Financial Burden from Increased Security Deposits Undermines Renter Payment Performance and Stability

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New state-by-state analysis by NPS Rent Assurance of nearly 250,000 conditionally approved renters shows that the increasing cost to qualify for a lease has emerged as a national issue.

Security deposits have evolved from an effective means to reduce financial risk posed by residents damaging a unit to an increased move-in fee related to credit-worthiness and a presumed ability to pay.

Affordability for the 65 million Americans seeking rental housing has become a greater financial burden, and not just from increasing rents. In today’s rental environment, more apartment communities are requiring individuals and families to pay increased security deposits to offset future payment risk associated with lower credit scores.

According to “False Sense of Security,” a new analysis of 247,305 conditionally approved rental applicants, nearly 66 percent are required to pay a full month of rent as a security deposit, another 12.5 percent are required to pay one-and-a-half times the monthly rent, and another 2.8 percent pay a security deposit equivalent to two months rent at lease signing. Security deposits have evolved from an effective means to reduce financial risk posed by residents damaging a unit to an increased move-in fee related to credit-worthiness and a presumed ability to pay.

“When you consider 30-40 percent of our applicants are approved with conditions, it’s apparent the demographic of renters who are living paycheck to paycheck is steadily increasing,” says Jason Whittington, vice president of business solutions for Indianapolis-based Gene B. Glick Co., a developer and property manager of more than 20,000 units in 10 states. “By reducing move-in costs for our residents and offering various lease terms and payment options we’ve been successful moving in more applicants who can fulfill the financial obligations of the lease. In our experience, requiring one to two months of additional rent as a security deposit puts the resident on poor financial footing at the start of the lease, resulting in an even higher likelihood to pay late or skip payments altogether.”

The U.S. Department of Housing and Urban Development recommends renters allocate no more than 30 percent of monthly income to housing. But for many, this rent-to-income ratio is increasing to as much as 50 percent, as rents have increased significantly faster than salaries, exponentially growing the pool of rent burdened consumers.

“The increasing cost for renters to qualify for a lease has emerged as a national issue. As more consumers face higher move-in costs and budgeting becomes even more critical given the percent of their income required to satisfy their monthly rent obligation, offering new solutions like Rent from Payroll, which provide renters with more options and assured timely rent payments is becoming more important,” says Rich Levitan, president of Neighborhood Pay Services, the company that analyzed the current status and impact of increased security deposits. “Additionally, the consistent financial performance of residents who enroll in rent from payroll programs translates into more stable resident populations, reductions in skips, evictions, lost and late rent, and positive impact to a community’s operations and profitability.”

Average Security Deposit Requirements Across the U.S.
Significant state-by-state disparities exist surrounding the average increased security deposit requirements of conditionally approved residents. Nationally, residents in the study who were screened and approved with conditions were required to pay $785 in additional deposits to qualify for an apartment lease averaging $981 in monthly rent. Not surprisingly, states with higher rents, and higher frequencies of additional security deposits for conditional applicants, present the greatest financial impediment for renters seeking quality housing.

As a result, historically high rent states including California ($1,891), Massachusetts ($1,719), New York ($1,645), Connecticut ($1,364) and New Jersey ($1,280), led rankings of the top five “worst” states for conditionally approved apartment residents, requiring the highest average amounts of additional security deposits.

At the opposite range of the spectrum, the five states with the lowest security deposit requirements are Arkansas ($341), Iowa ($386), New Mexico ($391), Oklahoma and Mississippi (both $411). These states are considered “the best” places for residents who are more likely to be approved with conditions.

While state-by-state average wages may seem to provide some mitigation to the average “best” and “worst” states when it comes to the cost for conditionally approved residents to move in, data from the National Low Income Housing Coalition shows that the average American household must earn at least $19.35 per hour in order to afford a modest two-bedroom apartment without spending more than 30 percent of income to rent. As a result, one in four renter households (10.3 million renter households) can no longer afford rent based on the area median income.

Click the link to download a complimentary copy of “False Sense of Security: The Failure of Increased Security Deposits in Converting and Assuring Payment Performance from Conditionally Approved Apartment Renters.”

“Beyond the financial benefits to our communities, in our experience offering innovative solutions to help conditionally approved applicants qualify for the apartment they want to live in reaffirms Camden’s commitment to provide an unmatched living experience,” said Kip Zacharias, vice president of business services for Camden Property Trust “And a satisfied resident is more likely to renew, extend their length of stay beyond the industry average, and serve as a referral source for the community.”

About the Analysis
Neighborhood Pay Services analyzed 247,305 conditionally approved leases initiated between August 2014 and August 2015, as identified by its strategic resident screening partner First Advantage, a Symphony Technology Group Company. The leases included in the analysis represent a cross section of apartment applicants nationwide.

About NPS Rent Assurance
NPS Rent Assurance® is the originator of Rent From Payroll® and the only rent from payroll direct deposit platform providing the rental housing industry with a proven solution for building incremental occupancy with improved payment performance from conditionally approved and credit denied residents. NPS Rent Assurance is offered exclusively through rental leasing offices as a key component of conditional lease offers and a mechanism to automate rent recovery plans for existing residents who fall behind in their lease obligations.

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Ellen Calmas
Neighborhood Pay Services LLC
+1 (866) 436-2187 Ext: 104
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Don Canfield
@RentAssurance
since: 09/2009
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