Modernizing Security Deposits: One Solution To Help Solve America's Affordable Housing Challenge
By Americans for a Modern Economy
June 1, 2022
The modern economy is creating historic opportunities for workers of all ages, especially younger and first-time workers to take that all-important first step into the workforce. We are currently enjoying historic levels of job opportunities for workers of all skill sets and backgrounds, and the modern, online economy is driving much of that growth. However, that all-important second step, finding a home of their own, is proving much more elusive, especially for young workers. The lack of affordable housing is creating a situation where the economy is offering unprecedented mobility, while at the same time, these very same workers often have nowhere to go. We need to innovate to solve for that challenge and innovation appears to be on the way.
The New Economy has already challenged some of the proverbial sacred cows of the housing industry (See - Zillow Offers, OpenDoor and a host of other tech platforms in the iBuying space that are keen to reimagine the traditional real estate transaction). Another area where technology may be changing the game is in the area of security deposits. Just about anyone who has ever rented an apartment knows how the security deposit works. You find a place, apply, get approved, then pay exorbitant upfront sums just to move in. The practice of requiring a security deposit prior to moving in essentially doubles the upfront cost of renting. This is one area primed for similar disruption, innovation and modernization – the security deposit seems particularly ripe for reimagining at a moment in time when the cost of rentals is skyrocketing in most communities and when the cost of everything is going up because of inflation.
There are players entering the conversation that have a good chance of shifting that paradigm. For example, a company called Rhino, has captured headlines with its specific take on reimagining the apartment rental process and is currently offered in 2 million rental homes nationwide. Taking part in a recent panel discussion with the Mayor of Orlando, the United Way and other affordable housing stakeholders in Central Florida, Rhino CEO Paraag Sarva said, "There is $45 billion sitting in cash security deposit escrow accounts and nearly $2 billion in Florida alone. Rhino’s insurance, which protects property owners the same way a cash deposit does, has the goal and opportunity to give back $45 billion to renters at a time when they need it most.”
Modernizing the security deposit makes even more sense when viewed through the lens of a new Zillow study that shows that renters of color pay significantly higher security deposits and more in application fees than white renters. In communities across America, local leaders are using every tool imaginable to help drive solutions around affordable housing. In many cases, those leaders are also acknowledging that government solutions alone won't be enough - and that private sector partnership and innovation must be a vital part of the equation.
At Americans for a Modern Economy, our foundational belief is that allowing technology to flourish can expand opportunity and drive economic benefit for everyone. Reimagining the antiquated security deposit is an ideal example of how private sector innovation and modernization can be a part of a shared solution to what is perhaps the most daunting challenge of the decade in front of us.