It’s common practice in the U.S. for landlords to charge a non-refundable rental application fee. This is done ostensibly to prevent “non-serious” applicants from applying as tenants. And, it is supposed to help cover the cost of running background and credit checks on applicants.
Typically, these fees deter tenants with prior evictions or criminal records from filling out applications. This is because people with these types of issues in their background may not want to risk paying the money only to have someone discover potentially disqualifying information.
Impact of fees on low-income renters
Applications fees have some obvious benefits for landlords. They help reduce their costs of renting their property and, perhaps, weed out people who might be bad tenants.
The problem is that they also discourage qualified tenants in lower income brackets from even applying. In fact, some qualified lower income tenants may be unable to find decent housing because they can’t afford the excessive application fees charged by greedy landlords.
Of course, even if they are able to pay the application fees, low-income renters may be denied tenancy based on their low income. This means they may end up paying non-refundable application fees to one or more property management companies and still end up without housing.
In the following article, we’re going to take a look at the current rental situation in the United States to explain how application fees are not only contributing to poverty but also prevent people from being able to escape it.
The Average Cost of Application Fees
Typically, application fees can run from anywhere between $25 to $200 per applicant. This means that a couple trying to rent a newly renovated apartment in a nicer area of the city could end up paying a non-refundable fee of $400 just for the privilege of applying for the apartment with no guarantee that they’ll actually be approved. Let alone, if they wanted to add a third person to their lease, this figure goes up to $600 just to apply for the apartment.
Fortunately, this is a bit of an extreme scenario, since the average cost of an applications fee is only $30 per applicant. However, both the location, as well as the current market conditions play a significant role in determining application fees.
And, most landlords are looking to capitalize on their rental properties as much as possible. So, why wouldn’t they charge as much as they possibly can, especially if there are no legal limits to what can be charged?
Application Fees by State
Rental application fees vary depending on the area that the rental property is located in. Generally, neighborhoods and areas that are more desirable warrant higher rental prices. Therefore, in these “nicer” areas, it’s more likely to find landlords that charge significantly higher application fees.
A few US states have legal limits on how much a landlord can charge for a rental fee per applicant but most do not. Regulations can help keep fees in check and ensure that landlords can’t overcharge their prospective tenants an outrageous non-refundable application fee. Here’s a list of rental application fees by state.
Although not common, there have been some cases where shady landlords have tried to take advantage of prospective tenants by charging outrageous application fees. And then not approve any of the prospective tenants in order to walk away with the cash from the applications fees alone.
Hopefully, most landlords are fair and honest. But the lack of legal limitations on application fees creates a situation that makes it harder for low-income people to have an opportunity to find a decent place to live.
The Big Picture
Some people defend non-refundable application fees saying they help landlords save time, money, and effort that would have been “wasted” on people who aren’t “worth renting to” in the first place.
But, what about viewing things from another perspective? Imagine, for example, a single, young mother with two young children, struggling to get by on an income of $20,000 per year.
Let’s say the average application fee for an apartment near her place of employment is $50. She applies to 10 different apartments but gets denied by all of them. This means she would end up spending $500 in non-refundable application fees. That’s 2.5% of her entire annual gross income. And yet, she and her two children would still be without a home.
Doesn’t this make you wonder how it is that our legislators allow unfair and excessive rental application fees?
The Housing Choice Voucher Program
Of course, there are government programs, such as the Housing Choice Voucher (HCV) program (formerly known as Section 8) that are geared to help low-income families, the elderly, and the disabled be able to afford safe and acceptable housing. It is run by the federal government.
In the case of Voucher programs, a housing subsidy is paid directly to the landlord on behalf of the participant. The renter is then only required to pay the difference between the actual rental price and the amount subsidized by the government program.
The program allows participants to choose any type of housing accommodation that suits the program’s requirements. This means that their choice of housing is not limited to government subsidized housing. They are free to choose wherever they wish to live.
Real life issues with Voucher program
One problem with the government-run voucher program recently came to light. The recent government shutdown that lasted 35 days created a dire situation for low-income renters.
Like many government programs, the HCV is backlogged despite government employees now being back at work. This has left many people in limbo, not knowing when they’re going to be able to get their vouchers.
But there’s another problem – one that is far more serious and long-lasting. The HCV doesn’t truly help people get out of poverty.
This is because, even if a family or individual is eligible for the subsidy, the program doesn’t cover the cost of applying for a new place to live or any of the other associated costs such as moving. They may just be stuck in their current situations.
The UK Bans Application Fees
To help illustrate the fact that application fees contribute to poverty, let’s turn our attention to the United Kingdom.
The U.K.’s Tenant Fees Act bans charging tenants for rental application fees, such as credit checks. It is due to go into effect in June 2019.
The U.K. government estimates that the bill will save tenants upwards of $310 million (£240 million) per year. While this is a lot of money for almost any tenant, in any country, just imagine how much money this could save tenants who are currently living in poverty situations unable to afford costly application fees.
That’s an estimated $310 million (£240 million) per year put directly back into the pockets of hard-working men and women in the United Kingdom.
The Tenant Fees Act also gives tenants the assurance that their initial deposit, paid at the beginning of the tenancy, cannot ever be greater than the sum of 6 weeks’ worth of rent. This is yet another provision that should help protect tenants living in poverty from greedy landlords who overcharge and price gouge to rent out their properties.
The Act also has one more beneficial effect. It should theoretically increase the competition between landlords and property management companies. This, in turn, this should (theoretically) work to drive overall rental prices lower. It may also improve the service that renters receive from their landlords.
If the UK’s government can save their citizens millions of dollars just by passing this act, imagine what a similar move could do for Americans living in or around the poverty line.
Rental application fees contribute to poverty
From the evidence presented, application fees contribute to poverty by reducing the bottom line of hardworking men and women living in poverty in the United States. They also make it impossible for people living in poverty-stricken areas riddled with crime and violence to move to safer neighborhoods.
Furthermore, the fact that the UK government was able to ban rental application fees, demonstrates that it is possible to enact laws that protect low-income people. And, hopefully, help reduce poverty in that country.
So, let me close by asking this question:
If the U.K. can save renters an estimated $310 million per year on application fees, why can’t the U.S. do the same?
Bio: Eric Worral has owned and managed rentals for over 9 years. Currently, he’s the Marketing Director at RentPrep, a tenant screening & credit check service for landlords and property managers. He’s also the co-host of the “RentPrep for Landlords” podcast where he shares tips and insights on managing your rental properties.