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Across California, landlords are increasingly using AI software to set rental prices, leading to increasing legislative efforts to curb the effect on housing affordability.

Developed by Texas-based RealPage, the software aggregates data from landlords to generate rent prices for apartment units. This practice has been charged with inflating rents and limiting competition, especially in cities already suffering high housing costs.

Federal prosecutors have contended that this is an unlawful information-sharing scheme that hurts renters by artificially inflating prices, AP News reported.

In reaction to increasing concern, several California cities, including San Francisco and San Diego, have acted to ban or restrict the use of AI-driven rent-setting platforms. The San Diego City Council president has suggested an ordinance that would ban the use of such software, protecting residents from artificially inflating rents. This comes after a similar landmark ban passed in San Francisco earlier this year. The state's legislative push is broader than the proposed bill by Senator Melissa Hurtado, which suggests AI-driven price fixing accusations have stalled at least twice in Sacramento.

AI in Setting Rental Prices

At the heart of the controversy lies the Revenue Management software YieldStar built by RealPage, which uses landlords' data collected in order to forecast rent prices for them. The application takes data from participating landlords over a given area and pools the collected data to generate price suggestions, which some argue promotes market price-fixing.

According to the Washington Examiner, critics argue the technology enables landlords to raise rental prices and keep rates higher even as market trends indicate them to decrease. Therefore, the prices of apartments in cities like San Diego continue to rise to record levels, now $3,000 average rent per two-bedroom apartment.

Federal prosecutors joined California and seven other states in bringing an antitrust suit against the company on charges of price fixing that allowed rents to surge in some states. However, the firm defended its software, claiming that it was helpful for property managers by giving them access to accurate, competitive pricing information, further arguing that the software saved landlords from drastic rent cuts when markets shifted sharply.

The use of AI in determining rents has far-reaching implications for tenants. In San Diego, many tenants complain of experiencing sharp rent increases and scarce affordable housing. The impact of these price hikes is disproportionately felt by low-income tenants in California, which gives them a hard time staying in their homes.