Democratic Gov. Jared Polis has vetoed a bill that would have made Colorado the first state to ban landlords from using rent-setting algorithms, which many advocates have blamed for driving up housing costs across the country.

RealPage is the target of a federal lawsuit filed last year that accuses the real estate software company of facilitating an illegal scheme to help landlords coordinate to hike rental prices. Eight other states, including Colorado, have joined the Department of Justice’s lawsuit, though RealPage has vehemently denied any claims of collusion and has fought to have the lawsuit dismissed.

Critics say RealPage software combines confidential information from each real estate management company in ways that enable landlords to align prices and avoid competition that would otherwise push down rents. RealPage’s clients include huge landlords who collectively oversee millions of units across the U.S.

The Colorado bill, which recently passed the Democratic-led Legislature along party lines, would have prevented the use of such algorithms.

In a veto letter Thursday, Polis said he understands the intent of the bill but that any collusion among landlords would already violate existing law.

“Reducing market friction through legitimate means that do not entail collusion is good for both renters and landlords,” Polis wrote. “We should not inadvertently take a tool off the table that could identify vacancies and provide consumers with meaningful data to help efficiently manage residential real estate to ensure people can access housing.”

In a statement, RealPage applauded Polis’ veto, calling it an example of “courageous leadership.”

“This is the right outcome for all of us who desire a healthy housing ecosystem that benefits Colorado renters and housing providers alike,” said Jennifer Bowcock, a spokesperson for the Texas-based firm.

But Polis’ decision outraged local housing advocates and the American Economic Liberties Project, a consumer rights advocacy group that has helped lead the fight against RealPage and other companies that use rent-setting algorithms.

“This veto sends the devastating message that corporate landlords can keep using secret price-fixing algorithms to take extra rent from people who have the least,” said Sam Gilman, co-founder and president of the Community Economic Defense Project, a Colorado-based nonprofit.

RealPage software provides daily recommendations to help landlords and their employees price their available apartments. The landlords do not have to follow the suggestions, but critics argue that because the software has access to a vast trove of confidential data, it helps RealPage’s clients charge the highest possible rent.

Although Colorado was the first state to pass a bill targeting rental algorithms, at least six cities have passed similar ordinances over the past year. They include Philadelphia; Minneapolis; San Francisco; Berkeley, California; Jersey City, New Jersey; and Providence, Rhode Island.

RealPage has decried those measures and sued over Berkeley’s ordinance, saying it violates the company’s free speech rights and is the result of an “intentional campaign of misinformation and often-repeated false claims” about its products.

RealPage argues that the real driver of high rents is a lack of housing supply. It also says that its pricing recommendations often encourage landlords to drop rents since landlords are incentivized to maximize revenue and maintain high occupancy.

A clause recently added to Republicans’ signature “ big, beautiful ” tax bill would ban states and localities from regulating artificial intelligence for a decade. On Tuesday, five Democratic senators sent a letter to RealPage asking if the company was involved in getting that clause inserted.

In an email, Bowcock said RealPage was not involved in the AI moratorium language, but she said the company supports “a thoughtful, well-grounded, and consistent regulatory approach to AI, rather than a patchwork of state and local legislation.”