Additionally, security deposit insurance has been framed as a
housing affordability solution that streamlines costs for renters
and requirements for operators. While we agree there may be
benefits to new approaches, it remains critical that lawmakers
balance the interests of all stakeholders and consider some of
the potential unintended consequences.
For renters, they are charged a monthly insurance premium
which could exceed the cost of a traditional security deposit
if the renter remains in the unit for more than one year, and
unlike traditional deposits, insurance fees are nonrefundable.
Renters may also be unaware that they remain liable for repairs
or damages that exceed the policy’s coverage and could be
taken to collections for unpaid balances, which could have
lasting effects on their credit.
For housing providers, laws that require owners and
operators to accept insurance products are concerning because
the market for these products is relatively new and not yet
widely accepted. Some of the products remain unproven and
would benefit from market testing. For example, if a renter fails
to make a payment, it could leave an owner without protection
from financial loss. Additionally, some insurance providers
pool renters’ policies together at the property level, which
could result in an imbalance between the level of coverage
applied to participating renters and funds allocated to cover
claims. In this scenario, a housing provider could be left to
recover outstanding amounts from the renter. Policymakers
should allow for more widespread adoption of these products
before they mandate that housing providers participate.
In addition to policies that require housing providers to
accept insurance products, lawmakers are expanding security
deposit laws to allow flexibility in payments. In Minneapolis,
the city council mandated strict limitations on security deposits
(which become effective on June 1). The city’s sweeping renter
protections ordinance allows a maximum security deposit of
one month’s rent, or half a month’s rent if a deposit is required
by the end of the first month of tenancy. The law also requires
owners to accept the security deposit in installments of up to
three months upon request of the renter.
These expansions of security deposit law may end up
hurting the populations they were intended to help. If owners
and operators cannot properly manage their risk, they are
less likely to accept applicants with adverse credit history or
current financial challenges. Capping security deposits could
negatively affect renters who are credit invisible, have bad
credit or live on a fixed income and might elect to pay a larger
security deposit. This flexibility allows housing providers to
balance their exposure to risk and expand housing access to
renters who would not otherwise qualify.
Especially in times of crisis, rental housing providers must
maintain the ability to manage risk; it is critical to ensure
the viability of the rental housing industry. The apartment
industry supports innovation and legislative changes that
streamline requirements and lower costs for owners and
renters. However, strict limitations on the size of the security
deposits and mandated insurance alternatives could create
more problems than they would solve. Legislators must avoid
changes to security deposit laws that fail to adequately balance
the responsibilities of both parties.
www.aamdhq.org
JULY 2020 TRENDS | 27