By Wendy Fry, CalMatters

If you’ve hunted for apartments recently and felt like all the rents were equally high, you’re not crazy: Many landlords now use a single company’s software — which uses an algorithm based on proprietary lease information — to help set rent prices.

Federal prosecutors say the practice amounts to “an unlawful information-sharing scheme” and some lawmakers throughout California are moving to curb it. San Diego’s City Council president is the latest to do so, proposing to prevent local apartment owners from using the pricing software, which he maintains is driving up housing costs.

San Diego’s proposed ordinance, now being drafted by the city attorney, comes after San Francisco supervisors in July enacted a similar, first-in-the-nation ban on “the sale or use of algorithmic devices to set rents or manage occupancy levels” for residences. San Jose is considering a similar approach.

And California and seven other states have also joined the federal prosecutors’ antitrust suit, which targets the leading rent-pricing platform, Texas-based RealPage. The complaint alleges that “RealPage is an algorithmic intermediary that collects, combines, and exploits landlords’ competitively sensitive information. And in so doing, it enriches itself and compliant landlords at the expense of renters who pay inflated prices…”

But state lawmakers this year failed to advance legislation by Bakersfield Democratic Sen. Melissa Hurtado that would have banned the use of any pricing algorithms based on nonpublic data provided by competing companies. She said she plans to bring the bill back during the next legislative session because of what she described as ongoing harms from such algorithms.

“We’ve got to make sure the economy is fair and … that every individual who wants a shot at creating a business has a shot without being destroyed along the way, and that we’re also protecting consumers because it is hurting the pocketbooks of everybody in one way or another,” said Hurtado.

RealPage has been a major impetus for all of the actions. The company counts as its customers landlords with thousands of apartment units across California. Some officials accuse the company of thwarting competition that would otherwise drive rents down, exacerbating the state’s housing shortage and driving up rents in the process.

“Every day, millions of Californians worry about keeping a roof over their head and RealPage has directly made it more difficult to do so,” said California Attorney General Rob Bonta in a written statement.

A RealPage spokesperson, Jennifer Bowcock, told CalMatters that a lack of housing supply, not the company’s technology, is the real problem — and that its technology benefits residents, property managers, and others associated with the rental market. The spokesperson later wrote that a “misplaced focus on nonpublic information is a distraction… that will only make San Francisco and San Diego’s historical problems worse.”

As for the federal lawsuit, the company called the claims in it “devoid of merit” and said it plans to “vigorously defend ourselves against these accusations.”

“We are disappointed that, after multiple years of education and cooperation on the antitrust matters concerning RealPage, the (Justice Department) has chosen this moment to pursue a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years,” the company’s statement read in part. “RealPage’s revenue management software is purposely built to be legally compliant, and we have a long history of working constructively with the (department) to show that.””

The company’s challenges will only grow if pricing software becomes another instance in which California lawmakers lead the nation. Following San Francisco’s ban, the Philadelphia City Council passed a ban on algorithmic rental price-fixing with a veto-proof vote last month. New Jersey has been considering its own ban.

Is It Price-fixing — or Coaching Landlords?

According to federal prosecutors, RealPage controls 80% of the market for commercial revenue management software. Its product is called YieldStar, and its successor is AI Revenue Management, which uses much of the same codebase as YieldStar, but has more precise forecasting. RealPage told CalMatters it serves only 10% of the rental markets in both San Francisco and San Diego, across its three revenue management software products.

Here’s how it works:

In order to use YieldStar and AIRM, landlords have historically provided RealPage with their own private data from their rental applications, rent prices, executed new leases, renewal offers and acceptances, and estimates of future occupancy, although a recent change allows landlords to choose to share only public data.

This information from all participating landlords in an area is then pooled and run through mathematical forecasting to generate pricing recommendations for the landlords and for their competitors.

San Diego City Council President Sean Elo-Rivera, explained it like this:

“In the simplest terms, what this platform is doing is providing what we think of as that dark, smoky room for big companies to get together and set prices,” he said. “The technology is being used as a way of keeping an arm’s length from one big company to the other. But that’s an illusion.”

In the company’s own words, from company documents included in the lawsuit, RealPage “ensures that (landlords) are driving every possible opportunity to increase price even in the most downward trending or unexpected conditions.” The company also said in the documents that it “helps curb (landlords’) instincts to respond to down-market conditions by either dramatically lowering price or by holding price.”

Providing rent guidance isn’t the only service RealPage has offered landlords. In 2020, a Markup and New York Times investigation found that RealPage, alongside other companies, used faulty computer algorithms to do automated background checks on tenants. As a result, tenants were associated with criminal charges they never faced, and denied homes.

Impact on Tenants

The attorneys general of eight states, including California, joined the Justice Department’s antitrust suit, filed in U.S. District Court for the Middle District of North Carolina.

The California Justice Department contends RealPage artificially inflated prices to keep them above a certain minimum level, said department spokesperson Elissa Perez. This was particularly harmful given the high cost of housing in the state, she added. “The illegally maintained profits that result from these price alignment schemes come out of the pockets of the people that can least afford it.”

Renters make up a larger share of households in California than in the rest of the country —  44% here compared to 35% nationwide. The Golden State also has a higher percentage of renters than any state other than New York, according to the latest U.S. Census data.

The recent ranks of California legislators, however, have included few renters: As of 2019, CalMatters could find only one state lawmaker who did not own a home — and found that more than a quarter of legislators at the time were landlords.

The State Has Invested in RealPage

Private equity giant Thoma Bravo acquired RealPage in January 2021 through two funds that have hundreds of millions of dollars in investments from California public pension funds, including the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, the Regents of the University of California and the Los Angeles police and fire pension funds, according to Private Equity Stakeholder Project.

“They’re invested in things that are directly hurting their pensioners,” said K Agbebiyi, a senior housing campaign coordinator with the Private Equity Stakeholder Project, a nonprofit private equity watchdog that produced a report about corporate landlords’ impact on rental hikes in San Diego.

RealPage argues that landlords are free to reject the price recommendations generated by its software.

RealPage argues that landlords are free to reject the price recommendations generated by its software. But the U.S. Justice Department alleges that trying to do so requires a series of steps, including a conversation with a RealPage pricing adviser. The advisers try to “stop property managers from acting on emotions,” according to the department’s lawsuit.

If a property manager disagrees with the price the algorithm suggests and wants to decrease rent rather than increase it, a pricing advisor will “escalate the dispute to the manager’s superior,” prosecutors allege in the suit.

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By Marisa Kendall
CalMatters

Losing income is the No. 1 reason Californians end up homeless — and the vast majority of them say a subsidy of as little as $300 a month could have kept them off the streets.

That’s according to a new study out of UC San Francisco that provides the most comprehensive look yet at California’s homeless crisis.

In the six months prior to becoming homeless, the Californians surveyed were making a median income of just $960 a month. The median rent for a two-bedroom apartment in California is nearly three times that, according to Zillow. And though survey participants listed a myriad of reasons why they lost their homes, more people cited a loss of, or reduction in, income than anything else.

The study’s authors say the findings highlight the idea that money, more than addiction, mental health, poor decisions or other factors, is the main cause of — and potential solution to — homelessness.

“I think it’s really important to note how desperately poor people are, and how much it is their poverty and the high housing costs that are leading to this crisis,” said Margot Kushel, a physician who directs the UCSF Benioff Homelessness and Housing Initiative, which conducted the study.

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Already the study — which the authors say is the most representative homelessness survey conducted in the U.S. since the mid-1990s — has drawn attention from high places.

The initial idea for the survey came from California Health and Human Services Secretary Mark Ghaly, Kushel said. Ghaly’s office has been involved along the way, though the state didn’t fund the research.

“As we drive toward addressing the health and housing needs of Californian’s experiencing homelessness, this study reinforces the importance of comprehensive and integrated supports,” Ghaly said in a news release. “California is taking bold steps to address unmet needs for physical and behavioral health services, to create a range of housing options that are safe and stable, and to meet people where they are at. We are grateful for the voices of those who participated in this study, as they will help guide our approach.”

The survey comes as local governments press Gov. Gavin Newsom to distribute ongoing funding to fight homelessness, arguing the one-time grants he has doled out so far don’t allow them to make lasting progress. Newsom has resisted that kind of multi-year commitment, although his administration has allocated nearly $21 billion toward homelessness and housing since he took office.

The UCSF team surveyed 3,198 unhoused adults throughout California between October 2021 and November 2022, and conducted in-depth interviews with 365 of those participants.

What drives California’s homeless crisis?

When asked why they left their last home, respondents cited conflict between roommates, not wanting to impose on the person or people they were living with, domestic violence, illness and breakups.

A loss of or reduction in income was the most common response, with 12% of people saying that’s what caused their homelessness. Just 4% blamed their own substance use or drinking.

All of those varied factors that led people to lose their homes often have underlying roots in economic instability, said Jennifer Wolch, a professor emerita at UC Berkeley specializing in homelessness.

“This lack of income and severe instability and housing precarity, it has spillover effects on people’s relationships, their use of alcohol and other kinds of problematic substances,” she said. “It impinges on their health status.”

The story told by one survey participant, identified as Carlos, shows how someone can gradually descend into homelessness. He had to stop working after falling off a ladder and injuring his spine, but wasn’t eligible for workers’ compensation because he had been paid in cash. Unable to afford his rent, he moved out of his apartment and rented a room in a new place. He soon left due to conflicts with his roommates. He then briefly lived with his sister’s family, until they faced COVID-related job loss and he moved out to avoid becoming a burden. He lived in his truck until it was towed due to unpaid parking tickets. Now, he lives in an encampment in a park.

Most of the homeless Californians surveyed said a relatively small amount of cash would have saved them from the street. Seventy percent said a monthly rental subsidy of $300-$500 would have kept them from becoming homeless, while 82% believed a one-time payment of between $5,000 and $10,000 would have worked.

Jennifer Loving, CEO of Santa Clara County nonprofit Destination: Home, hopes the study’s findings will help debunk what she says is a common myth that people are homeless because of their individual failings, rather than because rents are outpacing wages. She’d like to see California’s leaders take notice.

“Hopefully it will inform a statewide strategy,” she said, “because we need a statewide strategy to be able to manage how we are addressing homelessness.”

Another California homeless myth

Another myth the study attempts to dispel is that most homeless people flock to California cities because of warm weather, liberal policies and generous services. In reality, 90% of the people surveyed said they were last housed in California, and 75% live in the same county as where they lost their housing.

That’s important to remember, Wolch said, because it’s easy to disregard unhoused people who we think “aren’t from here” and haven’t paid taxes here.

“People who are homeless are your neighbors,” she said. “People who are homeless live in the same city that you do and they possibly have lived there longer than you have.”

The survey painted a bleak picture of the traumas and tragedies that made survey participants more vulnerable to ending up on the street. People reported growing up in depressed communities with few job opportunities, where they experienced exploitation and discrimination. Nearly three-quarters said they had experienced physical violence during their lives, and one-quarter had experienced sexual violence.

One in three people surveyed attempted suicide at some point.

Mental health and addiction also were a common undercurrent in the lives of many of the unhoused people surveyed, which is to be expected in a population that has suffered so much trauma, according to the researchers. Two-thirds of people reported experiencing mental health symptoms — including depression, anxiety or hallucinations — in the past 30 days. Homelessness and all it entails, including lack of sleep, violence and difficulty accessing medication, exacerbated their symptoms, many people said.

About one-third of people reported using drugs three or more times a week — mostly methamphetamines. And 1 in 5 people who reported regular drug or heavy alcohol use said they wanted addiction treatment but couldn’t get it.

Jail to homelessness pipeline

The study also emphasizes the relationship between incarceration and homelessness, said Alex Visotzky, senior California Policy Fellow for the National Alliance to End Homelessness.

More than three-quarters of people surveyed had been incarcerated at some point during their life. And in the six months before becoming homeless, 43% were in jail or prison, or were on probation or parole. The vast majority of those who had been incarcerated received no help signing up for housing, healthcare or benefits upon release.

“That drove home for me this point: Incarceration, homelessness and then subsequent criminalization are fueling a really vicious cycle for marginalized people, especially Black and Latino Californians, that’s both causing and prolonging homelessness,” Visotzky said.

‘We don’t have enough housing for poor folks’

To solve the homelessness crisis, the main problem California needs to address is the lack of housing that’s affordable for extremely low-income residents, according to the researchers. The state has just 24 affordable and available homes for every 100 extremely low-income households, according to the National Low Income Housing Coalition.

Among the solutions the researchers proposed: expanding vouchers that use federal, state and local dollars to subsidize people’s rent. They also suggested piloting shared housing programs where multiple households live together and split costs, while also providing funds to help people remain with or move in with family or friends.

Kushel hopes the study helps drive public support for these ideas, which in turn will spur politicians to act.

“I hope that it really focuses our efforts on housing, which is the only way out of homelessness,” Kushel said. “It’s almost so obvious it’s hard to speak about. We don’t have enough housing for poor folks.”

The study is available at https://homelessness.ucsf.edu/our-impact/our-studies/california-statewide-study-people-experiencing-homelessness.

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By Ben Christopher
CalMatters

Late last fall, a Southern California developer dropped more than a dozen mammoth building proposals on the city of Santa Monica that were all but designed to get attention.

The numbers behind WS Communities’s salvo of proposals were dizzying: 14 residential highrises with a combined 4,260 units dotting the beachside city, including three buildings reaching 18 stories. All of the towers were bigger, denser and higher than anything permitted under the city’s zoning code.

City Councilmember Phil Brock attended a town hall shortly after the announcement and got an earful. A few of the highlights: “Godzilla next door,” “a monster in our midst” and “we’re going to never see the sun again.”

“‘Concerned’ would be putting it mildly,” Brock said of the vibe among the attendees. “A lot of them were freaked.”

As it turns out, freaking locals out may have been the point.

WS Communities put forward its not-so-modest proposal at a moment when it had extreme leverage over the city thanks to a new interpretation of a 33-year-old housing law. Santa Monica’s state-required housing plan had expired and its new plan had yet to be approved. According to the law, in that non-compliance window, developers can exploit the so-called builder’s remedy, in which they can build as much as they want wherever they want so long as at least 20% of the proposed units are set aside for lower income residents.

Over the last two years, local governments across California have had to cobble together new housing plans that meet a statewide goal of 2.5 million new units by 2030. At last count, 227 jurisdictions — home to nearly 12 million Californians, or about a third of the state population — still haven’t had their plans certified by state housing regulators, potentially opening them up to builder’s remedy projects.

That gives developers a valuable new bargaining chip.

WS Communities used its advantage in Santa Monica to broker a deal in which it agreed to rescind all but one of its 14 builder’s remedy projects in exchange for fast-tracked approval of 10 scaled-down versions.

“The builder’s remedy — the loss of zoning control, the ability of a developer to propose anything, Houston-style, whatever they want, no zoning regulations — that gets people’s attention,” said Dave Rand, the land-use attorney representing the WS Communities. “The builder’s remedy can be a strategic ploy in order to potentially leverage a third way.”

For the developer, the settlement — which still needs a final vote to fully be implemented — is a major win. But this use of a long-dormant law also represents a shift in the politics of housing in California, reflecting a new era of developer empowerment bolstered by the growing caucus of pro-building lawmakers in the Legislature.

“The old games of begging municipalities for a project and reducing the density to get there and kissing the ass of every councilmember and planning official and neighbor — that’s the old way of doing things,” said Rand. “Our spines are stiffening.”

It’s hard to know just how many builder’s remedy projects have been filed across the state. YIMBY Law, a legal advocacy group that sues municipalities for failing to plan for or build enough housing, has a running count on its website of 46 projects, though its founder, Sonja Trauss, admits that it’s an imperfect tally.

Some of the projects, like those in Santa Monica, are towers with hundreds of units. Others are more modest apartment buildings. Whatever the total, Trauss said it represents a significant uptake for a novel legal strategy.

“There were a lot of naysayers who were like ‘it’s too risky,’ ‘nobody knows what’s gonna happen,’ ‘nobody’s gonna do it,’ blah, blah, blah,” she said. “I feel vindicated. You know, people are trying it.”

But counting just the units proposed under the law misses its broader impact, said UC Davis law professor Chris Elmendorf.

Multiple cities rushed forward their housing plans this year, with city attorneys, city planners and councilmembers warning that failure to do so before a state-imposed deadline could invite a building free-for-all.

“All the action is in negotiation in the shadow of the law,” said Elmendorf. The law “may result in a lot of other projects getting permitted that never would have been approved because the developer had this negotiating chip.”

Rediscovering the California builder’s remedy

If it’s possible for someone to unearth a forgotten law, Elmendorf can rightly claim to have excavated the builder’s remedy.

The Legislature added the provision to the government code in 1990, but no one used it for decades. In the one case Elmendorf found where someone tried — a homeowner in Albany, just north of Berkeley, who wanted to build a unit in his backyard in 1991 without adding a parking spot — local planners shot down the would-be builder.

Elmendorf stumbled upon the long-ignored policy 28 years later while researching East Coast laws that let developers circumvent zoning restrictions in cities short on affordable housing.

He started tweeting about it. He even dubbed the California law the “builder’s remedy,” borrowing the coinage from Massachusetts.

“I think it’s fair to say that people in California had forgotten about the builder’s remedy almost completely until I started asking about it on Twitter,” he said. ” I think those twitter threads led some people to say, ‘huh.'”

Among those who noticed: staff at the state Housing and Community Development department who began listing the “remedy” as a possible consequence of failing to plan for enough housing.

Why was the builder’s remedy largely forgotten? The text of the law is complicated and it’s only relevant once every eight years, when cities and counties are required to put together their housing plan. Plus, though it allows developers to ignore a city’s zoning code, it’s not clear that it exempts them from extensive environmental review, making the cost savings of using it uncertain.

But more importantly, up until recently, invoking the builder’s remedy — the regulatory equivalent of a declaration of war — was bad for business.

Historically, local governments have had sweeping discretion over what gets built within their borders, where and under what terms and conditions. Developers and their lawyers hoping to succeed in such a climate had to excel at what one land use attorney dubbed the art of “creative groveling.”

But in recent years, as the state’s housing shortage and resulting affordability crisis have grown more acute, lawmakers have passed a series of bills to take away some of that local control. In many cases, cities and counties are now required to approve certain types of housing, like duplexes, subsidized housing apartments and accessory dwelling units, as long as the developer checks the requisite boxes.

That’s all led some developers to rethink their approach to dealing with local governments — one that is less concerned with building bridges and isn’t so afraid to burn a few.

Santa Monica makes a deal

Santa Monica’s city council voted unanimously for the deal with WS Communities early last month — but grudgingly.

In exchange for the developer pulling its original proposals, the city agreed to a streamlined approval process for the new plans. The council also agreed to pass an ordinance to give the developer extra goodies on the 10 remaining projects.

If the city doesn’t pass the ordinance, according to the settlement, WS Communities has the right to revive the builder’s remedy for all 14 towers.

Councilmember Brock, elected in 2020 along with a slate of development-skeptics, was hardly a fan of the deal. But as he saw it, the prospect of a lengthy legal battle that the city’s attorney insisted Santa Monica would lose gave the council little choice. That didn’t make what Brock viewed as a hard-knuckle negotiating tactic any easier to swallow.

“I don’t believe for a minute that they ever planned to build all those projects,” he said.

Councilmember Caroline Torosis, who was elected last fall, laid the blame on the prior council for failing to pass a timely housing plan. Even so, she said the city had no choice but to reclaim control over its own land use from the developer.

“We were put in a difficult situation,” she said. “I think that this was absolutely the best negotiated settlement that we could have reached, but of course, they had leverage.”

Both Scott Walter, the president of WS, and Neil Shekhter, the founder of the parent company, NMS Properties, refused a request to be interviewed through their lawyer, Rand.

But in true property kingpin fashion, WS was able to flip these builder’s remedy proposals into things of even greater value: ironclad plans that it can build out quickly or sell to another developer.

“The builder’s remedy projects were anything but fast and certain,” said Rand. “This has been parlayed into something with absolute certainty and front-of-the-line treatment.”

Affluent California cities fight back

About an hour’s drive northeast of Santa Monica, the foothill suburb of La Canada Flintridge recently rejected a builder’s remedy application.

During a May 1 hearing, Mayor Keith Eich stressed the city was “not denying the project.” Instead, they were denying that the builder’s remedy itself even applied to the city.

The argument: The housing plan the council passed last October complies with state law. California’s Housing and Community Development department rejected that version of the plan and has yet to certify a new one. But La Canada’s city attorney, Adrian Guerra argued at the hearing that the agency’s required changes were minor enough to make the October plan “substantially” compliant.

That’s not how state regulators see it. In March, the housing department sent the city a letter of “technical assistance.”

“A local jurisdiction does not have the authority to determine that its adopted element is in substantial compliance,” the letter reads.

Not so, said Guerra: “The court would make that determination.”

A number of cities across the state have made that argument. Among them are Los Altos Hills and Sonoma. Beverly Hills is already fending off a lawsuit contending that the law applies to that city, though it recently rejected a builder’s remedy project on extensive technical grounds.

It’s a question that’s almost certain to end up in court. A recent California’s Fifth Circuit Court of Appeal ruling offers legal fodder to both sides.

The April opinion ruled against the state housing department’s certification of the City of Clovis’ housing plan. That’s a point for those arguing that the word of state regulators is not inviolate. But the ruling also noted that courts “generally” defer to the state agency unless its decision is “clearly erroneous or unauthorized.”

Down the coast, the City of Huntington Beach isn’t relying on such legal niceties. In March, the city council passed an ordinance banning all builder’s remedy projects under the argument that the law itself is invalid. Days later, the Newsom administration sued the city.

But in Santa Monica, city council members didn’t see much upside in pushing back.

“You can’t just fight a losing battle,” Brock said. “I think anybody who decides they’re gonna be an all star NIMBY is up for failure.”

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