San Francisco supervisors consider banning RealPage software for setting rents

At its meeting on Tuesday, the San Francisco Board of Supervisors were considering a new ordinance to ban an industry algorithm that some say is artificially causing apartment rental rates to skyrocket.

Critics say the RealPage software is a form of collusion that is destroying competition between property owners.

In 2017, James Nelson was working in the banking industry when he noticed something strange happening in the rental housing market.

"I had seen that something was not right. I was financing a lot of these multifamily properties, and the market had changed," said Nelson.  "So, I started researching it in January of '19, and the first thing I saw was the name, 'RealPage.'"

RealPage is a company that offers a data-based algorithm to landlords in large cities to help them in setting rental prices.  As the author of "Stealing Home," Nelson has written the book on the company, and said there's a good chance you're paying more because of it.

"That's basically what I found, is we're paying double on our rent and housing than what we should be," he told CBS News Bay Area.  "Because of this."

Property owners supply RealPage with normally confidential information like pricing and number of vacancies, and the algorithm sends a so-called "recommendation" to all the landlords of what to charge for a unit in that area. But, when large corporate owners all follow the recommendation, it ends up setting the price...usually a higher price.

"RealPage is actually advertising that their software drives rents double digits higher than what a market would ordinarily command," said antitrust attorney Lee Hepner.

As senior legal counsel for the American Economic Liberties Project, Hepner said what RealPage is doing is a blatant case of antitrust industry collusion.

"What they're doing, their entire business model is illegal," he said.  "They are manipulating the market to fix prices and hike rents and remove really healthy competition from markets that should be responding to that competitive pressure and actually bring rents down."

The company has now gotten the attention of City Hall.

"Think about this," said Board of Supervisors president and mayoral candidate Aaron Peskin.  "There have been thousands of people with high-paying jobs that left San Francisco after the pandemic. And yet, rents have not gone down. We still have the highest rents in the nation, and it turns out that a lot of this is because of price-colluding software."

On Tuesday, Peskin was proposing an ordinance that would make it illegal to "sell, license or otherwise provide" such an algorithm to landlords or for landlords to use one.  He said the city has the authority to ban the software in the same way it regulates short-term vacation rentals.

"So, we will be the first city in the nation to ban the use of this price-colluding software that is being used by real estate speculators to create artificially high rents," he said.

There are lawsuits popping up all across the country over the software and it's reportedly raised the interest of federal investigators and justice officials.

But San Francisco isn't waiting years for that to play out.  They may be the first city in the country to ban it, but there's a good chance they won't be the last.

Late Tuesday afternoon, RealPage responded with a written statement to CBS News Bay Area, saying media reports and legal filings are "false and misleading" and that their software "contributes to a healthier and more efficient rental housing ecosystem."