to protect Santa Ana tenants from unfair or inflated rent increases driven by pricing tools. Critics claim landlords game the software to artificially inflate rental prices, often by working together to manipulate competitive rental market rates.
The ordinance requires landlords who violate it to pay civil penalties of up to $1,000 per violation. Tenants could go to court to seek injunctive relief, and damages would provide recourse for renters who prove their rates were determined using such tools, according to the Orange County Register.
The law targets algorithms that rely on non-public data from competitors to suggest rental and occupancy levels for residential properties. The ordinance doesn’t cover pricing software that solely uses publicly available data or tools that help comply with affordable housing program requirements.
Similar tenant protection laws have passed in Berkeley, San Diego, and Portland, Oregon.
How Did We Get Here?
RealPage software by YieldStar was the focus of a 2022 ProPublica article that shed light on how its use could quickly result in higher rents. Since then, some cities have passed ordinances against its use, and the US Department of Justice has sued some of the nation’s largest landlords over its use.
RealPage uses data analytics to suggest prices for open units. It feeds its clients’ internal rent data into its pricing software, giving landlords an aggregated, anonymous view of what their competitors charge.
In areas where it was commonly used, rents increased dramatically, even during economic downturns. It became the country’s dominant provider of such software after federal regulators approved a controversial corporate merger in 2017, which greatly increased the company’s influence over apartment prices.
How Does RealPage Work?
To determine a recommended rent, the software uses an algorithm (a set of mathematical rules) to analyze data RealPage gathers from its clients, including private information about what nearby competitors charge.
The algorithm factors in apartment characteristics (such as size and number of bedrooms) and how many additional units in the building are likely to become available soon. Property managers can adjust settings based on their priorities, like how full they want a building to be. The software also analyzes the broader market’s rental prices, which can provide insight into how nearby competing buildings are priced.
The system upends tenants negotiating with apartment building staff. RealPage shows that cold data can generate more income than warm tenant relationships. In some cases, it can lead to a more profitable building even if it has a higher vacancy rate. One algorithm developer told ProPublica that leasing agents showed “too much empathy” to tenants compared to computer-generated pricing.
Why is RealPage Having Legal Issues?
Antitrust law’s goals are to promote competition, prevent monopolies, and keep prices fair in the marketplace. There are federal and state antitrust laws that could cover just about every business.
RealPage and its clients create antitrust issues for several reasons, including the use of competitors’ private data to set rent. It’s much easier for sellers to control prices than for buyers if they share critical information such as prices and supply. RealPage also created work groups that meet privately, which include landlords who otherwise compete against each other.
The company states that in the past, competing landlords got similar information from phone surveys. They also blame higher rents on insufficient new construction and fewer renters buying homes. But RealPage admits it’s playing a role in driving rents higher, which is what its customers want.
We’re Here to Help
If you have questions about setting rents or related legal issues, call the AWB Law PC team at (949) 244-4207 or complete our online contact form today. We can discuss your situation and how state laws may apply.
