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Legislators recognizing the role deposit alternatives can play in driving housing affordability

Housing affordability is a serious problem across the U.S. Nearly half of renter households are considered cost-burdened (meaning they spend more than 30% of their income on rent), and of those renters, more than half spend over 50% of their incomes on housing. 

This means there’s a real need for strategies that reduce the cost burden on renters. 

While some municipalities have focused primarily on rent control bills, others are focusing on solutions that are beneficial for both renters and properties. And as new legislation shows, an increasing number of lawmakers are recognizing the role that deposit alternatives can play in offering these win-win solutions. 

Legislators focusing on up-front rental costs

Several states introduced (and passed) rent control bills in 2019. This legislation focused on monthly rent costs and was designed to make renting more affordable, but was largely opposed by property owners and operators. 

Now, legislators are beginning to shift their focus from monthly rent costs to up-front move-in costs, as these can be cost-prohibitive to many renters. 

In fact, in our 2019 Renter Sentiment Report, 30% of renters ranked affording up-front costs as more stressful than making monthly payments, and almost 60% of renters said they’d been prevented from moving into a rental home because the up-front costs were too high. 

As a result, legislators like Cincinnati’s have chosen to focus on giving renters more affordable alternatives to standard cash security deposits. With their new bill, passed in January, properties have the option to either cut deposits in half, give residents the option to pay them over the course of 6+ months, or offer a deposit alternative product.

How deposit alternatives making renting more affordable

With deposit alternatives, renters pay a third-party provider (like Jetty!) a fee that’s lower than a cash security deposit, and that provider then insures the property for tenant default against damage and lost rent. 

There are a few different models for deposit alternatives, though the main difference is that some providers charge a set fee, while others charge an ongoing monthly fee. 

Some providers offer alternatives that operate as surety bonds, with a set fee that can either be paid up-front or spread over 12 months.

This can make all the difference. In the same report referenced above, we found that while less than half of renters would be able to afford a cash security deposit of one month’s rent at the time of the survey, 70% of those renters could afford a security deposit alternative that cost 17.5% of one month’s rent. 

Other deposit alternative providers, however, operate by requiring renters to pay an ongoing monthly fee. These fees can initially be even less expensive than deposit alternatives that operate as surety bonds, but the resident pays in perpetuity—even if they renew their lease—meaning they can ultimately be much more expensive in the long run.  

So while this type of deposit alternative lowers move-in costs, the pricing model can damage lease conversion rates for renters who don’t want to be stuck paying a monthly fee for the duration of their lease. And for residents who do decide to sign a lease, those monthly fees add up—and have a negative impact on renter satisfaction. 

Legislators are recognizing the role deposit alternatives can play in housing affordability

The fact that deposit alternatives are included as an option in this landmark legislation shows that lawmakers recognize their value in making renting more affordable. And now that several other states have shared plans to draft similar bills, I expect that deposit alternative products will become a larger part of the conversation around housing affordability in the U.S. 

Though there’s a long road ahead in solving the housing affordability issues today’s renters face, it’s exciting to see legislators taking deposit alternatives seriously as part of the solution.

 

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