California may soon set a new maximum security deposit a landlord can charge with a proposed bill that would reduce the state’s current two month’s rent requirement for unfurnished apartments and three months for furnished ones.
Assembly Bill 12, authored by Assemblyman Matt Haney (D-San Francisco), would mandate landlords only charge a maximum security deposit of one month’s rent in both cases, according to the bill’s text.
The bill passed both the Assembly and Senate this month, and now Gov. Gavin Newsom has until Oct. 14 to either sign the bill into law or veto it.
“When renters can’t afford deposits they often have to borrow from predatory lenders, go into debt, or just stay put,” said Mr. Haney, who also chairs the Assembly Renters Caucus, in an April press release. “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.”
In the same press release, Mr. Haney noted that the average monthly rent for a two-bedroom apartment in San Francisco is $5,000, which could mean a move in cost of up to $15,000. He said red and blue states alike have capped security deposits to one month’s rent, including New York, Kansas, Hawaii, and Alabama.
Small landlords who own two or fewer properties, totaling no more than four rental units, would still be allowed to charge two months of rent for security deposits under the proposed bill, except when renting to military veterans, according to an Assembly analysis of the bill.
Those in support of the bill—including the California Nurses Association, which represents registered nurses statewide, and the UC Student Association, representing University of California students of all campuses—said high security deposits make the state’s growing homelessness problem worse by forcing people into unfavorable living conditions such as in a vehicle, shelter, garage, with family or friends, far away from work, or in a house with multiple families.
The Western Center on Law and Poverty—a Los Angeles-based law firm that represents low-income Californians—said in support of the bill that homeless or low-income people can’t afford to move into an apartment in California when faced with such large costs, not only from a high security deposit but also from paying first and last month’s rent, which the new bill will help address.
“The average California rent statewide is about $2,950 which means a tenant has to pay about $5900 up front, not including application fees, miscellaneous fees, pet deposit, and first and last month’s rent. For unhoused and low-income people, getting that money together can be the main factor determining whether they can rent an apartment,” they wrote.
Those opposed to the bill include the California Rental Housing Association—representing 24,000 rental housing owners statewide—and the California Apartment Association—with a membership of more than 60,000 owners and industry professionals, among several other associations across the state.
“Without the ability to collect enough in security deposit to cover potential damages, rental property providers may decide to remove their homes from the rental market—further exacerbating the housing supply crisis,” the California Rental Housing Association argued in the recent analysis.
Others opposed to the bill argue the consumer will be hit the hardest under the proposed new law. Without the safety cushion of a larger security deposit, they say landlords will be more selective and require higher credit scores for renters.
“They’re going to require higher credit scores. They’re going to require higher verification of income, and it’s going to squeeze out the bottom,” said Chip Ahlswede, vice president of external affairs for the Apartment Association of Orange County.
He told The Epoch Times that in terms of property owners, some may find difficulty in balancing out property damages when re-renting a unit with the cost of materials having gone up since the pandemic.
“Just replacing countertops is going to run you several thousand dollars—there’s an entire month’s rent, and then some if there’s damage to the countertops, or unreasonable wear on carpet. If something like that happens, re-carpeting the unit would be significant,” he said.
Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles—a nonprofit association of rental housing providers and real estate professionals—told The Epoch Times reducing the amount of security deposit is not the way to create more affordable housing.
“In fact, it’s going to have the exact opposite impact that the legislature wants it to have ... because owners aren’t going to be able to balance the risk of taking on a tenant that may not quite meet their financial criteria. They’re just going to be denied,” he said.
According to Mr. Yukelson, because the security deposit for furnished units could possibly be only one month’s rent, landlords may take those kinds of units off the market, and students with little to no credit history will have a hard time renting an apartment without a cosigner.
He argued the existing law made it easier for those with bad credit, since some owners would only charge an extra month of rent for a security deposit for those individuals. However, now they might not, if the bill is signed into law, have that flexibility.
“The way most rental property owners practice today, when you fill out an application and your credit is run, you come back either approved or approved with exception or rejected. Usually approved with exception means that you need to either get a guarantor on your lease or you need to put up additional security deposit ... and all that’ll go away,” he said.
Both the Orange County and Los Angeles apartment associations, along with the California Rental Housing Association—representing over 22,000 members of small and medium rental housing owners—and other such associations sent a letter to Mr. Newsom on Sept. 18 asking for a veto of the bill.
“By reducing allowable security deposits, tenants will have less incentive to take care of their rental unit and the properties and return them in the condition in which they were rented ... we believe that this bill will make it even more difficult for rental housing providers that are already financially overburdened to continue to offer housing options in the state,” they wrote. “We must respectfully request our veto of AB 12.”
