The affordability challenge at move-in is becoming a direct operating issue for multifamily owners. As lawmakers target security deposits and rental fees, property owners face a difficult balancing act: reducing the cash burden on renters without exposing assets, operations and NOI to greater losses.
The result is a growing push for alternatives that preserve access to housing while maintaining meaningful protection against unpaid balances and property damage.
It now costs an average of $3,600 to secure a rental home nationally, while the median renter has only $1,800 in cash savings. Lower-income renters have about $300. A recent Center for American Progress report, citing Fannie Mae research, found that nearly half of renters struggle to cover move-in costs, including security deposits and application fees.
That gap is drawing attention from policymakers in states and cities that are considering measures to cap or regulate deposits, fees and other upfront expenses. For apartment owners and investors, the issue is not simply whether upfront costs should come down. It is how to lower a renter’s initial cash requirement without shifting the financial exposure to the property.
The stakes are significant. LeaseLock says move-out balances now exceed three times the average security deposit collected, while only 15% to 20% of those balances are recovered. The unrecovered portion becomes a direct drag on NOI, limiting the funds available for maintenance, property services and capital improvements.
The deposit debate is playing out against a broader housing shortage. Kevin Donnelly, executive director and chief advocacy officer at NMHC’s Real Estate Technology & Transformation Center, argues that markets making it easier to build have created more favorable conditions for renters.
Austin is the clearest example, he said. After nearly a decade in which a solid majority of the City Council supported policies intended to make housing development easier, apartment renters are paying 20% less than they did several years ago.
North Carolina has followed a similar path, according to Donnelly. State policymakers have passed a series of measures to allow housing supply to respond more quickly to population growth and demand. The result, he said, is that housing costs have remained relatively reasonable even as the state continues to attract new residents.
For investors, the policy lesson is that upfront-cost rules cannot be evaluated in isolation. Deposit regulations may affect leasing economics and operating risk, but supply constraints remain a central driver of rent pressure and renter affordability.
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Many housing providers have responded to affordability concerns by offering deposit concessions or waiving security deposits entirely. While that can help a renter secure a home, Janine Jovanovic, CEO of LeaseLock, said a waiver can create a false sense of affordability.
When renters move out with unpaid balances, operators may have little choice but to send those balances to collections. Jovanovic said collections activity can cause unexpected credit damage, which may make it harder for renters to qualify for future housing. In that sense, eliminating a deposit can defer a renter’s costs rather than eliminate them.
The consequences also fall on owners. A traditional deposit provides at least some buffer against the cost of default, damage or unpaid rent. Removing that protection can leave housing providers responsible for the full financial impact of a resident’s move-out balance, particularly when collection rates are low.
That risk has wider implications for the nation’s aging rental stock. The median age of U.S. housing has reached a record 45 years, according to the article. Jovanovic said the country has lost 9.3 million naturally occurring affordable homes over the past decade, underscoring the need to protect owners’ ability to maintain and improve existing properties.
The emerging middle ground is not necessarily a return to the traditional security deposit. Instead, owners, policymakers and renters are increasingly considering alternatives that reduce upfront cash demands while protecting the asset.
Lease insurance is one option. The approach is designed to protect a property while allowing renters to retain more savings at move-in. Jovanovic said the shift is gaining bipartisan support, with states including Florida, Texas and Washington, as well as cities such as Atlanta and Cincinnati, adopting laws that allow residents to choose alternatives to a conventional deposit.
Renters appear receptive. In NMHC and Grace Hill’s most recent renter survey, about 57% of respondents said security-deposit alternatives were important to their financial health and another 12% called them absolutely essential. Fewer than one-third did not share that view.
For multifamily investors, the opportunity is to adopt structures that improve leasing accessibility without weakening credit discipline or asset protection. The most durable solutions may be those that give renters more flexibility at move-in while ensuring owners don’t have to absorb avoidable losses after move-out.
Source: GlobeSt.
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