Revenue

Seattle City Council Votes to Restrict Hosts Running Background Checks

 

On January 20th, 2018, the "Fair Chance Housing ordinance" went into effect, barring many landlords and property managers/owners from running criminal background checks on prospective tenants. Since Seattle is one of 2nd Address' core markets, and the ordinance is controversial, we've taken the time to analyze this and explain how this can affect our listing hosts.

What Is This Ordinance Exactly?

The objective of the legislation is to help the city of Seattle curb the issues of inequality and homelessness and to help facilitate the reincorporation of ex-cons into society. A PDF of the full ordinance can be found here.

This initiative is part of the city's "Housing Affordability and Livability Agenda".

Exemptions & Exceptions

The ordinance has several exemptions, namely:

  • Property managers renting part of their own homes and sharing a kitchen or bathroom with a tenant.
  • Property managers renting mother-in-law apartments or backyard cottages on properties where they live.
  • Prospective tenants who are convicted sex offenders, and who committed their crimes as adults.

According to the Seattle Times, "The version of the legislation that Mayor Ed Murray sent to the council in June said landlords would be allowed to consider criminal convictions less than 2 years old and said landlord-occupied buildings with four or fewer units would be exempt.

But council members voted unanimously in committee to eliminate the two-year look-back clause and the exemption for small, landlord-occupied buildings."

Proponent's Argument

Seattle mayor Ed Murray and others feel that this ordinance will reduce discrimination against people with criminal records and allow them to more quickly reintegrate into society. In turn, that might help the city alleviate its homelessness problem.

Council member Lisa Herbold, the law’s main proponent, argued:

"You've paid your debt to society if you've served your time...Blocking formerly incarcerated people from accessing stable housing is an extrajudicial punishment not consistent with the rule of law."

Another important point the proponents make is that even folks who had been arrested but not convicted might get screened out by today's practices; this ordinance would help prevent that from happening.

So it's difficult to argue that this ordinance is baseless. There is virtually a consensus that some of the current background check practices go too far and that society needs to facilitate the reintegration of ex-cons. Housing is an important part of that.

Opposition's Argument

The main contention to the Fair Chance Housing ordinance is whether or not the policy was written too broadly.

A post by Reason.com notes:

It's true that our current criminal justice system unnecessarily tars citizens with arrest records and criminal histories, and that those criminal histories make it more difficult to find jobs and housing. But attempting to mitigate the effects of a broken criminal justice system by foisting extra costs onto landlords—who have quite understandable reasons to wants to know about tenants' criminal histories—is not the answer.

Popular real estate investor site BiggerPockets.com has a very active messaging thread about this, with many users expressing frustration. One commenter shared an alternative, writing:

We need to get released people back into society.  However, a better way is to seal records after a certain amount of time, with a history of being a lawful citizen. Certain states do this.  

A way out of this is to reject tenants who have unexplained gaps in their residential or employment history.  Definitely reject any tenants who lie on their applications.

The thread mentions the growing list of recent Seattle landlord restrictions of which Fair Chance Housing is only the latest:

  1. Deposit limits and requiring property managers to allow tenants to pay last month and deposit in six installments (details)
  2. First In Time (details)
  3. Potential short-term (<30 day) rental restrictions (details)

What Does This Mean for Seattle Landlords?

To get a broader sense of what this might do to the Seattle real estate ecosystem, we talked to Redfin, a leader in modernizing residential real estate sales as well as a company headquartered in Seattle.

“We don’t see the new legislation affecting the residential real estate market much, but it could add another wrinkle to the affordability crisis that Seattle has been experiencing over the past five years,” said Redfin Seattle agent Kyle Moss. “Affordable housing inventory is scarce in Seattle, which has caused multiple offer situations and price escalation in areas with a high Walk Score, access to jobs and other city amenities. With a pickup in demand in the rental sphere, there will be a similar situation where people that want access to city life and jobs will experience competition and soaring prices in the affordable range.”  

Redfin's Seattle data shows a median home sale price of $575,000 for July 2018, which represents an 8.6% increase over July 2017. That, combined with an average of just nine days on the market, is ample evidence of how hot Seattle's real estate market already is.

We also spoke with one of 2nd Address's own Seattle property managers, Andy Morris, of Seattle Vacation Home, a family business managing 30 high-end furnished rentals in the Seattle market. Mr. Morris expressed support for the new ordinance:  

The spirit of the ordinance is aligned with the values of our family and our business.  We agree that a person who has completed a sentence has paid his debt to society. Further punishing such individuals by permanently limiting their access to housing only perpetuates the plight of such individuals and increases recidivism rates.  Safe and secure housing is one of the essential components of rehabilitation.

Some property managers pointed out that there are other, more effective ways to screen residents.  "We appreciate working through channel partners such as 2nd Address," said Mr. Morris.

They engage in applicant evaluations that are more fair and relevant than relying simply on criminal background checks.  They evaluate an applicant's credit worthiness and history of timely payments. They undertake verification of identity. And perhaps most importantly, they collect a security deposit to protect the property from damage caused by the tenant.

Mr. Morris pointed out that there were far more onerous Seattle landlord restrictions, such as the First In Time ordinance.

Since 2nd Address is a marketplace focused on 30+ day furnished rentals, the pricing tends to be at a premium compared to unfurnished, longer-term leases. So there's not a lot of overlap between the affordable housing market and 2nd Address' corporate housing market.

Will It Become Law?

It already has essentially. Budgeting and lawsuits are the only likely potential holdups. The Seattle Times states:

"The ordinance will take effect 150 days after being signed by the mayor. It may require new spending by the city, but the costs had yet to be determined last week."

If you're counting, the mayor of Seattle, Ed Murray, signed the ordinance into law on August 23rd. Which means that it will take effect as soon as January 20th, 2018.

How Will It Be Enforced?

The Seattle Office of Civil Rights will be the enforcing body and rental applicants can file complaints with them. Potential penalties can include paying damages, providing rent credits, fines and attending anti-bias training courses.

Is This a Nationwide Trend?

Yes and no. 

The "ban the box" movement, which prohibits employers from asking on job application forms whether or not someone has a criminal record has been adopted by over 150 U.S. cities and counties in at least 29 states, according to the National Employment Law Project. So it's clear that there is a trend towards helping people with criminal records avoid discrimination. 

No in that Seattle's Fair Chance Housing ordinance is one of only a small number of cities or counties that have barred housing rental discrimination based on criminal records. Seattle's ordinance also goes further than many other cities have.

How Does This Impact 2nd Address Property Managers and Tenants?

Since 2nd Address conducts background checks on all tenants as a value-added service for our property managers, this does impact our furnished apartment marketplace. We'll be monitoring this issue as it develops and acting accordingly. (Stay tuned to this blog for updates on the issue. You can subscribe at the bottom of this page.) For more on why 2nd Address is the preferred monthly furnished apartment platform for property managers, read this post.)

We will of course stay within the law. As such, we will likely have to cease background checks on behalf of Seattle property managers.

Since 2nd Address also uses our standardized lease document, which gets digitally signed by both property owner/manager and the tenant, this may also impact the wording of that lease for Seattle tenants.

Conclusion

While the motives behind Seattle's Fair Chance Housing ordinance are clearly positive, it remains to be seen whether or not it will result in negative unintended consequences, such as Seattle property managers tightening their other lease qualification standards or driving up the price of rental housing.

It will impact Seattle users of the 2nd Address corporate housing marketplace, but shouldn't be overly disruptive.  

We'll continue to monitor this legislation. Subscribe to this blog at the very bottom of this page for updates!

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About 2nd Address

2nd Address is a leading provider of monthly furnished rentals and corporate housing for business travel. 2nd Address homes combine the comfort of home with the professionalism of a hotel. Our customers include Google, Facebook, Microsoft and thousands of smaller businesses. In addition to our business offering, we also serve individuals traveling for work and personal reasons. Founded in 2014, we operate across the United States with specific focus in large urban markets. #2ndAddress