Is It Time to Get Rid of Security Deposits?
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Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. For many Americans, a steep security deposit can make an apartment hard to afford. In response, some cities and states are looking to give potential renters a bit more flexibility.
They passed a bill that will give renters options instead of an all-cash deposit.
How are rising rents prompting lawmakers to rethink security deposits?
One is kind of an insurance product, and the other option is to pay the deposit in installments of six months or even more time.
That's Wall Street Journal reporter Will Parker. He'll discuss the alternatives that are replacing security deposits in some places and how some landlords are pushing back. That's next.
It's hard enough for many Americans to find affordable housing. With the cost of rent skyrocketing over the past decade, having to save up for a security deposit when you're just breaking even can put apartments out of reach for some people. So is getting rid of security deposits the answer? Wall Street Journal reporter Will Parker is here to discuss. So Will, what has turned lawmakers' attention to security deposits?
Lawmakers are looking at security deposits because they're looking at escalating prices in rent. And what they're finding is that the deposit is a payment that is usually equal to the first month's rent. Sometimes it's even more than that. So just putting the cash together to even get in an apartment for the first time is increasingly difficult.
And rent has risen significantly in the last decade, but also the percentage of income that people use to pay rent.
That's right. There's a large number of people, about a quarter according to some estimates, that pay half of their income in rent or more. Rent generally has risen about 40% over the last decade, but that number is much higher in a number of cities like Seattle or Denver where it's risen double that. So that's putting a lot of pressure on renters and making it more difficult to find a place to move to.
What alternatives to all-cash security deposits are cities like Cincinnati proposing?
Now, some cities, Cincinnati for one, are allowing renters the flexibility to not pay the security deposit all at once.
They passed a bill that will give renters options instead of an all-cash deposit. One is kind of an insurance product, and the other option is to pay the deposit in installments of six months or even more time.
So what they're doing is they're taking the security deposit, they're breaking it up, and landlords are still getting that money, but they're pushing back against plans like this.
Landlords have some concerns about it. One of them is that instead of having the tenant's cash in hand in case of damages or other problems, they'll now have to deal with an insurance company. So there are some building owners that feel like the balance of power is now against them in that way. They're dealing with a company that may have a lot of resources versus just a single tenant.
Now, in addition to landlords, are there other detractors to plans like this?
There are some people who take a look at this and say, well, in a normal situation, you pay your security deposit. It might be a lot upfront, but you get that back. With some of these alternatives, these are payments that renters are paying. They're small, but that money doesn't come back to them. So technically, in a lot of situations, the alternatives are a net loss to the tenant. Whereas in the ideal situation, which is not at all every situation, they would get the deposit back in full if they haven't damaged the apartment.
And some states are taking issue with a month's security deposit versus requiring a renter to pay two months.
Yeah, it's not uncommon in a lot of housing markets for landlords to ask for even more than one month's deposit. That can be for several reasons, but especially if a building owner sees a tenant's finances and doesn't have a lot of confidence, they may ask for more of that money up front. But New York, for example, sees that as just another barrier to housing for people, and there have been limitations in how much deposit you can charge in that state.
And people who are fairly new to the housing market are ones that could benefit from some of these programs being floated and being passed by municipalities.
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