In what is beginning to seem like a new world order for New York City renters, a crop of start-ups are seeking to do away with security deposits by offering to insure apartments for landlords and charging tenants a small monthly fee in return.
According to a New York Times story, these companies are "envisioning a rental market without security deposits as a way to lower housing costs, curb inequality and put money back in people’s pockets."
For example, Rhino, a two-year-old startup based in New York, charges tenants an insurance premium of as little as $3 a month.
“Security deposits have been vastly overlooked for the past few decades and as rents have gone up, security deposits have become a much bigger barrier than they used to be for renters," Ankur Jain, Rhino's co-founder, told the Times.
Security deposits, which are intended to protect landlords against damages or unpaid rent, are just one piece of a complicated calculus of upfront costs that serve as a barrier to many young and low-income renters. But the practice has come under scrutiny in recent years. According to a report last year from the City Comptroller Scott Stringer, renters in New York City paid $507 million in 2016 for security deposits. Under the new rent laws passed in June, security deposits can no longer be more than one month's rent.
The law requires landlords to put the security deposits in escrow. Renters are entitled to earn interest. However, landlords can collect a one percent administrative fee.
A Fast Company profile of Rhino published on Tuesday reported that the company has developed a policy proposal calling for new security deposit laws. "First, it argues, property owners should offer alternatives to traditional security deposits—either installment plans that can be paid over several months, or an affordable option for insurance like the offering from Rhino," Fast Company reports.
In addition to lowering upfront costs, the new insurance mechanism could eliminate for departing tenants the hassle of trying to get landlords to return security deposits. Although under the new rent laws, landlords are required to return the security deposit within 14 days after the tenant has vacated, much to the consternation of some landlords.
According to the Times, Rhino has managed to accumulate a portfolio of 110,000 apartments. Among the big city landlords that have signed on are L+M Development Partners, Brodsky, Stonehenge and Moinian Group.
L+M is one of the city's busiest and arguably, most politically well-connected affordable housing developers. The company is part of the consortium that is currently building out Essex Crossing, a mixed-income Lower East Side development set to contain 1,000 housing units.
It's not clear how much political support there would be for an insurance model. A spokesperson for the Real Estate Board of New York did not immediately respond to a request for comment. There are currently several City Council bills seeking to rein in costs for renters, including that of brokers' fees.
Keith Powers, one of the council members who introduced the legislation, told the Times that the Rhino plan is "a new idea and I haven’t studied it enough.”