First the Seattle City Council passed an ordinance allowing Uber drivers to unionize, to try to address issues with compensation and conditions for drivers. Then last fall it passed an ordinance limiting AirBnB rentals, to try to stop short-term rentals from bleeding off badly-needed units from the local housing market. Now it has a new target: rental housing auction platforms such as Rentberry and Biddwell.
Last Thursday, Council member Teresa Mosqueda’s Housing, Health, Energy and Workers’ Rights Committee heard from UW students concerned that these emerging platforms are driving up rents in an already overheated rental market that is increasingly unaffordable for many Seattle residents. Last November, the Associated Students of UW passed a resolution calling on the City of Seattle to ban rental-auction platforms.
Rentberry, Biddwell, and similar online platforms allow landlords to post available units with an asking price, then let potential tenants apply with a bid for what they are willing to pay to rent the unit — which can be above or below the asking price. Landlords can accept the highest bid, thus maximizing the amount of money they can earn from their rental unit. But the platforms do a lot more than that: helping to advertise properties, arranging and hosting property tours, credit and background checks, e-signing agreements, handling deposit and rent payments between tenants and landlords, and more. Here’s how Rentberry describes their offering:
Rentberry is a transparent home rental service and a price negotiation platform uniting tenants and landlords. It automates all the standard rental tasks from submitting your personal information, credit reports and custom offers, to e-signing rental agreements and online rental payments.
However, the auction platforms have attracted attention — and ire — from tenant rights advocates across the globe. Critics claim that they facilitate landlords unethically maximizing their profit from the shortage of housing, which is a human need. Rentberry’s founder, Alex Lubinsky, has been compared to “pharma bro” Martin Shkreli. Real-world data on the rental auction sites is scarce, but the consensus seems to be exactly what economists would predict: in tight housing “sellers’ markets,” bidding auctions result in higher rents, and in “buyers’ markets” with high vacancy rates, they lead to lower rents. Across the US, that generally means higher prices in cities and lower prices in rural areas.
What does this mean locally? Both Rentberry and Biddwell advertise Seattle properties. However, under Seattle’s “First in Time” tenant protection law intended to eliminate bias in access to rental housing, landlords are required to accept the first application that meets the renting criteria, rather than the highest bidder. That means using an auction platform to rent out a unit is almost certainly a violation of the ordinance.
The First in Time ordinance is currently the subject of more than one lawsuit challenging its legality, with a key hearing set for this Friday morning. Both sides have filed motions for summary judgment.
This week, Council member Mosqueda is introducing an ordinance which places a one-year moratorium on the use of auction platforms for rental properties, while the Office for Civil Rights and the Department of Construction and Inspections conduct “a study of whether rental housing bidding platforms comply with the City of Seattle’s fair housing and rental regulation laws and the potential impact on Seattle’s housing market of allowing landlords and tenants to use such services within Seattle city limits.” In the preliminary discussion last Thursday, Council member Debora Juarez suggested that the moratorium be extended to two years because she believes one year will not be enough time to complete the study. The ordinance doesn’t provide any funding or staff for the study.
This is a questionable approach, for a number of reasons. First, by all appearances it’s already illegal under the terms of the First in Time ordinance, so it’s an enforcement issue, not a legislative issue. They don’t need a year to get an opinion from the City Attorney’s office and SDCI on that. And SDCI would need to enforce the new moratorium, adding to its current enforcement load. Mosqueda’s ordinance also doesn’t provide any funding for enforcement.
Second, at a time when small-time landlords are already grumbling that the city’s recently-passed tenant protection laws are unwieldy, the city should be encouraging platforms that make it easier and cheaper for landlords do their jobs, or even better to help them to navigate regulations. Seattle isn’t the only city with this problem, but if cities collectively worked with Rentberry and Biddwell to ensure that their platforms correctly implemented local regulations and restricted landlords’ ability to do something illegal, it could be a win for everyone — and might even bring landlords’ costs down, leading to lower rents. Some of that will be tricky; for instance, one of the criticisms of the First in Time regulation was that it disadvantaged people whose schedule or limited access to technology didn’t allow them to constantly scan for new rental listings in order to be first in line. If online platforms become the mainstream method for tenants to find housing, then it creates a new “digital divide” that will keep poor people out of housing. The online platforms will need to address that equity issue as well, making sure that as they grow they don’t create further inequities. But simply banning Biddwell and Rentberry, rather than working with them, is a missed opportunity to create something that helps both tenants and landlords, and will generate animosity and perpetuate the view that City Hall is anti-business.
Third, an attempt to broadly prohibit bidding auctions for rental properties could be interpreted by the courts as a form of rent control, which is banned under state law.
Fourth, as mentioned before, auction platforms also allow for bidding below the asking price. That’s not an issue in Seattle today, but housing markets are cyclical. Simply outlawing them helps tenants today, but will hurt them in the next downturn.
Housing cycles follow economic and employment cycles. Amazon is still hiring, but other local industries have either slowed hiring or are actively shedding positions.
If Amazon were to suddenly pull back on hiring (something entirely possible in the extremely cyclical retail industry, though Amazon has not signaled that it will do so), Seattle’s housing market could change quickly and dramatically. It’s bad public policy to pass legislation assuming that the employment and population booms, and the housing crunch, are permanent fixtures in Seattle.
So far, only Council members Mosqueda and Juarez have spoken publicly on the issue of rental auction platforms, so it isn’t even clear whether there is broad support on the Council for a moratorium. We’ll learn more in the following weeks as Mosqueda’s bill moves forward.