State Legislator Proposes Ban on Algorithmic Pricing Practices

Key Takeaways

Washington state lawmakers are proposing legislation to ban landlords from using algorithmic pricing software for rental rates.
The bill aims to prevent unlawful price fixing in the housing market, highlighting concerns raised by the Department of Justice against RealPage.
Recent court decisions have yielded mixed results regarding the legality of such software in supporting collusive pricing practices.

Algorithms Under Scrutiny in Washington State

Lawmakers in Washington state are tackling the issue of algorithmic pricing in real estate with a proposed bill aimed at prohibiting landlords from using software that automates rental pricing based on various data inputs. This legislation has been introduced by state senator Jesse Salomon, who asserts that it is illegal and unethical for landlords to collude on setting rental prices through such technologies.

Salomon describes the practice as a “deceptive and unfair business practice” that violates trade laws when landlords rely on software to recommend rental rates based on factors like supply and occupancy. In discussing the background of the bill, Salomon pointed to Washington’s involvement in a lawsuit filed by the Department of Justice (DOJ) against RealPage, the predominant vendor of algorithmic pricing tools in the rental market. The DOJ’s lawsuit targets RealPage for reportedly facilitating price-fixing among landlords by equipping them with tools to coordinate rental prices.

RealPage has dismissed the allegations, claiming that the DOJ’s approach misattributes the housing affordability issue to the software used by landlords rather than to broader market dynamics. Court decisions regarding the legality of such pricing software have been inconsistent. A federal court in Nevada recently ruled in favor of hotels using similar software, determining that there was no evidence of collusion among them as they did not collectively agree to adhere to the pricing suggestions.

Conversely, in a unique case in Washington, a federal court allowed a lawsuit against property management firms to proceed, which hints at the possibility of collusion facilitated by an external software vendor. Judge Robert Lasnik indicated that sharing confidential pricing strategies with an algorithm provider might create opportunities for collusion, even without direct communication between competing firms. The DOJ echoed this sentiment in its case against RealPage, arguing that mere participation in the software ecosystem establishes a grounds for potential collusion.

As the legislative process moves forward, a hearing for Salomon’s bill is scheduled to take place next week in the housing committee of the Washington legislature. This effort reflects a growing concern regarding the influence of algorithm-driven pricing in the real estate sector and its implications for market fairness and housing affordability. The outcome of this legislative initiative could have significant repercussions for landlords and the broader rental market, particularly in addressing the accusations of price-fixing practices that may be enabled by modern technology.

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