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Rising Rent Pricing is a Failure of Policy, Not Software

By Lance Christensen, Special to the California Business Journal

Since the turn of the decade, San Francisco has been plagued by a state of decline. An extensive drug crisis, coupled with surging crime and homelessness, has left the city mired with some of the worst rates of pandemic recovery nationwide. Adding insult to injury, housing and rental prices continue to be among the highest in the country, which seems incongruent with the grim economic state of the city.

Like many of San Francisco’s problems, lack of affordable housing is the result of a failure of leadership and misguided government policies. The city is notorious for some of the nation’s most restrictive zoning laws, expensive regulations, and antiquated land-use policies – all of which artificially raise the cost of building new homes. Rather than addressing the root causes of the housing supply issue, local leaders are resorting to the lazy, tired playbook of finding a scapegoat to blame, as residents escape at alarming rates.

Last month, the San Francisco Board of Supervisors voted in favor of a ban on software designed to support apartment management companies with rental data analysis and pricing recommendations (and almost in lockstep, Vice President Kamala Harris blamed “price-setting tools” for high housing costs in her August 16 speech, followed by the Department of Justice announcing a lawsuit against one of these software companies a week later, alleging an “algorithmic pricing scheme”). While the Board asserts that the ban will “allow the market to work and bring down rents in San Francisco,” such claims hinge on misguided assumptions about how the software works and linger in plain economic ignorance. Preventing accurate pricing analysis will not build more apartments to meet housing demand.

The Board is expected to vote again on the law in its next meeting on September 3rd. Hopefully they come to their senses before then, but San Franciscans shouldn’t hold their breath given the seemingly coordinated attacks on rental software. The ordinance is a quick fix in lieu of a real solution, after all.

Amidst tepid occupancy in cities like San Francisco, technology enables apartment operators to make pricing decisions based on true market value, which helps avoid high vacancy rates and the associated debt. As such, reducing rental list prices is often the suggestion that companies such as RealPage provide to the customers they serve – a mere 10% of San Franscisco’s rental market, in the case of RealPage. Why is the Board singling out a small sliver of the city’s vast housing market? Again, it’s to be able to say they are tackling the problem while avoiding the actual systemic issues at hand.

As is typical for progressive policymakers, San Francisco’s elected officials are pointing their fingers at the private sector instead of looking in the mirror or doing the hard work required to solve hard problems.

If the Board truly wants to make housing affordable, it should start by working with – not against – key industry players. The whole rental ecosystem will be better off. Instead, the city flounders in a seemingly intractable web of coercive measures, such as “affordable” housing quotas, that handicap availability and artificially force consumer prices upwards.

Consumer purchasing power has withered in the face of an aggressive California tax and spend model that has found a home in the White House in recent years. Unprecedented national debt growth and out-of-control government spending tied to President Biden’s $7.3 trillion budget have led to pervasive inflation. The cumulative impact of such inflationary policy since 2020 has led to an estimated 20 percent increase in prices to consumers across an array of sectors of the economy.

Yet, new technologies and tools create economic efficiencies. Even California Governor Gavin Newsom has argued against hyper-aggressive regulatory action in this space, saying “if we over-regulate, if we overindulge, if we chase the shiny object, we could put ourselves in a perilous position.”

But none of these realities appear to matter in sincerity to the San Francisco Board of Supervisors. When municipal problems become unwieldy, the city’s leaders opt for headline-making and PR splashes by espousing faux solutions. In contrast, governors of other red and blue cities and states are making it a priority to liberalize zoning rules and reduce red tape for new construction and actually address a root cause of the problem. San Francisco should take note.

While California tends to be a test bed for policies that could reach the national stage, America should hope that San Francisco’s ill-advised experiment with a property technology ban stays in the laboratory. It is abundantly clear that simply prohibiting applications fueled by market data will not fix the market itself. In the real world, truly advancing housing affordability and availability requires serious, complex solutions.