You may not know it, but modern-day price fixing may be inflating the already too-damn-high rent you’re paying to live in San Diego.
Picture some of the most powerful corporate bosses in America sitting together in a fancy, smoke-filled room. Typically, these billionaires compete with one another, but this is a special meeting where a special deal is made. There is no need to compete anymore. They can all win this time. They own vast amounts of a product that everyone needs and that is in short supply. The bosses just need to agree on how much they are going to charge for it. A deal is struck, and just as expected, the rich get richer while everyday people struggle to pay for what they need.
Thankfully, the scenario described above — a classic example of price fixing — has been illegal in the United States since 1890. Unfortunately, today, thanks to technology, corporate giants don’t need a smoke-filled room — or any room at all. Real estate corporations use algorithms to squeeze every last dollar from struggling renters and homebuyers.
Nowhere is this more dangerous than in cities like San Diego, where out-of-control housing costs are pushing many out of our communities, driving others onto the streets, and making life far too difficult for working families. With San Diego families needing to make $275,000 a year to be able to afford a mortgage, renting is a requirement for many to remain housed. The average rent is 65 percent higher than the national average at $2,489 per month for a two-bedroom. And because incomes aren’t keeping up with surging rent prices, San Diego is now an “impossibly unaffordable” place to call home.
Algorithmic pricing uses artificial intelligence to set the price of homes and rental units based on market data and demand trends. While it may seem efficient, these algorithms are designed to maximize rental prices far beyond what most San Diegans can afford.
Here’s how it works: property management firms feed real-time, non-public data into algorithms. The algorithms then calculate the highest rent a landlord can charge, using other landlords’ non-public data and other factors. And because many of these companies control a large portion of the market, they can essentially dictate rents across entire neighborhoods by complying with the rent recommendations. If that sounds like price fixing, that’s because it is.
When key players in the housing market use the same pricing systems, competition is erased, and prices are artificially inflated. Renters are stuck in a rigged system.
We have a housing shortage, especially of homes affordable to low-income San Diegans. Requirements to build homes are cumbersome and the process takes too long. It is also true that all levels of government don’t invest enough to build the affordable housing we need. With housing in such short supply, corporations know renters will pay whatever they must, even if it leaves them financially crippled. This is exploitation, plain and simple.
We can’t pretend that technology such as algorithmic pricing is a neutral force. It’s a tool of corporate greed used to exploit renters and inflate housing prices. Fortunately, attorneys general across the country and the Department of Justice are taking notice. Recently, state and federal regulators began cracking down on companies like RealPage, investigating their algorithmic pricing software for enabling rent hikes across multiple landlords.
That is why local action is equally essential. As Council President, I am bringing forward an item to the Rules Committee of the City Council to discuss and provide direction on drafting an ordinance to set strict limits on how such technologies can manipulate housing prices. As a Chief Deputy City Attorney, I believe in the merits of the case brought forward by the Justice Department. But the litigation will take time to resolve, so I support putting an end to algorithmic price fixing by ordinance.
San Diego can’t sit idly by while corporate landlords exploit our city’s housing crisis. That’s why we are asking the Rules Committee on Wednesday to support our recommendation to request the City Attorney’s Office work with Council District Office on drafting an ordinance banning the sale and use of price fixing software and bring the proposed ordinance to the City Council. By taking decisive action, San Diego can protect its residents and set an example for cities across the country. If we fail to act, more people will be priced out of their homes, and the only winners will be the ultra-rich profiting from our pain.
The only people this will help financially are the lawyers, as it drags through the courts for a dozen years or more. When the software changes, and it will, to meet the new court decision, we’ll do it all over again? Face it, the world has discovered our secret that San Diego is a spectacular place to live, so it will never be cheap again, no matter how much housing is built. Buckle up and get used to paying NYC-like prices for everything!
Let’s not deal with the root cause of the housing shortage, and that is the lack of housing. California’s policies make it impossible to build affordable housing, requiring developers to build luxury units that pencil out for the lenders. The only “affordable” housing being built is heavily subsidized by the government, meaning by us the taxpayers. If you want affordable housing change the policies that make it cost $120k before ever putting a shovel in the ground, 3 years AFTER you buy the land to build on. For every housing unit that a national developer builds in California they are building 20 elsewhere, like Idaho, the Carolina’s and Texas.
The proposal is ridiculous. The problem is not the algorithms, it is the corporations that are using them. If “price fixing software” did not exist, there are employees of investment groups that can calculate optimal pricing, by hand, on the back of an envelope. Regulate the investors/owners!
I agree with all the above comments. As a practical matter, however, the cities should encourage and financially support pre-fab ADU’s. The cities are already built out, so infill or high rises are the choices. Infill with ADU’s of all sizes would probably maintain part of the San Diego charm. And, we don’t have to keep building until no one wants to live here. The politicians must somehow be forced to do what’s best for those who already live here, not what’s best for the builders and their employees, and everyone else that would benefit from too much housing for all of our comfort.
Sean Elo is the guy who lived in his car because he couldn’t support himself without a government paycheck right? It’s not surprising that he does not see a connection between his policies and higher costs (for everything, not just housing).
Algorithm’s may be a part of the problem but the big problem is City policy related to low in-lieu fees for developers. As long as developers can continue to opt-out of the 10% affordable housing quota by paying in-lieu fees that are less than 10% of construction costs, there will continue to be less and less affordable housing. This matter highlights just how influential municipal legislation can be.
The author has quite the imagination. My rent is astronomical too, but it isn’t because of a corporate landlord. ALL landlords use the same practices, software, and algorithms to determine how much they can get away with charging. This article deflects blame away from bad government policy and directs your attention to some non-existent, smoke-filled room of old white men who look like the guy on the cover of monopoly. Guess what? Lots, and I mean millions of individuals read “rich dad poor dad”, got fed up with paying outrageous taxes on their wages and decided to become real estate investors. Now we have a real estate bubble driven primarily by individual investors buying up houses and condos to turn into rentals. This guy can choose to live in his own fantasy if he wants to, but you don’t have to!