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HomeMy WebLinkAboutItem 24 - Councilmember Requested Item to Prepare an Ordinance Prohibiting the Use of Algorithmic Pricing Tools CITY OF SANTAANA Council member-Requested Item Report DATE October 7, 2025 TOPIC Algorithmic Price Fixing COUNCILMEMBER-REQUESTED ITEM TITLE Discuss and Consider Providing Direction to the City Manager and City Attorney to direct staff to prepare an ordinance prohibiting the use of algorithmic pricing tools DISCUSSION The increasing use of algorithmic pricing software by landlords has raised concerns about its impact on rental affordability and market competition. Third-party services like RealPage offer rent-setting recommendations based on proprietary and publicly available data, effectively allowing landlords to coordinate pricing strategies. This practice has been linked to significant rent increases, reduced housing affordability, and increased tenant displacement. How Algorithmic Price Fixing Works Landlords share private rental data with third-party software providers like RealPage, which use algorithms to estimate supply and demand, then recommend rental pricing strategies. These recommendations maximize revenue not just for individual landlords but for all landlords using the software in a given market. This adversely affects housing for the following reasons: • Drives up rents by enabling collusion-like behavior without direct communication among landlords. • Contributes to double-digit rent increases in some metropolitan areas. • Increases tenant displacement—some RealPage clients reported a 15% rise in turnover rates after adopting the software's recommendations. • Reduces renter mobility and affordability, limiting access to housing. Legal and Policy Considerations The use of algorithmic rent-setting has faced legal challenges and regulatory scrutiny: • Ongoing Litigation: o The District of Columbia Attorney General sued RealPage and major landlords in 2023. o The Arizona Attorney General filed a similar lawsuit in 2024. o More than 20 federal antitrust lawsuits have been consolidated in Tennessee, with the Department of Justice supporting plaintiffs. CITY ATTORNEY CITY MANAGER CITY CLERK Sonia R.Carvalho Alvaro Nunez Jennifer L. Hall 20 CIVIC CENTER PLAZA-P.O. BOX 1988, M31 -SANTA ANA, CALIFORNIA 92702 TELEPHONE(714)647-6900-FAX(714)647-6954-www.santa-ana.org • Legislative Action: o Senator Ron Wyden introduced the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act in 2024 to ban algorithmic rent-setting nationwide. o San Francisco: In July 2024, San Francisco enacted a first-in-the-nation ban on the sale or use of algorithmic devices to set rents or manage occupancy levels for residential properties. o San Diego: The San Diego City Council President has proposed a similar ban. o Santa Monica: In March 2025 the Santa Monica City Council will consider a proposal to ban the use of algorithmic rental price-fixing software in Santa Monica and which includes enforceable penalties for noncompliance. o Other cities have adopted bans. RECOMMENDATION I recommend that the City Council direct the City Manager and City Attorney to direct staff to draft an ordinance that: 1. Prohibits the Use of Algorithmic Pricing Tools: Makes it unlawful for landlords within Santa Ana to utilize algorithmic devices or software that recommend rental rates or occupancy levels for residential properties. 2. Bans the Provision of Such Tools: Prohibits any entity from selling, licensing, or providing algorithmic pricing software to landlords operating residential properties within Santa Ana. 3. Defines Key Terms: Clearly defines "algorithmic device" as any software or tool that uses algorithms to process data, including nonpublic competitor data, to advise on rental pricing or occupancy strategies. 4. Establishes Enforcement Mechanisms: Empowers the City to enforce these provisions through appropriate penalties and remedies for violations. Implementing this ordinance aims to promote fair rental practices, prevent potential anti- competitive behaviors, and ensure housing affordability for Santa Ana residents. By addressing the use of algorithmic pricing tools, the City seeks to maintain a competitive and transparent rental market. By considering such an ordinance, Santa Ana would join other forward-thinking California cities in safeguarding renters from potential exploitative practices associated with algorithmic pricing tools. This action aligns with the City's commitment to ensuring fair and affordable housing for all residents, alongside a competitive and transparent rental market. SUBMITTED BY Councilmember Jessie Lopez EXHIBIT(S) 1. City of San Francisco Ordinance 2. Sample Ordinance (for discussion only) CITY ATTORNEY CITY MANAGER CITY CLERK Sonia R.Carvalho Alvaro Nunez Jennifer L. Hall 20 CIVIC CENTER PLAZA-P.O. BOX 1988, M31 -SANTA ANA,CALIFORNIA 92702 TELEPHONE(714)647-6900-FAX(714)647-6954-www.santa-ana.org AMENDED IN COMMITTEE 7/29/2024 FILE NO. 240766 ORDINANCE NO. 224-24 1 [Administrative Code - Ban on Automated Rent-Setting] 2 3 Ordinance amending the Administrative Code to prohibit the sale or use of algorithmic 4 devices to set rents or manage occupancy levels for residential dwelling units located 5 in San Francisco. 6 NOTE: Unchanged Code text and uncodified text are in plain Arial font. Additions to Codes are in single-underline italics Times New Romano on . 7 Deletions to Codes are in ti i t i-em,h k. i s TJm, slew p m n f H* Board amendment additions are in double-underlined Arial font. 8 Board amendment deletions are in GtFikethmugh AFial font. 9 Asterisks (* *) indicate the omission of unchanged Code subsections or parts of tables. 10 11 Be it ordained by the People of the City and County of San Francisco: 12 13 Section 1. Background and Findings. 14 (a) In recent years, a number of new revenue management software programs, 15 often referred to as "algorithmic devices," have threatened to destabilize rental housing 16 markets in cities nationwide, including San Francisco. 17 (b) These programs enable landlords to indirectly coordinate with one another 18 through the sharing of non-public competitively sensitive data, in order to artificially inflate 19 rents and vacancy rates for rental housing. Participating landlords provide vast amounts of 20 proprietary data to the programs, which *R tUFR do not iust summarize statistical data, but also 21 perform calculations with the data to then set or provide recommendations for rent and 22 occupancy levels. 23 (c) More and more landlords in large U.S. cities now pool their data and pricing 24 decisions using such software. By some estimates, this includes owners of as much as 70% 25 of all rental housing in San Francisco. Supervisors Peskin; Chan, Preston, Melgar, Ronen, Dorsey BOARD OF SUPERVISORS Page 1 1 (d) The software has contributed to double-digit rent increases, higher vacancy 2 rates, and higher rates of eviction, and has generally distorted markets so that rents and 3 vacancy rates have increased in tandem. 4 (e) Often used by large corporate landlords, the software fuels the consolidation of 5 corporate and private equity ownership of rental housing, at the expense of landlords large 6 and small who are willing to play by the normal rules. Landlords using these tools are not 7 engaging in appropriate market behavior. And the companies developing and selling these g tools to San Francisco landlords are not doing so either, and are contributing to these g problems. 10 (f) Numerous antitrust lawsuits have been filed against certain of these companies, 11 including RealPage, Inc. and Yardi Systems, Inc. The lawsuits allege that these companies 12 are enabling and participating in a scheme of unlawful rent-fixing. These include a lawsuit 13 filed by the District of Columbia Attorney General in November 2023, a lawsuit filed by the 14 Arizona Attorney General in February 2024, and more than 20 federal private class action 15 lawsuits filed nationwide that have been consolidated in the federal court in the Middle District 16 of Tennessee. The United States Department of Justice recently filed a Statement of Interest 17 in support of the efforts to regulate these companies. 18 (g) Instead of waiting for court processes which may take years to resolve, this 19 ordinance prohibits the sale or use of algorithmic devices for the purpose of setting rents on 20 residential dwelling units in San Francisco, to bring immediate relief to San Francisco tenants, 21 as well as to put landlords who have been using these devices on equal footing with those 22 who are willing to adhere to fair standards for setting rental rates. 23 (h) This ordinance is not intended to prevent the development or sale of software to 24 help landlords manage their units generally or through the use of public data. Nor does this 25 ordinance regulate the amount of rent that a landlord may charge. This ordinance takes aim Supervisors Peskin; Chan, Preston, Melgar, Ronen, Dorsey BOARD OF SUPERVISORS Page 2 1 only at the use of#algorithmic devices that analyze and share non-public data, to prevent 2 the harms described above. 3 4 Section 2. Chapter 37 of the Administrative Code is hereby amended by adding 5 Section 37.10C, to read as follows: 6 SEC. 37.10C. USE AND SALE OFALGORITHMIC DEVICES PROHIBITED. 7 (a) Prohibition on Sale. It shall be unlawful to sell, license, or otherwise provide to San 8 Francisco landlords any algorithmic device that sets, recommends, or advises on rents or occupancy g levels that may be achieved for residential dwelling units in.San Francisco. 10 (b) Prohibition on Use. It shall be unlawful for a landlord to use an algorithmic device 11 described in subdivision (a) when setting rents or occupancy levels for residential dwelling units in San 12 Francisco. Each separate month that a violation exists or continues, and each separate residential 13 dwelling unit for which the landlord used the algorithmic device, shall constitute a separate and 14 distinct violation. 15 (c) Definitions. 16 (1) "Algorithmic device"means a device SUGh-as a commonly known as 17 revenue management software pr9g;a4:n,that uses one or more algorithms to perform calculations 18 of non-public competitor data concerning local or statewide rents or occupancy levels, for the purpose 19 of advising a landlord on whether to leave }hhe4-a unit vacant or on the amount of rent that the 20 landlord may obtain for that unitfrom a tenant "Algorithmic device" includes a product that 21 incorporates an algorithmic device, but does not include (A) any report that publishesd by a ade 22 ;a66s tiG_A that rcGerve6re-rn't but 23 does not recommend rents or occupancy levels for future leases: or (B) a product used for the 24 purpose of establishing rent or income limits in accordance with the affordable housing program 25 guidelines of a local government, the state, the federal government, or other political subdivision. Supervisors Peskin; Chan, Preston, Melgar, Ronen, Dorsey BOARD OF SUPERVISORS Page 3 1 (2) "Non public competitor data"means information that is not available to the 2 general public, including information about actual rent prices, occupancy rates, lease start and end 3 dates, and similar data, regardless whether the information is attributable to a specific competitor or 4 anonymized, and regardless whether it is derived from or otherwise provided by another erson that 5 competes in the same market or a related market. 6 (d) Remedies. 7 (1) The City Attorney may file a civil action for violations of subsections (a) and/or (b), $ for dama eg s, injunctive relief, restitution/return of illegal profits, and/or civil penalties of p to $1,000 g per violation. The court shall award reasonable attorney's fees and costs to the City Attorney if the 10 City Attorneyis s the prevailing party in such a civil action. 11 (2) A tenant may file a civil action for violations of subsection (b),for injunctive relief 12 money damages, and/or civil penalties of'upto $1,000 per violation. The court shall award reasonable 13 attorney's fees and costs to the tenant if the tenant is the prevailing party in such a civil action. A lease 14 provision that limits a prevailing tenant from obtaining attorneys'fees shall not be enforceable a ainst 15 a tenant's claim for attorneys'fees that arises under this subsection (d)(2). 16 (e) Undertaking for the General Welfare. In enacting and implementing this Section 37.1OC, 17 the City is assuming an undertaking only to promote the general welfare. It is not assuming, nor is it 18 imposing on its o ficers and employees, an obli ag tion for breach of which it is liable in money damages 19 to any person who claims that such breach proximately caused injury. 20 (Q Severability. If any subsection, sentence, clause,phrase, or word of this Section 37.1OC, 21 or any application thereof to any person or circumstance, is held to be invalid or unconstitutional by a 22 decision of a court of competent jurisdiction, such decision shall not affect the validity of the remaining 23 portions or applications of the Section. The Board of Supervisors hereby declares that it would have 24 passed this Section and each and every subsection, sentence, clause,phrase, and word not declared 25 Supervisors Peskin; Chan, Preston, Melgar, Ronen, Dorsey BOARD OF SUPERVISORS Page 4 1 invalid or unconstitutional without regard to whether any other portion of this Section or application 2 thereof would be subsequently declared invalid or unconstitutional. 3 4 Section 3. Effective Date. This ordinance shall become effective 30 days after 5 enactment. Enactment occurs when the Mayor signs the ordinance, the Mayor returns the 6 ordinance unsigned or does not sign the ordinance within ten days of receiving it, or the Board 7 of Supervisors overrides the Mayor's veto of the ordinance. 8 9 APPROVED AS TO FORM: 10 DAVID CHILI, City Attorney 11 By: /s/ MANUPRADHAN 12 Deputy City Attorney 13 n:\leg ana\as2024\2400283\01775704.d oex 14 15 16 17 18 19 20 21 22 23 24 25 Supervisors Peskin; Chan, Preston, Melgar, Ronen, Dorsey BOARD OF SUPERVISORS Page 5 City and County of San Francisco City Hall 3 I Dr.Carlton B.Goodlett Place ra"I Tads San Francisco,CA 94102-4689 Ordinance File Number: 240766 Date Passed: September 03, 2024 Ordinance amending the Administrative Code to prohibit the sale or use of algorithmic devices to set rents or manage occupancy levels for residential dwelling units located in San Francisco. July 29, 2024 Land Use and Transportation Committee-AMENDED, AN AMENDMENT OF THE WHOLE BEARING SAME TITLE July 29, 2024 Land Use and Transportation Committee-DUPLICATED AS AMENDED July 29, 2024 Land Use and Transportation Committee- RECOMMENDED AS AMENDED AS A COMMITTEE REPORT July 30, 2024 Board of Supervisors- PASSED ON FIRST READING Ayes: 10-Chan, Dorsey, Engardio, Mandelman, Melgar, Peskin, Preston, Ronen, Safai and Stefani Excused: 1 -Walton September 03, 2024 Board of Supervisors-FINALLY PASSED Ayes: 11 -Chan, Dorsey, Engardio, Mandelman, Melgar, Peskin, Pres n, Ronen, Safai, Stefani and Walton File No.240766 1 hereby certify that the foregoing Ordinance was FINALLY PASSED on 9/3/2024 by the Board of Supervisors of the City and County of San Francisco. Angela Calvillo Clerk of the Board London N. Breed Date Approved Mayor City and County of San Francisco Page I Printed at 9:42 am on 914124 SEC. 1. SHORT TITLE. This act may be cited as the "Preventing Algorithmic Rent Fixing in the Rental Housing Market Act." SEC. 2. UNLAWFUL CONDUCT. (a) In General.— (1) CONSPIRACY IN RESTRAINT OF TRADE.—It is unlawful for any real estate lessor, in or affecting commerce, or any agent or subcontractor thereof, to subscribe to, contract with, or otherwise exchange anything of value in return for the services of a service provider. (2) FACILITATION OF CONSPIRACY IN RESTRAINT OF TRADE.—It iS unlawful for any service provider, in or affecting commerce, to facilitate an agreement to not compete among real estate lessors with respect to residential dwelling units. SEC. 3. DEFINITIONS. (a) In general— In this Act: (1) COORDINATING.—The terms "coordinate"or"coordinating"mean, with respect to a service provider— (A) collecting of historical or contemporaneous prices, price changes, supply levels, occupancy rates, or lease or rental contract termination and renewal dates of residential dwelling units from two or more real estate lessors or from public databases; (B) analyzing or processing of the information described in subparagraph (A) using a system, software, or process that uses computation; and (C) recommending rental prices, lease terms, or occupancy levels to a real estate lessor. (2) PERSON.—The term "person"means any natural person, corporation, partnership, limited liability company, firm, or association.' (3) the term `predispute arbitration agreement'means an agreement to arbitrate a dispute that has not yet arisen at the time of the making of the agreement; and (4) the term `predispute joint-action waiver'means an agreement, whether or not part of a predispute arbitration agreement, that would prohibit, or waive the right of, one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum, concerning a dispute that has not yet arisen at the time of the making of the agreement, and (5) SERVICE PROVIDER.—The term "service provider"means any person that performs a coordination function, as defined in Section 3(a)(1) of this Act, for any real estate lessor or rentor. (6) RESIDENTIAL DWELLING UNIT.—The term "residential dwelling unit" (A) means any house, apartment, accessory unit, or other unit intended to be used as a person's primary residence; and (B) does not include inpatient medical care, licensed long-term care, and detention or correctional facilities. (7) REAL ESTATE LESSOR.—The term "real estate lessor"means any individual, corporation, partnership, association,joint-stock company, trust, or unincorporated organization that owns real property and leases such property or any portion thereof in the form of a residential dwelling unit. SEC. 4. ENFORCEMENT. (a) Enforcement.— (1) IN GENERAL.— (A) PUBLIC ENFORCEMENT.—The Attorney General or any city, county, or district attorney may bring a civil action, as parens patriae on behalf of natural persons residing in the state, in the superior court of any county which has jurisdiction of a defendant, to secure monetary relief as provided in this section for injury sustained by those natural persons to their property by reason of any violation of this chapter. (B) PRIVATE RIGHT OF ACTION. Any person who is injured by reason of anything forbidden or declared unlawful by this chapter, may sue therefor in any court having jurisdiction in the county where the defendant resides or is found, or any agent resides or is found, or where service may be obtained, without respect to the amount in controversy. (2) UNFAIR METHODS OF COMPETITION.—A violation of this Act shall also constitute an unfair method of competition. (3) AWARD AMOUNT.— (A) TREBLE DAMAGES.—The court shall award to the plaintiff threefold the damages sustained by the plaintiff. (B) INTEREST ON DAMAGES.—Pursuant to a motion by the plaintiff promptly made, the court may award simple interest on actual damages sustained by the plaintiff for the period beginning on the date of service of the pleading of the plaintiff setting forth a claim under this Act and ending on the date of judgment, or for any shorter period therein. (4) INVALIDITY OF PRE-DISPUTE ARBITRATION AGREEMENTS AND JOINT-ACTION WAIVERS.—At the election of the person alleging conduct constituting a violation of this section, or the named representative of a class or in a collective action alleging such conduct, no pre- dispute arbitration agreement or pre-dispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State or Local law and relates to a violation of this section. (5) ATTORNEYS FEES AND COSTS.--In the case of any successful action to enforce liability pursuant to this Act, the costs of the action together with reasonable attorney fees as determined by the court shall be awarded to plaintiffs. Costs and attorney fees shall be awarded to the attorney general or a city, county, or district attorney in all actions where the attorney general or the city, county, or district attorney successfully enforces this article. SEC. 5. SEVERABILITY. If any provision of this Act, or the application of such a provision to any person or circumstance, is held to be unconstitutional, the remaining provisions of this Act, and the application of such provisions to any person or circumstance shall not be affected thereby.