People of Color Face Higher Costs When Renting an Apartment

It is already difficult to navigate the highly-competitive US rental market, with a national vacancy rate lower than at any time since 1984. Rent prices have skyrocketed, up a record 17% in just the past year, prompting some priced-out renters to look for a more affordable home when their lease expires. 

Sadly, it is that much more difficult, and expensive, for renters of color, a new survey by Zillow finds. 

Results from Zillow’s Consumer Housing Trends Report show renters of color typically submit more applications—and pay more in application fees—before they secure a place to live than white renters do. Renters of color also typically pay a higher security deposit when they move in.

Renters of color pay security deposits more often than white renters, and the deposits they pay are typically $150 higher. 

Black and Latinx renters report submitting more applications than white and Asian American and Pacific Islander renters. The typical white or Asian American and Pacific Islander renter submits two applications, while the typical Black or Latinx renter submits three, Zillow found.

About 9 in 10 renters paid a security deposit last year, with the typical deposit coming in at $700. A higher share of renters of color paid a deposit (93%) than white renters (85%), and the median amount paid by renters of color were higher, too—$750, compared to $600.

“Renters typically do not have much of a financial cushion, and the cost of finding a new place to live can be an expensive burden,” Manny Garcia, population scientist at Zillow said in prepared remarks. “Regrettably, renters of color are especially likely to experience rising rents, and when they shop for a new rental, generally report higher upfront costs, restricting the mobility that is often held up as a benefit of renting.”

Security Deposit Cost Can Be Heavy

A $750 security deposit represents a significant amount of a typical renter’s wealth. Zillow’s research indicates a typical renter holds $3,400 total across savings, checking, retirement and investment accounts. More than one-third (38%) of renters surveyed say they couldn’t cover an unexpected expense of $1,000.

In 2021, 61% of all renters applied for two or more properties—an 11-point increase from 2019 and five points higher than in 2020, likely owing to the tight rental market. The typical white or Asian American and Pacific Islander renter submits two applications, while a Black or Latinx renter typically submits three. 

More than one-third of renters of color submit five or more applications during their home search.

Application Fees $15 Higher for Blacks

Among renters who paid an application fee for the home they rent, the typical white renter reports paying $50, while a typical Black renter paid $65, a typical Latinx renter paid $80 and a typical Asian American and Pacific Islander renter paid $100.

The higher fees and number of applications for renters of color are likely partially attributable to their age, income and geography. The typical renter of color is two years younger than the median white renter, meaning two fewer years of potential income growth. 

White renters are also more likely to rent in rural markets and the Midwest, both of which are generally less expensive. Asian American and Pacific Islander and Latinx renters, in particular, are more likely to rent in the West, which includes many of the country’s most expensive and competitive rental markets.

Financial Tools Offer Some Relief 

There are a handful of tools that apartment owners can try to address one problem for renters of color: a limited access to credit. Zillow found that Black and Latinx adults are more prone to being credit invisible and more often live in counties with higher levels of credit insecurity

Some apartment operators are teaming with OneApp, which provides guaranteed funds for residents who are denied for having a low credit score, but who are capable of paying rent and can qualify through a co-signer on the lease. OneApp serves as the co-signer.

The product covers the fees and first months’ rent. Two of the larger national apartment operators are among those using it to increase occupancy and NOI.

“It has helped us when you have that borderline applicant or the denial that has great income but is more of a credit risk,” Karen McLane, Director, RangeWater, said. “Fees are paid by the applicant and they’re not excessive so as to lose the applicant.”

Joyce Prince, Regional Manager, Blue Magma Residential, tells GlobeSt that her company added $4 million of annual revenue to its bottom line by filling 350 vacancies with guaranteed residents increasing its overall occupancy by 3% to 5%. There have been only a handful of defaults, she said. Defaults are paid in full by OneApp.

Apartment software company Knock has raised more than $30,000 to support the tool and is conducting a campaign among owners and managers to raise more funds to support those in need.

Zillow also provides a tool to help reduce move-in costs. For a flat $29 fee, renters can use Zillow’s online rental application to apply through Zillow for an unlimited number of participating properties within 30 days. The online application includes a credit report and background check.