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Security deposits can eat up most of renters’ savings. One elected official in Cincinnati wants to offer a different option.
Recent surveys have shown that 58% of Americans have less than $1,000 in savings. While this has obvious consequences for their ability to cope with emergencies or plan for retirement, it also has implications for housing. Without savings for a down payment, homeownership has dropped to the lowest rate in half a century, and is particularly bad for millennials, most of whom will remain renters for the foreseeable future.
But renting comes with its own challenges. Many landlords require first month’s rent and a security deposit upfront, which combined can grow to sums equal to or even exceeding a renter’s life savings. To combat this high cost of moving, Cincinnati City Councilmember P.G. Sittenfeld introduced new legislation Thursday that would make the city the first in the nation to require landlords to offer alternatives to cash security deposits. “Removing that barrier is a huge piece of the housing crisis solution,” he said. “It’s not the whole solution, but it’s a big piece.”
While the city doesn’t have a housing crunch on par with San Francisco or New York, the affordability crisis has spread to the heartland in recent years. “Like so many other parts of the country, it’s not just housing affordability, but access,” Sittenfeld said. “It’s a privilege to have an extra thousand dollars to get into a living situation.”
Under the “Renter’s Choice Bill,” landlords would be required to offer new tenants the option between a security deposit and obtaining rental insurance. Rental insurance in lieu of security deposits is a relatively new idea spearheaded by startups like Rhino, Jetty, and TheGuarantors. Renters pay a monthly fee to the company instead of a deposit, and, in exchange, landlords are guaranteed coverage in the event of property damage.
Sittenfeld, a Democrat based his bill on a Rhino policy proposal, said that it “just makes sense” for renters and for landlords. “It’s exciting to take an innovation in the private sector and marry it to progressive legislation on the public side,” he said. He said the bill has some clear benefits. The obvious one is the removal of a barrier to housing for a significant proportion of the population, and would particularly boost the housing choice ability of those with the smallest savings accounts, namely millennials, people of color, and seniors on a fixed income.
But a less obvious benefit is its potential impact on the local economy, said Jordan Stein, Rhino’s director of public policy. “Upfront moving costs are a $45 billion elephant in the room,” he said, referring to the amount of money tied up in security deposits nationally. That money is “collecting dust” right now, but if given back to renters, could circulate through the economy, he said.
Speaking at the New Deal conference in Washington, D.C. on Thursday, Rhino’s co-founder, Ankur Jain, said that having that much money “sitting on the sidelines of the economy” doesn’t make sense. “It’s generating no interest, and is being taken out of the pockets of primarily young people who could be using it to pay down student loans, save up for a down payment, or putting it towards emergency savings,” he said.
While some states like Illinois and New York have passed laws that protect tenants’ rights to get security deposits back after they move out, or require landlords to pay interest on security deposits when they’re returned, Jain said more places should completely reconsider the requirement. “When you get health insurance, they don’t make you pay $100,000 up front in case you’re the one person who gets cancer. That’s just not how it works,” he said. “Legislation like this requires no change to the tax code, landlords are still protected, and tenants get money back. It’s a win-win-win.”
Cincinnati's bill modifies provisions of municipal law dealing with landlord-tenant relationships and business regulations. The bill, which would only apply to new leases, includes a phase-in period of no less than three months and no more than six months, Sittenfeld said. Landlords would then be required to include the option in their housing contracts, and while the legislation doesn’t have an enforcement mechanism built in, Sittenfeld said he is confident that once more people know about it, they’ll start advocating for the option for themselves.
The legislation doesn’t support any particular company offering rental insurance, but landlords would have to choose at least one option for their renters to use. The insurance provider would have to be licensed by the state and offer coverage that is no less than the amount the landlord would otherwise require for a security deposit. While exemptions to the rule are up for debate, Sittenfeld said that at minimum, owner-occupied rentals won’t have to offer the alternative.
In the case of Rhino, Stein said that the typical fee for tenants is between $1.80 and $14 per month. The rate largely depends on the cost of rent.
Sittenfeld said he looks forward to developing the bill, which will get its first hearing next week, in collaboration with tenant advocacy groups and the real estate industry. “We’ve tried to do this in a way where the biggest beneficiaries of the bill will be tenants and the economy, but just because there are winners doesn’t mean there have to be losers,” he said. “We’re modernizing a process that was ripe for modernization.”
The reception of the bill in Cincinnati has been mixed so far. Vena Jones-Cox, the executive director of the Real Estate Investors Association of Cincinnati, said that while she admires Sittenfeld for trying to deal with housing accessibility issues, she isn’t sure the bill is necessary in Cincinnati.
“I’m not sure what practical problem this solves. Security deposits are already very regulated by Ohio state code and tenants are protected,” she said. “If someone does come to me as a landlord and says ‘I make enough money, I qualify, I just can’t come up with a security deposit,’ we can work things out on a one-on-one basis. The free market forces property owners to make accommodations where accommodations are necessary. I’m not sure forcing landlords to do business with a private company is gonna fly.”
Jeniece Jones, the executive director of Housing Opportunities Made Equal, a tenant’s advocacy organization in Cincinnati, said that the organization has not yet taken a stance on the bill. “We have to look at the potential implications with the Fair Housing Act and if it will have a disproportionate impact on protected classes,” she said.
But Mayor John Cranley, also a Democrat, supports the concept. “This legislation will make housing more affordable, offer protection to landlords, and put money back into the pockets of hardworking people here in Cincinnati,” Cranley said in a press release. “Reducing the amount of upfront cash required by renters would lift a huge burden, be a direct benefit to tenants, and spur our local economy.”
Sittenfeld said he is confident that the bill will pass, and that the idea can work for other cities. Stein said that the momentum from laws meant to protect renters passed this year in New York and California—which included the far more controversial idea of caps on rent increases—will likely spur interest in less contentious solutions. “This is addressing housing affordability in a really pragmatic way,” he said. “As an early adopter, Cincinnati can show that this legislation doesn’t create the debilitating partisanship that characterizes other aspects of the housing movement. People will look at what Cincinnati is doing and realize this is not a radical pipedream. Fundamentally this is about choice.”
Emma Coleman is the assistant editor for Route Fifty.