More locales weigh replacing apartment security deposits for renters
A new housing law in Cincinnati that encourages an alternative to apartment security deposit has sparked interest from lawmakers in other cities and states.
Cincinnati's city council recently passed an ordinance that allows residents to purchase security deposit insurance instead of handing over one month's rent deposit to a landlord. The law will help residents afford to move into a new apartment while dumping more cash into the local economy, city officials said.
"This is going to do a lot of good and save a lot of money for tens of thousands of renters in Cincinnati," said Councilman P.G. Sittenfeld, who introduced the bill. "And if we can spread this initiative, it's literally going to do good for millions and millions across the country."
Sittenfeld said lawmakers in New York City and Burlington, Vermont, have called seeking guidance on how to draft similar legislation. Most city officials ask for a copy of the legislation or want advice on how to build support from tenants and landlords, Sittenfeld said.
With security deposit insurance, a tenant pays a monthly premium to an insurer and the policy guarantees money for the landlord if there's damage — say, a broken window or worn patches of carpet. The premiums — which typically range from $3 to $50 a month — cost less than what a renter would have paid upfront when signing a lease.
The downside for renters is they don't receive money back after they leave an apartment, as they would with a cash deposit.
Aside from security deposit insurance, the Cincinnati law has other features designed to make moving in cheaper. It allows renters to pay their security deposit in six payment installments spread across a year and puts a cap on a deposit amount – 50% of one month's rent.
"This gives the opportunity for someone who doesn't have an extra $500 or an extra $1,000 to remove a key barrier to housing," Sittenfeld said.
Cincinnati passed the law at a time when rents are rising and vacant apartments are forecast to become even more scarce. The average monthly rent for a Cincinnati one-bedroom apartment has jumped from $850 in 2017 to about $1,300, with a two-bedroom costing north of $1,600.
As rents rise in Cincinnati and across the nation, security deposit insurance is an option that's gaining wider attention. Ben Carson, secretary for the Department of Housing and Urban Development, said in a statement that security deposit insurance policies have the potential to "be pivotal in addressing financial frustrations" of renters.
North Carolina state representative Ashton Clemmons said she plans to introduce a bill next year that features security deposit insurance. She said North Carolinians, who once enjoyed decent wages from working in the textile production and manufacturing industries, now find themselves living in places where "rental housing prices continue to increase at a steady rate and wages continue to stagnate."
"People who are making the minimum wage or a couple dollars more lived here back when a two-bedroom, 15 years ago, was $500 a month and now it's $830 and the wages have not increased," Clemmons said. "You're not able to provide that same level of housing as you once were."
In Virginia, state lawmaker Mark Keam has proposed a bill that would give the state's counties, cities and towns the green light to let landlords accept security deposit insurance. Keam said northern Virginia's landing an Amazon headquarters means tech-focused millennials will move into Alexandria, Fairfax and Arlington and those new residents will want less expensive ways to secure housing.
"I would love for my state to be the first one in the nation to do this at the state level," Keam said.
Companies like LeaseLock, Jetty and Rhino provide security-deposit policies across the nation and stand to gain more customers if more states adopt security deposit insurance laws.
Jetty CEO Mike Rudoy said security-deposit policies will eventually become the new norm and property managers will then need to choose between insurers that are state-approved or those that aren't.
"As more municipalities consider similar legislation, it's important that property managers understand the nuances of the different options that exist in the market," Rudoy said.
Rhino co-founder Ankur Jain noted that moves like rent control have been divisive among renters and property owners, but security deposit insurance is "such a common sense solution," he said.
"This is the biggest change in housing affordability in decades," Jain said. "People are looking at this and saying this changes upfront housing costs."