With little fanfare and but a single comment, Santa Monica once again moved to the forefront of rental protections last week by becoming one of the first U.S. cities to prohibit algorithmic rental pricing software, enacting an ordinance that bans both the sale and use of technology that critics say enables landlords to fix rents at artificially high levels.
The City Council's adoption of the ban comes as the city grapples with a housing crunch exacerbated by January's devastating Los Angeles County wildfires, which displaced thousands of residents and drove up demand for rental properties.
"I just wanted to acknowledge that we've just passed our algorithmic rental price fixing ordinance," Mayor Pro Tem Caroline Torosis said following the council's vote.
“I believe that we're one of the few jurisdictions in the country to do this,” she said. “I just want to thank our city attorney and our consumer protection unit for being so diligent and ensuring, especially since the fires, that we are looking at every opportunity to combat price gouging and taking advantage of these victims, and also to ensure that we have fair pricing in our city. So I just, I wanted to say thank you to the city attorney's office.”
The ordinance specifically targets software like RealPage's YieldStar, which uses proprietary algorithms to recommend rent prices and occupancy levels for landlords based on confidential data from competing properties. City officials argue such systems amount to high-tech price fixing that drives up rents across local markets.
The ordinance allows tenants to use algorithmic pricing violations as an affirmative defense in eviction proceedings and permits civil enforcement actions by affected renters or the city.
According to the White House Council of Economic Advisors, algorithmic rental pricing software costs tenants whose landlords use the technology $70 per month on average nationally, and $34 per month in the Los Angeles metropolitan area. The council also found that even tenants of landlords who don't use the software face higher rents as demand increases for their lower-priced units.
Santa Monica's action comes amid a broader national reckoning with algorithmic pricing tools. The city joins San Francisco, Philadelphia, Berkeley and Minneapolis in banning the technology, with other major cities including San Diego and Seattle moving forward with similar prohibitions.
The local ban also coincides with escalating federal litigation against the rental software industry. In January, the U.S. Department of Justice filed an expanded antitrust lawsuit against RealPage, joined by California Attorney General Rob Bonta and other state officials. The complaint alleges that RealPage and participating property companies orchestrated a "pricing alignment scheme" that artificially raised rents and maintained minimum price floors in violation of federal law.
The Santa Monica ordinance defines prohibited "algorithmic devices" as software that uses competitor data to advise landlords on rent pricing or whether to leave units vacant. Violations carry penalties of $1,000 per offense or actual damages, whichever is greater, plus attorney fees.
However, the ban faces opposition from industry groups. The California Apartment Association argued in a letter to the council that the ordinance is "premature" and "overbroad," calling for more study before enacting restrictions on emerging technologies.
"More work is needed to clearly define what constitutes 'algorithmic pricing software,'" Fred Sutton, the association's senior vice president of public affairs, wrote. "These technologies are not the source of the region's housing crises, but rather the lack of supply and an overly regulated environment is."
More than 35 class-action lawsuits have been filed nationwide related to algorithmic rental pricing software, targeting both software providers and landlords who use the systems.
