In her first policy speech as presidential candidate, Vice President Kamala Harris blamed high rents on property management software and inflation on price-gouging. A week later, the Biden-era Department of Justice sued a provider of such software, called RealPage.
Now the Bay Area is leaning into this blame-game. The Berkeley City Council last week voted to adopt an ordinance to “prohibit the sale or use of algorithmic devices to set rents or manage occupancy levels for residential dwelling units.” A final vote will come today.
The consequences would be long-lasting. These “algorithmic devices” — a complex term for software — offer property managers, big and small, a suggested value for their rental units based upon current market conditions. Users can advertise their rentals for more or less.
Allowing landlords to use the software brings inventory to market more quickly, because it eliminates the time-intensive process of researching the going rates of units in similar locations with comparable amenities. Developers will also be more willing to build in the East Bay and throughout California if they can utilize modern tools to make property management easier.
“It amounts to illegal price-fixing,” claimed Debbie Potter, former chair of Berkeley’s Housing Advisory Commission, who proposed the ordinance.
But estimating the value of rentals based on comparables is not the same as controlling the value of rentals, when there is no requirement to accept the software’s recommendations. Without any agreement between property managers to go by the software’s suggestions, they are free to compete against one another by pricing their units below market value. Ultimately, prices are set by humans who reach an agreement on what they are willing to take and pay for rent.
In opposition to the ordinance, Berkeley City Councilmember Mark Humbert suggested the ban would require a police state to determine who is using advanced math and a computer to calculate market value. His solution to the high price of housing makes sense: If Berkeley wants to bring down prices, it should just build more housing, he said.
It works. In Austin, Texas, an area that rivals Northern California for national prestige in tech leadership, average rental prices have declined for 19 consecutive months following a recent boom in apartment development. Likewise, when Miami housing prices skyrocketed in the early 2000s — because of a population boom generated by retiring Northeasterners and Latin American expats — builders responded with a massive building campaign. Because government supported their work, housing prices fell dramatically.
In short, to make housing more affordable, our local leaders should reduce the disincentives to new single and multifamily construction through reform of the city’s rent control, its overly restrictive tenant-rights policies, and its glacial permitting process.
The real reason for high rents was explained in Econ 101: In the East Bay, housing supply has yet to catch up with housing demand.
Berkeley City Council’s attempt to shut down algorithmic price recommendations is remindful of the ugly king who thought he became handsome because he banned mirrors. Housing won’t become affordable by banning algorithmic math either.
Will Swaim is president of the California Policy Center.