Last week the Cincinnati City Council passed legislation to require who rent their property to offer deposit insurance. While the measure is well intended, adds another layer of complexity to regulations governing the relationship between housing providers and their customers without really getting at the central challenges many people with less money face. Still, as is often the case, the media and politicians have hailed this forced adoption of an untested product as a win for tenants, ignoring ongoing pleas from housing providers to expand supply and add flexibility to the housing market.
In a previous post I compared Cincinnati Councilmember PG Sittenfeld’s legislation mandating the use of insurance instead of a cash security deposit to a loan product in Seattle to help people having trouble putting together money to move into a new apartment. Then, I pointed out that Rhino, the company that lobbied for Sittenfeld’s requirement, was a new player on the insurance scene. The idea of charging tenants a premium and then having property owners file a claim for damages if needed is largely untested. It may not be a bad idea, but members of the Real Estate Investors of Greater Cincinnati pointed out some of the hazards for tenants.
What happens when a person living in a unit has bad credit or is high risk and can’t get insurance? What if tenants don’t pay the premium and the coverage is canceled? Rhino made it clear that they would take legal action against tenants who had a claim filed, potentially damaging their credit. And the new legislation also mandated offering financing for deposits, something tried in Seattle without any documented success. Many property owners already work with their customers to take payment of deposits over time, something that is never acknowledged by politicians intervening with mandate
Also, the local real estate community wondered why Rhino would seek a forced adoption of their product rather than do what most start ups have to do: build a customer base through demonstrated success. The legislation essentially turns property owners and managers into Rhino’s sales force.
Even with all the doubts – and wondering why, if Rhino’s product is so helpful that it needs to be forced on housing providers and their customers – Cincinnati Mayor John Cranley was hyperbolic in his praise of the legislation, saying, “This is a meaningful act of social justice.” Really? The product hasn’t even been offered yet, and Cranley’s comment exhibits the tendency for officials and advocates to expect housing policy to solve problems it didn’t create. Sure, some people might be helped with an alternative, but how is insurance social justice? It assumes that somehow offsetting the risk of renting private property is itself somehow unjust. Tell that to rental car companies or hotels. Rental businesses use deposits and screening to offset and manage risk; without risk management, rentals of anything are impossib
Cincinnati Council member Jeff Pastor (R), the only city lawmaker to vote against the bill quoted by The Hill, called the legislation a “radical departure from an established practicethat exists to protect both renters and landlords,” a more realistic and true assessment of the legislation. He went on to say,
“Inserting the city government into an established market condition is almost certainly going to lead to negative unintended consequences for renters and especially already vulnerable populations”
And where did the local housing provider community fall on this proposal? They never liked it, and because they got engaged with the process, managed to slow down what would have otherwise been a slam-dunk for the ambitious Sittenfeld (Sittenfeld is considered a candidate for Mayor next year). There was more than a month of back and forth between the Real Estate Investors Association of Greater Cincinnati (REIAGC) and the councilmember. In the end, he agreed to widen the narrow specifications for the deposit insurance that favored Rhino, something that at least allowed some choices. Unfortunately, there are still questions about whether providers will consistently offer insurance product for deposits.
While some media made it sound like REIAGC embraced the proposal, they never supported it. What passed was less bad than what was previously proposed. It’s worth reading what REIAGC president Felicia Bell said about the process, the proposal, and the real solution to cost issues for tenants.
“The final version of this bill is a significant improvement over the original proposal, and we are clear that REIAGC’s involvement strongly influenced the outcome of this legislation and as a result, the organization is able to get on board. But please note, Affordable Housing is the real issue and no legislation can REALLY solve this problem. Removing barriers to development, building, rehabbing and providing rental housing is the only solution to the problem of Affordable Housing.”
Bell said it: the solution to housing challenges isn’t more rules but more housing. Unfortunately, if unchecked, headline seeking politicians trying to create “social justice” and an incurious media will continue to accelerate legislation that at best nibbles at the edges of housing challenges and at worst, will limit and restrain housing production and the ability of private property owners and their customers from negotiating the best solutions possible.
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