I recently had the privilege of hosting a webcast titled Making Sense of all the Pricing Legislation. We knew this discussion was not only going to be important but timely, which was even more apparent by record registration, a very low no-show rate and virtually no drop off during the call.
For those who don’t know Jay, he is a Partner at Hudson Cook LLP and one of the rare attorneys with deep business experience. I first met him about 25 years ago when he was Vice President of Property Management and Regulatory Counsel to the National Apartment Association and National Multi-Housing Council. He’s had a variety of general counsel and business leadership roles which makes him uniquely qualified to speak on topics where detailed legal issues match up with operational imperatives.
While the landscape of rental housing pricing software is filled with a seemingly dizzying array of proposed and enacted legislation. Jay helped us cut through the noise, organizing the key developments and breaking them down by category using the bills’ own language. From Philadelphia to San Diego, and from Seattle and Washington State to New York, he clarified what really matters and what is simply hype or misunderstanding. Specifically, he walked us through the various categories and language being used:
- First, Jay highlighted an important distinction. Some legislation focuses on how rents are set while others lean more toward rent control (capping rents regardless of how they’re determined). Still others deal with policies and processes, like Washington State’s rule that no lease term (even month-to-month) can be priced more than 5% above another, or requirements around notice periods, renewal offer language, and eviction steps.
- When it comes to laws about how rents are determined, there are two main buckets:
- So-called “bans” on pricing algorithms or coordinating services. We put “bans” in quotes because, as Jay explained, none of these laws actually ban pricing algorithms outright. Instead, they target algorithms that share non-public competitor data. Seattle is a bit of an outlier as it also prohibits the use of public competitor data, which in my opinion raises some constitutional questions about free speech (a debate for another day!).
- Differences in wording (“landlords” vs. “owners”). Some bills prohibit data sharing or coordination among two or more landlords, while others apply to owners. At first glance that may sound the same, but the definitions can make a big difference. Generally, the “landlord” wording is less restrictive than “owner,” but you have to look closely at the definitions in each bill to be sure.
While these different permutations can appear to be a bit overwhelming, Jay pointed out that these legislators are just trying to protect their constituent renters from perceived unfair practices. In essence, they are saying, “We don’t care whether the sharing or coordinating of this kind of data is technically illegal under the Sherman Antitrust Act (which requires highly technical and expensive litigation to resolve); we simply want to prevent its use by declaring to be an unfair or deceptive business practice or otherwise outlawing that practice.”
As the discussion turned to advice for owners and operators, Jay shared perhaps the most important observation. All of these new and proposed laws allow for owners and/or operators to continue to buy and use pricing and revenue management software. They simply impose certain requirements with which the software must comply.
In addition to the laws’ distinction between public and nonpublic competitive data, the most important of these requirements is that data from two or more landlords (in some of the bills, it’s two or more owners) in defined circumstances may not be used by any kind of software to make pricing recommendations. All still allow pricing software that solely takes data directly from one landlord (or owner) to process and make pricing recommendations for, and only for, that landlord (or owner).
This evolving regulatory approach now puts a premium on pricing software like REBA Rent that is fully compliant with such restrictions. It also casts doubt on any of the newer AI-based software as AI algorithms trained on more than one landlord’s (or owner’s) data is likely now be illegal in some jurisdictions.
The Q&A brought some interesting discussion, with one attendee asking, “in the interest of radical transparency, do you see a new norm among solution providers to provide visibility into the source of data being fed into their respective proprietary pricing algorithms?”
My answer to that highlighted that solutions such as REBA Rent are already doing that; and it’s critical for owners and operators to know what data is feeding their pricing software to avoid any chance of becoming entangled in litigation alleging violations of these new laws.
Simply put, I believe that pricing software today should have radical transparency, and vendors should step up to indemnify their clients against any violation regarding prohibited data sharing. If you do your diligence with your counsel and insist on working with vendors who 1) demonstrate a deep understanding of the legal and legislative environment, 2) demonstrate radical transparency in both where they source data and how they algorithmically use it and 3) include appropriate protections in your licensing agreement then you can still realize the proven benefits of well-designed pricing and revenue management software…and you and your counsel can sleep soundly at night!
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