The real estate software company RealPage announced on Wednesday that it is suing Berkeley over the city’s recently passed ban on rental price-setting software, which tenant advocates say allows landlords to collude to raise rents.
The move comes as the company faces numerous anti-competition lawsuits brought by renters and bans by other cities, as well as an antitrust lawsuit from the U.S. Department of Justice over concerns it has facilitated a price-fixing scheme.
The lawsuit may also serve as a warning to other cities weighing bans, including San Jose, that the company is prepared to push back on laws that threaten its business model.
RealPage’s customers are landlords, who share their rental data with the company. RealPage aggregates and analyzes data shared from its customers, then uses it to recommend whether landlords should increase or decrease their rental prices, or leave units vacant to attract renters who might pay more if they rent at a later date.
RealPage rejects the claims that it is involved in price-fixing. The company says that its price recommendations are based on “publicly available rent data” and that the software is built to be “legally compliant.”
Its lawsuit against Berkeley, filed in federal court in the Northern District of California, demands that the judge file an injunction that would keep the city’s ordinance from going into effect.
Though several cities have adopted similar bans — including San Francisco, Philadelphia and Minneapolis — Berkeley is the first to face a lawsuit from the company.
RealPage Outside Counsel Stephen Weissman argued that Berkeley’s ordinance is unconstitutional, because it violates the First Amendment by prohibiting the company’s right to lawful speech.
“This ordinance prohibits speech in the form of advice and recommendations from RealPage to its customers,” Weissman said in a press call on Wednesday morning.
But it’s unclear whether a judge will buy the company’s “free speech” argument – especially in the city known as the birthplace of the free speech movement.
“There is not a First Amendment defense to price-fixing allegations,” said David Meyer, a Washington, D.C.-based attorney specializing in antitrust cases. “The offense itself is not the content of the speech — it’s the underlying implications of that speech, which is the manipulation of the competitive process by which market prices are determined.”
The company also claims that Berkeley’s ordinance is based on “false claims” about its software, and that the company was not consulted by the city ahead of the council’s vote on March 12.
“We had no opportunity whatsoever to participate, to present facts,” Weissman said. “That, I think, illustrates the wrong headed nature of this ordinance.”
A spokesperson for Berkeley said that, as of Wednesday mid-morning, they had not yet been served with the lawsuit.
The cost of housing has become a major issue for cities around the Bay Area, and the bans reflects a movement, largely led by progressive Democrats, to regulate landlords who have profited off the affordability crisis. But RealPage says the blame is misplaced.
“Municipalities… are particularly eager to find a scapegoat for their own hand in impeding the housing supply,” the RealPage lawsuit reads.
Undersupply is largely considered to be the main driver of high housing prices — and Berkeley has certainly restricted its supply. Through most of the 2010s, Berkeley’s elected officials were largely skeptical of the role of building new housing in solving the city’s affordability issues, applying onerous restrictions on new housing complexes that developers say make projects unfeasible, and voting down several dense housing projects.
But that has changed. Many of Berkeley’s leaders have aligned themselves with the pro-housing movement, including former mayor Jesse Arreguin, now a state lawmaker, and current mayor Adena Ishii, who took office in January.
Even as Berkeley has allowed more housing to be built in the last five years, it has also strengthened protections for tenants. In November, for example, voters passed Measure BB, which requires landlords to negotiate with unionized tenants and gives tenants greater protections from evictions.
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RealPage’s Weissman said that it targeted Berkeley’s ordinance first, looking to stop it before it is implemented in late April, but it may soon look to sue other cities that have passed bans.
“Everything is on the table,” Weissman said.
Meanwhile, other California cities — including San Diego and San Jose — are weighing their own bans on RealPage and similar software.
In the California Legislature, Sen. Aisha Wahab, a Fremont Democrat, has proposed SB 384, which would ban price-recommending algorithms on not just rentals, but any goods and services.