A proposal to ban the sale or use of algorithmic rental price-fixing software in Portland was referred back to the Housing and Homelessness Committee on Wednesday. 

Portland City Council was expected to vote on the measure Wednesday evening, but Councilor Angelita Morillo cited “new litigation,” indirectly referring to a lawsuit in Berkeley, California regarding a similar rental pricing software ban. The councilor said the lawsuit warrants closer examination before moving forward.

“It’s kind of with a heavy heart that I have to say this, that there’s some new litigation elsewhere that touches on similar issues with the algorithmic price-fixing ordinance,” Morillo said to a room full of people who came to City Hall to listen or testify about the ordinance. “I want to assert that the litigation is not determinative of what’s going to happen here, but it’s worth us keeping an eye on and being responsible stewards of policy and maintaining good conversations with stakeholders as we look into it.”

The algorithmic rental price-fixing ordinance, introduced to the Housing and Homelessness Committee in February by Councilor Morillo, would make it a violation of city code for landlords and property management companies to use specific AI-based software to determine rent prices. It’s the first major piece of legislation Morillo has introduced.

Morillo says the proposed policy, which was co-sponsored by Councilors Mitch Green and Tiffany Koyama Lane, was created as a mechanism for preventing artificial inflation in the local rental market, and keeping rents affordable. Proponents of the policy say companies like RealPage are currently using AI-driven software that processes market data to generate recommended rental prices, based on maximum profitability. They allege the software allows landlords to engage in anti-competitive practices to keep rents high, by essentially agreeing not to rent units for less than a certain cost, even if that means leaving units vacant.

Other cities, like San Diego, Minneapolis, San Francisco, and Philadelphia, have already banned the type of software sold by RealPage. The company is also the target of a federal antitrust lawsuit alleging illegal price-fixing baked into the company’s software and practices.

The city of Berkeley is the first to be sued in federal court by RealPage, after the city adopted its own ordinance prohibiting the use of AI-driven rental pricing software. RealPage argues Berkeley’s ban infringes on the company’s First Amendment rights and “would expressly prohibit certain types of lawful speech about the residential rental market.”

On Wednesday, a judge presiding over the Berkeley case said she wasn’t ready to rule, requesting more information from the city and RealPage. But the judge in the case “remained unconvinced” of RealPage’s First Amendment violation claims, as reported by MLex, a news site that tracks legal and regulatory changes affecting businesses.

US District Judge Jacqueline Scott Corley said the company isn’t protected by the First Amendment if its products are used for illegal price fixing. 

As it’s currently crafted, the proposed legislation in Portland would give tenants a pathway to sue their landlord if the landlord or property management company uses software like RealPage to determine its rental fees. It would also allow the city to fine property owners and management companies who violate the rules.

The proposed ordinance has faced pushback from local business and real estate groups. 

A letter to the City Council from the Portland Metropolitan Association of Realtors warned that the policy presents an “existential risk” because of the steep financial penalties associated with it.

“As we have noted previously, price fixing is already illegal. Portland simply doesn’t need a new ordinance to address illegal price fixing and collusion,” the letter states. “Portland is in the midst of a housing crisis. Any regulation that creates additional costs or financial and legal risks will only serve to disincentivize housing investment and production, making our housing supply and affordability crisis worse.”

In response to concerns and confusion from real estate and business groups, Morillo amended the ordinance to clarify who would be impacted by the prohibition and what types of data sharing would constitute a violation. 

"Developers look at a number of factors when deciding where to go to build next," Suzy Duester, Morillo's policy advisor, told the Housing and Homelessness Committee. "Land values, permitting, construction costs, population trends; the ability to price-fix via algorithm is simply not a consideration at the top of their list."

Michael Semko, vice president and associate general counsel for RealPage, says Portland councilors are distorting the truth about RealPage's practices.

“All we do is market analysis with a pricing suggestion,” Semco told the Council on Wednesday. “We do not set the rates.” Semko argued that supply and demand, not software, is the key driver of rents in a given city.

“I feel for people who are having to deal with high rents, I really do, but the only way to lower rent is to build more product,” Semko said.

In a news release about its lawsuit against the city of Berkeley, RealPage argues it doesn’t have the level of market influence its detractors claim, and insists the company’s software increases market efficiency.

“RealPage revenue management software makes price recommendations in all directions – up, down or no change – to align with property-specific objectives of the housing providers using the software,” the company claims.

Attorneys and analysts say the company’s arguments are flimsy.

“Price collusion on steroids”

In its lawsuit against RealPage, the US Department of Justice–along with attorneys general from Oregon and at least seven other states–says RealPage is engaged in an “unlawful scheme to decrease competition among landlords in apartment pricing and to monopolize the market for commercial revenue management software.”

The DOJ alleges RealPage’s conduct “harms millions of Americans.”

Seema Gadh Kumar is the chief of community technology at Portland’s Bureau of Planning and Sustainability. 

Last month, Gadh Kumar addressed the Housing and Homelessness Committee and explained, in detail, the power and pitfalls of using algorithms to determine housing costs.

“In some cases, algorithms are intentionally designed to collect and process pricing data in ways that allow companies to collude and manipulate prices,” Gadh Kumar said. “This is essentially price collusion on steroids, as AI systems can perform this task more efficiently and at a scale that is harder for regulators to detect.”

Angelo Pis-Dudot, a legal fellow with nonprofit organization Local Progress, told the Housing and Homelessness committee last month that the core purpose of the RealPage software is to “maximize profits for landlords, which means setting higher and higher rents at the expense of tenants.”

Pis-Dudot said the algorithms create artificial scarcity in the local housing market, by recommending that landlords keep units offline, in an effort to justify higher prices for other units.

Prior to Wednesday’s City Council meeting, the Portland chapter of the Democratic Socialists of America (DSA) held a rally outside City Hall to demonstrate support for the ordinance. Supporters urged the Council to fight for renters struggling to live in Portland, by approving the ordinance.

Several renters address the Council Wednesday, underscoring the dire need to address Portland’s housing affordability crisis. The AI-price fixing ordinance also has support from a majority of City Council.

Morillo says she’s undeterred, but wants to be prudent.

“Were going to push a policy that's going to actually stand,” Morillo told the Mercury. “I decided it would be good to send it back to committee so we can process what the judge’s analysis would be.”

Morillo says she fully expects the policy proposal to come back to the Council for consideration at some point, after further analysis by city attorneys.

“I think it will go back to Council,” Morillo said Thursday. “There’s even a possibility we’ll be able to pass it as is, but it’s not something I'm willing to take a chance on.”