San Jose Mulls Ban on Rent-Setting Proptech

A month ago, San Francisco became the first city to ban the sale or use of revenue management software that deploys algorithms to set multifamily rents or manage occupancy levels.

Now in San Jose, three city council members have introduced an ordinance that would impose a similar ban in the heart of Silicon Valley.

Members, Peter Ortiz, Omar Torres and David Cohen, said in a joint statement that revenue management software with dynamic pricing tools—AI-driven algorithms—are allowing landlords “to maximize profits disguised by an inflationary environment,” SiliconValley.com reported.

“In the context of the housing market, the use of algorithmic rent-setting has yielded double-digit rent increases, increased evictions, and an exacerbation of the City’s housing affordability and homelessness crisis,” the council members said.

“Artificial intelligence should be a tool for innovation and progress, not for monopolistic practices that drive up housing costs,” Ortiz said.

The preliminary ordinance in San Jose would allow the city attorney and tenants to file civil actions against landlords who use revenue management algorithms, setting penalties of up to $1,000 per violation.

A trade group representing landlords said the city does not have adequate data on the use of revenue management software in San Jose. “We don’t have any data to justify or show what the utilization rate is in the city, so we don’t know how extensive of a problem it is or what problem we’re trying to fix,” Anil Babbar, senior VP of local affairs at the California Apartment Association, told SiliconValley.com.

San Francisco’s Board of Supervisors unanimously approved an ordinance prohibiting the sale or use of revenue management software that offers price-suggesting “algorithmic devices” that advise individual landlords on how to price their rentals based on data collected from landlords across the city.

Supervisor Aaron Peskin, who introduced the ordinance, compared revenue management software to “automatic price-fixing,” claiming it has empowered multifamily landlords to “intentionally keep units vacant.” Peskin estimated that up to 70% of the rental housing stock in San Francisco is controlled by companies using revenue management software.

The ordinance prohibits the use of software including RealPage’s YieldStar, which combines lease transaction data from more than 14M units and uses AI-driven algorithms to “unlock hundreds of basis points of hidden yield through price optimization,” according to the company.

“Housing affordability should be the real focus,” RealPage spokesperson Jennifer Bowcock said, in a statement provided to GlobeSt.com. “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, where there is a severe supply shortage of rental units that needs to be addressed.”

The Texas-based firm said it serves only 10% of the rental market in San Francisco with its revenue management software.

“The ordinance’s misplaced focus on nonpublic information is a distraction that will only make San Francisco’s historical problems worse by banning an important component of pricing technology that RealPage uses responsibly and that benefits residents, property managers, and the rental housing ecosystem as a whole,” Bowcock said.