‘It’s a rigged system’: San Diego becomes the 5th US city to ban the use of AI software to set rent prices — landlords accused of colluding to keep costs ‘artificially high’

"It's a rigged system," Councilmember Elo-Rivera told CBS 8. "We know that these companies are able to coordinate with one another via the software to keep prices artificially high, and sometimes even receive coaching from the software, the platform that says, don't negotiate, leave units vacant if necessary, to keep these prices high."

Minneapolis, Philadelphia, San Francisco and Berkeley have all banned the use of such software.

The Justice Department has filed an antitrust lawsuit against Texas-based RealPage, which controls 80% of the market for rent-setting software, and six of the country’s biggest landlords for “participating in algorithmic pricing schemes that harmed renters.” Attorneys General of several states have joined the fight.

If the suit is successful and if bans continue, tenants may soon find some relief from high prices, which could give them much-needed wiggle room in their budgets.

How is the banned software harming renters?

San Diego's ban targets software programs made by companies like RealPage. These companies collect private rental market data from landlords and put the data into a program that uses AI algorithms to recommend rental rates, propose rental price increases, and set occupancy rates.

Because the programs use sensitive private data there are concerns that they help landlords violate antitrust laws prohibiting competitors from colluding to keep prices higher than they should be. In some cases, the programs even urge landlords to keep units empty or to raise rents. This has consequences. In San Diego, for example, the programs were allegedly causing rental prices to be 2% to 7% higher than they would have been without the programs.

"What I pay is $4,200 for rent, it's almost more than a mortgage for a house," local renter George Medrano told CBS 8. Medrano said his rent has gone from $2,600 in 2020 to the $4,200 he is paying today, and while he acknowledges market forces were a contributing factor, he also thinks collusion on the part of landlords helped push the price of his unit higher.

Not everyone supports the ban, though. Councilmember Raul Campillo voted against it, expressing concern that it could prevent landlords from doing routine and necessary assessments of their company's strength against competitors. A group representing local landlords also expressed concern that the rules were too vague

Another local renter, Rowan Liao, also pointed out that when algorithms set rates, at least they are based on math instead of emotions. "I think when prices are written by people, there's unavoidable bias introduced, kind of like emotion-based pricing," Liao said to CBS 8.

Still, with the ban in effect, landlords will need to stop using the software, or they could be sued by tenants for a violation of the new rule.