Every day on her drive home from work, Rebecca Taylor passes through the Cincinnati neighborhood she wishes she could move into with her two young sons.
Despite trying many times, the single mother who works in hospital food service has struggled to save enough to cover the upfront costs of living there, including a hefty security deposit usually equivalent to one to two months rent.
“I’m taking care of two kids on my own, so of course something or the other always comes up, so I just can’t keep my savings where I need it to be,” she said, adding that it's not the rent that would be a problem for her, it's the initial payment.
But Taylor believes a new chance may now be on the horizon in the form of a groundbreaking "renter’s choice” law passed last week in Cincinnati.
The city became the nation’s first to adopt such a monumental piece of housing legislation that requires landlords to offer accessible alternatives to the traditional lump sum security deposits.
There are three alternatives: an installment plan that allows the renter to pay the security deposit over the course of at least six months; a reduced security deposit no more than the equivalent of 50 percent of the first month's rent; or rental security insurance in which tenants pay an insurance company a nominal nonrefundable monthly fee in lieu of a deposit. Once a renter opts for the alternative security deposit, the landlord can pick which option to offer the renter, Cincinnati.com reported.
Housing experts have largely lauded the new law saying it will remove long-standing financial barriers to housing for several groups, but particularly for low-income renters who already face severe shortages in affordable housing.
The law, which goes into effect in 90 days, was helmed by City Council member P.G. Sittenfeld who introduced the bill after monthslong collaborative efforts between tenant groups and property owners.
“There were literally tenants crying tears of gratitude at City Hall but real estate investor associations were also in support,” Sittenfeld said.
“Security deposits can be upwards of a thousand dollars and a whole lot of Cincinnatians and most Americans don’t have a thousand dollars just sitting around,” he said. “With my legislation, that thousand dollars can take different forms.”
Security deposits and application fees are a substantial hurdle for low-income families and could sometimes be used to exclude people from certain housing, said Martha Galvez, a researcher in the Metropolitan Housing and Communities Policy Center at the Urban Institute.
This new law in Cincinnati seems to level the playing field by helping people live in the neighborhoods they want without having to come up with this upfront lump sum.
“The rental market in a lot of cities is really hard to navigate, so if the stress of security deposits can be lowered, that will definitely help people have more housing options,” she said.
It also alleviates issues for those who managed to come up with a security deposit for their current housing but due to a lag in receiving the refund upon moving, can’t afford an additional deposit for a new home, she said. There are lots of different scenarios where it could get complicated to get the money back in time to apply it somewhere else.
Cincinnati’s housing plight is not unique; the city is emblematic of several others across the nation that are struggling to bridge the housing gap, particularly for low-income renters. A study released in June 2019 by Cohear, found that Cincinnati was in need of more affordable housing with more than 100,000 households paying more than 30 percent of their salary for housing.
According to research by the National Low Income Housing Coalition, only 37 affordable and available rental homes exist for every 100 extremely low-income renter households nationwide.
“There's a shortage of homes to begin with for low-income renters and then, on top of that, if a renter does find a home, they still have the barrier of the security deposit and it can be a significant challenge because low-income renters don’t have the extra resources laying around to pay that deposit,” said Andrew Aurand, vice president of research at the National Low Income Housing Coalition.
Even with the Housing Choice Voucher Program, which offers federal assistance to low-income renters, the vouchers only cover rent, not the security deposit. So this law would open up an entire sector of housing that was previously inaccessible, he said.
Average rents trended upwards last year with increases greater than 40 percent in many markets, according to the Apartment Guide 2019 Annual Rent Report.
And when rents inflate, so do security deposits.
At least 10 local lawmakers from across the country including in Alabama, Connecticut, Maryland, North Carolina and even one state-level legislator in Virginia have all either introduced or publicly committed to similar renter's choice legislation in their jurisdictions.
“Housing is the most significant barrier and factor in the rich-poor gap that we have, and I think this law is getting to the root of the wound as opposed to putting a Band-Aid on what we've been trying to do,” said Kellie McElhaney, a professor at the Hass School of Business at the University of California, Berkeley.
Housing is such a foundational solution and that is what is so profound in this model, she said.
She adds that the security deposit insurance model that Cincinnati now offers is a particularly unique approach to the issue.
Ankur Jain, co-founder of the security deposit insurance company Rhino, introduced Sittenfeld to the idea of insurance and renter's choice, which helped shape the legislation in Cincinnati.
“Housing affordability is the biggest financial crisis facing our generation, “ Jain said. “Insurance is a win-win for everyone involved.”
Through companies like Rhino, a renter can pay as little as $5 a month for security deposit insurance on a $1,000 per month rental for the duration in which the renter lives at the property.
Nearly $45 billion is currently locked away in escrow and with these options, that money would be infused back into pockets, he said.
However others experts say Cincinnati’s housing experiment needs to be watched closely because theory is very different from practice.
“Since we haven’t tried something like this before, we can't assume it will be widespread,” Jenny Schuetz, a housing policy expert at the Brookings Institution, said. “Just having a law on the books if it's not enforced is unlikely to make a big difference.”
Schuetz said it is unclear how effective the new law will be until it is rolled out, especially since enforcement will cost some resources by city staff.
When there is something new on the table, you have to do some education with consumers so they are aware that these alternative options exist and know to ask landlords about them, Schuetz said.
Plus, we also have to make sure someone is monitoring the landlords to make sure they are doing what they are supposed to because we all know not everyone follows the law.
“People are slow to take up innovation, especially in something like renting apartments because the standard has always been handing over one big security deposit," Schuetz said.