In a city desperate to court artificial intelligence for the sake of reviving its hollowed-out office sector, one use of the technology is facing serious backlash.
Last week, Supervisor Aaron Peskin, a candidate for mayor, introduced an ordinance that would make San Francisco the nation’s first city to ban the sale and use of algorithmic software programs that guide residential landlords in setting prices.
YieldStar, created by software developer RealPage, has become the poster child for these types of programs. The company has recently come under federal investigation for allegedly contributing to widespread price-fixing by allowing corporate landlords to use private data, such as prices, occupancy rates and specific lease start and end dates, to calculate abnormally high rents.
These software companies have access to such information from customers who are competing with one another, which critics say can help large corporate landlords influence local markets.
Citing market research and pending lawsuits, Peskin’s office estimates that as much as 70% of rental housing stock in San Francisco is controlled by companies using such software.
“Banning automated price-fixing will allow the market to work and bring down rents in San Francisco,” Peskin said in a statement. “Let’s be clear: RealPage has exacerbated our rent crisis and empowered corporate landlords to intentionally keep units vacant.”
In some cases, landlords that use YieldStar have been accused of purposely keeping units vacant, as advised by the software, in order to keep rent increases in place.
The proposed law, co-sponsored by Supervisor Connie Chan, targets the use of data not generally available to the public that can be analyzed and manipulated by algorithms.
If it passes in its current form, the ordinance would allow the city attorney and/or affected tenants to file a civil action with penalties of up to $1,000 per violation. Exempted from the ban would be software intended to establish rent or income limits for the city’s affordable housing program or products that use trade association reports of anonymous renter data.
RealPage and similar companies market their services to landlords as “revenue management” solutions. Their software collects private data from clients each day and uses this to algorithmically propose prices for available units. RealPage boasts that it can help clients outperform the market by up to 5%.
RealPage did not immediately respond to a request for comment, but in a June statement, the company denied that it facilitates collusion and attributed certain rent increases to the undersupply of housing units and increased demand, among other economic factors.
The company also emphasized that its customers decide their own rent prices and are “never punished for declining recommendations,” although a 2022 investigation by ProPublica found that as many as 90% of the company’s pricing suggestions are adopted.
It is not clear which of San Francisco’s large residential landlords utilize such software. Several of the city’s largest residential landlords did not respond to a request for comment.
A spokesperson for Ballast Investments — which partnered with Brookfield Properties this year to purchase nearly $1 billion in distressed multifamily mortgages — said the company “does not use the software that Peskin’s ordinance will ban.”
Separately, billions of dollars worth of apartments are poised to change hands as more pre-pandemic debt matures.
The San Francisco Apartment Association did not respond to a request for comment.
Peskin’s bill comes amid a dire housing shortage in the Bay Area. According to estimates by the California Housing Partnership, more than 227,000 low-income renter households in the region do not have access to an affordable home, with 70% of extremely low-income households paying more than half of their income on housing.
In his final months in the White House, President Joe Biden has called on Congress to place a 5% annual rent cap on corporate landlords that control more than 50 rental units.
Meanwhile, at the California Legislature, Assemblymember Alex Lee’s bill to ban corporate landlords from owning more than 1,000 single-family homes passed in the Assembly in May. The bill, AB 2584, is being considered in the state Senate.
This is not the first time real estate software firms have been in the crosshairs of regulators and housing activists. In 2022, Opendoor Labs agreed to pay $62 million to the Federal Trade Commission to settle claims that home sellers actually lost money when using its online platform. The company had said its platform could make customers more money than they’d make on the open market.
The FTC’s online settlement tracker says nearly 2,500 California residents have received a median refund of $1,553 from the Opendoor settlement.
This story has been updated to include comment from Ballast Investments.