Dialogue with government officials at all levels is an essential part of how Rhino builds an understanding of the challenges that renters face as a result of high upfront move-in costs.. We believe that providing affordable alternatives to cash security deposits can be a game changer in addressing our affordable housing crisis. The policy proposal below is intended to offer a framework to this end for elected officials to make a difference. We look forward to sharing our vision with officials in the weeks and months ahead.
— Jordan Stein, Director of Public Policy, Rhino
Finding a place to live is the single largest expense for the vast majority of Americans, with more than a quarter of all renters spending over 50% of their earnings on housing. But as monthly rent prices have skyrocketed, so have the upfront costs of moving into rental units. These costs put immense pressure on everyday Americans and have a staggering effect on our economy as a whole. Typically, renters are required to part with thousands of dollars upfront in the form of security deposits. At a time when over 40% of our population has less than $400 in savings to their name, this security deposit requirement places an undue burden on American renters that prevents access to better housing and leaves millions of Americans unable to meet vital expenses or save for their futures.
As a significant and costly component of the rental process that is so commonplace it is almost overlooked, security deposits are tying up over $45 billion in cash. This is money that could otherwise be reinvested into local economies or used by hard working Americans to cover critical expenses like healthcare, childcare, student loan debt, and other burdens.
Security deposits are designed to protect landlords from non-payment of rent or damages to units, but deposit requirements have become more burdensome while the average emergency savings for Americans has dwindled. When moving into apartments, most renters are required to pay their first month’s rent and a security deposit at the same time — a cost that can total up to 10 times a renter’s savings. The financial strain of this process is exacerbated when renters relocate, because they are often required to provide a new security deposit before having their current deposit refunded. As a result of these burdens:
- Families are unable to move into neighborhoods with school districts they want to send their children to, because despite being able to cover monthly rent, they lack the savings required to meet upfront move-in costs.
- More young renters have had to move back in with their parents, up to 22% in 2018 from 11.7% in 2001.
- Renters are unprepared to meet emergency medical expenses when their hard-earned savings are monopolized by cash security deposits.
- Renters are unable to pay off student loan debt if their limited cash savings must go towards upfront move-in costs.
- Renters are unable to save for their futures and retirements while their deposits sit in low-to-no interest escrow accounts.
- Renters are forced to remain in units and accept increased rents due to an inability to come up with a security deposit for a new home lease.
The Policy Proposal
This policy proposal, the Renter Choice & Flexibility Plan will reduce housing costs across America by $45 billion by 2021 through the adoption of two recommendations:
- Renter Choice — Property owners shall be required to offer alternatives to traditional cash security deposits, such as affordable insurance or installment payments. Owners shall be required to notify any potential renter of these alternatives before providing a lease or rental agreement for review.
- Renter Flexibility — Renters shall be permitted to transfer security deposits from one property owner to another when relocating.
This plan delivers a win-win solution for renters, property owners, and our broader economy. Renters will be given the opportunity to save thousands of dollars on upfront move-in costs, owners will remain protected from non-payment of rent and damages, and we will in turn inject $45 billion into the American economy.
How Alternatives Help Renters and Address the Affordability Crisis:
Renters should be empowered to make decisions based on their own unique financial situations. Cash deposits may be manageable for some, but low-cost insurance or installment plans may be more affordable and practical for others. Elected officials around our country should embrace this reality and act to present Americans with this choice.
Understanding Insurance as an Alternative to Cash Security Deposits
Instead of writing a check for a month’s rent or more to secure a rental unit at move-in, an insurance alternative allows a renter to pay a monthly premium as low as $2 to give owners the exact same level of protection. Solutions like this are already being embraced by partnerships between private sector firms and property owners around the country. With low monthly fees, this pragmatic solution relieves property owners of the administrative burden of collecting cash deposits and holding them in escrow accounts, while providing them the exact same level of security they would have with a deposit. In short, processes are streamlined and nobody loses. Insurance will allow renters the freedom to choose homes that would otherwise be out of their financial reach due to stifling upfront costs.
Understanding Installments as an Alternative to Upfront Security Deposits
Instead of requiring renters to provide costly deposits in a lump sum, one-time cash payment, owners should allow for installment payment plans that give renters the ability to budget and manage cash flow and reduce the upfront cost currently required to move into many units. This is an option that currently exists in cities such as Seattle, Washington, and was proposed as part of a 2018 security deposit-focused renter relief plan put forth by New York City Comptroller Scott Stringer. One challenge with this solution, however, is that property managers do not receive the same amount of immediate protection as under an insurance-based path or through a traditional cash security deposit paid upfront.
Why Renters Need Flexibility to Transfer Deposits Upon Relocation:
The impact of high upfront move-in costs is only amplified when renters move from one rental unit to another without yet having a cash deposit returned to them. If renters do not have enough liquid savings to cover a new security deposit, they may be left with no choice but to stay in their existing unit — even if it means accepting rent increases or remaining in a location that is not optimal for their future.
Under this policy, renters will be able to request that their previous owner transfer any remaining security deposit coverage to the new owner. The renter will still be responsible for covering any difference between the prior owner’s deposit and the amount required by the new deposit.
How Does This Policy Impact Property Owners?
The Renter Choice and Flexibility Plan is unique in that it addresses the crippling burdens that prevent Americans from meeting necessary expenses and achieving economic mobility without hurting property owners. Under this plan, owners are only asked to offer more choices to renters, preserving the level of protection and security they currently require. In expanding choices for renters, owners will also benefit from a broader pool of qualified potential tenants that are able to fill rental units.
What is the Economic Impact of this Proposal?
Our proposal is a public policy solution that will put money back into the pockets of hard working Americans without passing hundred-page bills or rewriting local, state, and federal tax codes. By delivering a menu of choices to renters, lawmakers have the potential to unleash over $45 billion of needlessly tied up cash into the American economy. This money totals more than triple the amount of the individual municipal budgets of Los Angeles, Chicago, Houston, Phoenix, San Antonio, and Philadelphia, and will be reinvested into local economies nationwide.
Building on a Track Record: How the Public and Private Sectors Have Begun to Adopt Change
Private sector firms offering insurance solutions have saved renters over $200 million in upfront move-in costs in the past year alone, and the solution is well positioned for wider adoption and scale.
Implementation: Pushing for Legislative Change
Elected officials at the city, state, and federal level have expressed an eagerness to taking legislative steps to provide relief to constituents grappling with our affordability crisis. To this end, Rhino is collaborating with City Council members, mayoral and gubernatorial administrations, and members of Congress to advance the policies included in this proposal that will lead to financial relief and empowerment for hardworking Americans across regions and economic circumstances.
We would love to hear from you. Please get in touch with us to join us in advancing the dialogue around this proposal
Contact: Jordan Stein, Director of Public Policy