The multifamily industry has been facing government pressure through a lawsuit over alleged price fixing in rents. Now a bill in the Senate, S. 3692, would “prohibit the use of algorithmic systems to artificially inflate the price or reduce the supply of leased or rented residential dwelling units in the United States.”
The bill, also titled “Preventing the Algorithmic Facilitation of Rental Housing Cartels Act of 2024,” looks to regulate the collection of “historical or contemporaneous prices, supply levels, or lease or rental contract termination and renewal dates” from at least two residential rental property orders.
The bill is an extension of something happening since an October 15, 2022, article from ProPublica that discussed RealPage’s YieldStar software. The multifamily industry has faced an expanding Department of Justice antitrust lawsuit for price fixing of rents that targeted RealPage — which has forcefully denied that its revenue management platform enabled illegal data sharing. And eventually, Greystar Real Estate Partners, Blackstone's LivCor, Willow Bridge Property Company, Camden Property Trust, Pinnacle (and its parent company Cushman & Wakefield), and Cortland, faced similar lawsuits from the DOJ.
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U.S. Senator Amy Klobuchar (D-MN), who sponsored the bill, described it as closing a loophole that when “direct competitors share non-public information through a pricing algorithm to raise prices,” there is a presumption of a price-fixing agreement.
Companies with such software would have to disclose the use of such an algorithm and give antitrust enforcers the ability to audit the algorithm. Companies couldn’t use “non-public, competitively sensitive information” from direct competitors to train an algorithm. The Federal Trade Commission would study the impact of such pricing algorithms on competition.
But the exact wording of the bill — which only had Democratic and Independent cosponsors, and is unlikely to get far in a Republican-majority Senate. Plus, it raised questions about the implications of the desired law.
Two definitions in the bill are critical. The first is a “coordinating function.” Such a function collects pricing data, supply levels, or lease or rental contract termination renewal dates of residential dwelling units from at least two buildings. The function then has to analyze or process that information using a “system, software, or process that uses computation.” That can include training an algorithm. Third, the function has to recommend “rental prices, lease renewal terms, or ideal occupancy levels to a rental property owner.”
The second definition is a “coordinator.” That is “any person that operates a software or data analytics service that performs a coordinating function for any rental property owner, including a rental property owner performing a coordinating function for their own benefit.”
Among other things, the bill would make it illegal for a rental property owner to contract with a coordinator. But what does it mean to recommend rents, lease renewal terms, or ideal occupancy levels? Would that include getting information on common asking prices in a new rental? Prevailing occupancy rates in a given locale?
The definitions might seem to be tight, but are they? There seems to be room to capture more data than what the people who drafted the language say they are interested in.
When legislators write bills to manage technology in CRE, those in the industry should read the exact language and consider everything it could mean.
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