(Bloomberg) -- San Francisco, one of the priciest US housing markets and a global center of artificial intelligence, is set to become the nation’s first city to ban algorithmic software used to recommend rents.
Such AI housing tools enable price fixing by large corporate landlords, Aaron Peskin, president of San Francisco’s Board of Supervisors, said in an interview Wednesday. The board voted unanimously to block the products this week.
The San Francisco ban, which will go before the board for final approval Sept. 3, opens a new front in a long-running controversy over the role of software in setting rents as an affordability crisis worsens in many American cities. Peskin said he introduced the ordinance after observing that residential rents were going up during and after the pandemic even as people moved out of the city and downtown office vacancies climbed.
“This collusive price-fixing, price-gouging software will be determined to be illegal,” said Peskin, who’s running for mayor of San Francisco. “Meanwhile, we are leading the nation in saying ‘can’t do it here.’”
Housing Shortage
The measure is likely to have an impact on companies including Thoma Bravo-backed RealPage, which provides property-management and data-analytics software.
RealPage said its software “is purposely built to be legally compliant” and could be configured to meet the new San Francisco requirements if they pass a final vote. The company said it served only about 10% of the rental market in San Francisco and blamed the city’s high rents on a “severe supply shortage” of housing.
“While we share the San Francisco Board of Supervisors’ goal of helping renters, this ordinance will do nothing to make housing more affordable in the city,” said Jennifer Bowcock, a spokesperson for RealPage. “We encourage the Board of Supervisors to identify real solutions to increase the supply of rental housing and access to affordable housing.”
RealPage has said its software uses anonymous data in an aggregated fashion, and landlords don’t have insight into competitors’ pricing.
But revenue-management software that collects private information from landlords essentially creates a “cartel,” argued Lee Hepner, a lawyer with the American Economic Liberties Project, which worked with Peskin to draft the ordinance. That results in increased rents, supply constraints and higher eviction rates, he said.
About 70% of multifamily housing-rental buildings in San Francisco use some form of revenue-management software and RealPage is the dominant player, Hepner said. Nationwide, about 8% of rental-unit prices are set by algorithms, he said.
“RealPage offers a piece of software that collects nonpublic, competitively sensitive data from landlords and then processes that information and provides recommendations back to the landlords regarding rents, occupancy levels and other lease terms,” Hepner said. “This eliminates healthy competition from the rental housing market.”
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