“There is a great deal of trust that must be placed in our elected leaders that they have thoughtfully and diligently pursued all options and have developed legislation that presents the best possible solutions…I cannot ignore the concerns raised about the security deposit insurance option included within the legislation. Notably, that the provision can hurt the very people that it is intended to help.”
These are remarks from Baltimore Mayor Brandon Scott following his mid-May veto of Council Bill 21-0022, a city ordinance more commonly referred to as “renters’ choice”. The renters’ choice bill had passed in April on a 12-2 City Council vote and would require rental housing providers to offer security deposit insurance or accept monthly payments in lieu of a traditional upfront security deposit. The veto now faces a potential override vote on June 8, though the Mayor’s decision is expected to sustain.
The Scott veto was fueled by intense lobbying from a spectrum of housing advocacy groups who argued that the bill does not adequately reflect the financial impact that security deposit insurance can saddle on renters.
In a communication to members, the Maryland Multi-Housing Association (MMHA) confirmed its engagement with Councilmembers and industry stakeholders on the bill. While MMHA was amenable to the monthly payments provision, issue was taken with an amendment that prohibited unpaid installments from being collected through the failure to pay rent process. Prior to the potential veto override vote on June 8, MMHA will be conducting ongoing discussions with Councilmembers to reflect member concerns.
Billed as a tool for improving housing affordability, renters’ choice generally encompasses two alternatives to the standard security deposit: permit the use of security deposit replacement products or require monthly security deposit installments. According to Mayor Scott’s veto explanation, spreading the cost of a security deposit over a period of time is a commendable solution to renters unable to meet the upfront costs of a lump sum deposit.
There are factors housing providers must consider. Not only do owners and operators need to cover their risk exposure to incidents of property damage, they also need to mitigate the economic impact of a broken lease and unexpected vacancy of the unit, which affects their ability to operate their business effectively and provide quality and affordable housing.
Some housing providers, renters and policymakers remain cautiously optimistic on the issue of security deposit insurance, recognizing its value as a voluntary housing affordability tool, but not one that should be mandated. As a concept, security deposit insurance allows a renter to pay a monthly premium to a third party who, in turn, reimburses housing providers for claims that a security deposit may typically cover.
On one hand, some housing providers offer security deposit products to prospective residents as a convenient alternative to cover up front move-in costs, to distinguish them from their competitors and help renters free up cash for other routine expenses. On the other, there are a growing number of players in the market of security deposit alternatives that remain untested and their utility relatively unknown. Critics also anticipate the unintended consequences. Renters have the potential to pay more in monthly premiums than the typical security deposit and all payments to the third party are nonrefundable, unlike a security deposit.
The decision to veto comes at a time when municipalities across the country are considering similar mandates, citing the policy as a way to keep more money in the pockets of renters. In Atlanta, renters are offered near identical terms to Baltimore’s proposal, while in Cincinnati and Reynoldsburg, OH, renters have the option to pay their full security deposit over a period of time or a reduced deposit over a shorter timeframe. At the state level, Governor Andrew Cuomo (D-NY) ordered that New York renters be able to pay rent using their security deposit and may replenish the security deposit amount using security deposit insurance.
Mayor Scott’s veto underscores a wider concern which he addresses in his explanation and is shared by housing providers and renters alike: more must be done to ensure quality, affordable rental housing for all.
For more information on security deposits or renters’ choice legislation, please contact Sam Gilboard, NAA Manager of Public Policy.