Bill could cut security deposits for apartments and rental homes in half, saving renters thousands of dollars

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Many renters pay thousands of dollars for a security deposit on a rental home in California – as much as a down payment to buy a house in some states.

But that hefty fee could become more manageable under a bill making its way through the Capitol. 

If approved, Assembly Bill 12 would limit security deposits to one month’s rent, cutting the cost of moving into an apartment or rental home for families – but it also increases the risk for landlords and property owners.

AB12 cleared the Assembly, 53-14, in late May, and has moved to the state Senate. If the bill is approved in the state Senate and Gov. Gavin Newsom signs the legislation, California would become the 12th state to limit security deposits to one month’s rent.

SMALLER SECURITY DEPOSITS = BIGGER RISKS FOR LANDLORDS

Currently, landlords can ask for a security deposit equal to two months of rent. So, an apartment or rental home leasing for $2,500 per month could require a maximum security deposit of $5,000 – or $7,500 total to move into the new home. It’s worth noting that many apartment communities, especially in the past several months, offer move-in specials with a security deposit of a few hundred rather than several thousand dollars.

The California Apartment Association acknowledges the significant cost of renting an apartment or home for many tenants but opposes the bill because of the financial risk for landlords and property owners. Smaller landlords, such as those who own and rent a single-family home, would be the hardest hit if the legislation passes.

“Further limiting a property owner’s ability to financially cover property damage or unpaid rent is an unfair imposition for rental housing providers,” said Debra Carlton, executive vice president of state public affairs at the California Apartment Association. “Owning, operating, and maintaining rental housing is also extremely expensive.”

Evictions for a tenant who causes significant damage or fails to pay rent – or both, in many cases – can take six months and $10,000 to go through the court system.

‘A SIMPLE CHANGE THAT WILL HAVE AN ENORMOUS IMPACT ON HOUSING AFFORDABILITY’

Housing advocates argue that costly damage and evictions are not common, and a majority of tenants pay on time. AB 12 just creates more housing opportunities and fewer financial challenges for hard-working residents. 

“When renters can’t afford deposits they often have to borrow from predatory lenders, go into debt, or just stay put,” said Assemblymember Matt Haney (D-San Francisco), who authored the bill and chairs the Assembly Renters Caucus. “Landlords lose out on good tenants and tenants stay in apartments that are too crowded or have unsafe living conditions. Creating a rental deposit cap is a simple change that will have an enormous impact on housing affordability for families in California.”

Feature photo from SHUTTERSTOCK 

Homebuyers pay a lot more than renters in California – and twice as much in the Bay Area

Recent homebuyers in the Bay Area are paying more than twice as much for housing than those renting, as the debate over buy vs. rent comes down to simple math.

The age-old question of buy vs. rent has been a fairly easy answer for decades in California, one of the most expensive housing markets in the U.S. But with fast-rising mortgage rates, buying has become an even pricier option.

The Bay Area has the biggest difference, with the average homebuyer in March paying a mortgage of about $11,000 in San Francisco and San Jose – 139% and 165% more than the rent for the typical home in those cities, respectively, according to Redfin.

The Inland Empire – Riverside and San Bernardino counties – had the smallest difference between buying and renting at 44%. But that difference is almost double the national ownership premium of 25%.

‘BUYING A HOME OFTEN MAKES MORE FINANCIAL SENSE’

Buying a home was cheaper than renting in only four cities in the nation – Detroit, Philadelphia, Cleveland and Houston. 

“Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity,” says Taylor Marr, deputy chief economist for Redfin. “When you own your home, your home pays you; when you rent, you and your home pay your landlord. But buying isn’t a feasible option for everyone. Some people move around a lot, so renting might make more sense because they won’t be in their homes long enough to build equity. Many others simply don’t have the money for a down payment—a situation that has become increasingly common due to rising mortgage rates and elevated home prices.”

Of course, homeowners enjoy a few financial benefits, including a deduction of mortgage interest and building equity, which households can often tap, if necessary. 

But, as Marr mentions, the down payment is often the biggest hurdle to homeownership. Government programs, like those from the California Housing Finance Agency, can help open the door with a minimum down payment of 3% – or even less for veterans.

The average down payment ranged from about 5% in Bakersfield to 25% in San Jose during the first quarter, according to ATTOM Data (see table, below).

The monthly housing costs for homebuyers in March vs. renters in the same area

City	Buy	Rent	% premium to buy
Anaheim	$7,892	$3,771	+92%
Los Angeles	$6,454	$3,612	+79%
Oakland	$7,376	$3,700	+99%
Riverside	$4,320	$2,992	+44%
Sacramento	$4,137	$2,695	+54%
San Diego	$6,704	$3,940	+70%
San Francisco	$10,892	$4,552	+139%
San Jose	$11,049	$4,176	+165%

Source: Redfin

Mortgage lending tumbles to the lowest level in decades

Mortgage lending declined for the eighth consecutive quarter to the lowest level since late-2000, the latest evidence that the hard-hit housing market is reeling from a critical lack of buyers and a shortage of homes on the market.

Nationwide, mortgage lenders approved 1.25 million loans during the first quarter, down 56% from a year ago – and off 70% from the peak reached in early 2021, according to ATTOM Data.

Home loan activity – from new purchases to refinancing – dropped to $388 billion during the first quarter, plummeting 58% from a year ago.

California’s home loan activity followed the national slide, with mortgages tumbling at least 61% in eight of the largest markets in the state. Mortgages in Bakersfield and Fresno – among the most affordable markets in the state – declined 61% with a 70% drop in San Jose, the largest percentage plunge in California.

All eight markets have endured at least seven quarterly declines in loan activity.

‘LENDERS SAW OPPORTUNITIES DWINDLE’

The Federal Reserve began hiking interest rates in March 2022, the first increase since 2018, in order to combat the highest inflation rate in about 40 years.

Mortgage rates are about double the level of just 15 months ago, greatly increasing the cost of homeownership by several hundred or even a few thousand dollars per month.

The higher rates have significantly slowed the housing market during the past year. April home sales were off 36% compared to a year ago, according to the California Association of Realtors.

“Lenders saw opportunities dwindle even more during the first quarter as the longest slowdown in mortgage activity in at least 20 years continued,” says ATTOM CEO Rob Barber. “In one sense, it wasn’t that unusual, given that wintertime is usually the slow time of the year for lenders. But the latest slide extends a run that started two years ago and has carved away nearly three-quarters of the home-mortgage business.”

Mortgages issued during the first quarter compared to a year ago

Metro	Mortgages issued Q1 2023	% decline from a year ago	Average down payment
Bakersfield	3,047	-61%	$15,500
Fresno	2,955	-61%	$23,475
Los Angeles	32,272	-65%	$174,000
Riverside	18,324	-63%	$36,000
Sacramento	8,942	-66%	$68,567
San Diego	10,622	-64%	$146,000
San Francisco	12,320	-69%	$239,750
San Jose	4,436	-70%	$360,000

Source: ATTOM Data