Zillow: Renters of color pay higher security deposits, more application fees

Zillow: Renters of color pay higher security deposits, more application fees

By BCN Executive Editor Wesley Brown — After recent depressing news that Black homeowners get raw deals on mortgage financing and property appraisals, a new Zillow report now reveals that Black renters also face discrimination when trying to find a new place to live.

According to results from Zillow’s Consumer Housing Trends Reportrenters of color typically submit more applications and pay more in application fees than white counterparts 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.

“Rents grew more last year than any year on record, forcing many renters to look for a more affordable option. About 2 in 5 renters who moved in the past year said a rent hike influenced their decision to move,” said Manny Garcia, population scientist at Zillow. “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. 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.” 

The dire news for Black renters comes as the U.S. rental market is as competitive as it’s been in decades, with the 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.

According to Zillow, about nine 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 was higher, too — $750, compared to $600.

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 addition to facing higher and more frequent security deposits, renters of color report submitting more applications and paying higher fees for those applications than white renters. 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: that’s true of 38% of Black and Latinx renters, 33% of Asian American and Pacific Islander renters, and only 21% of white renters.

With a median rental application fee of $50, the cost can add up quickly if renters need to apply for several properties. The burden is often greater for renters of color, who report paying a higher median application fee than white renters, on top of usually needing to apply to more rentals. 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.

Expanding access to credit could help improve outcomes for Black and Latinx renters. Nearly half of white renters (46%) say they were completely certain they would qualify for a rental, compared to 38% of Latinx renters and 34% of Black renters. Credit checks are part of many rental applications, and Black and Latinx adults are more prone to being credit invisible and more often live in counties with higher levels of credit insecurity.

Renters looking to reign in application fees may have options. 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, which saves landlords time while screening prospective tenants and provides them with the information needed to feel confident about each applicant. Renters can also offer additional context and explain any negative items on their rental and credit history.

Black homeowners and redlining

The new Zillow report on renters comes only months after the Seattle-based real estate data analytics giant released a study showing that Black applicants are denied a mortgage at a rate 84% higher than that of white applicants — a big jump from 2019, when the disparity sat at 74%.

In the U.S., 19.8% of Black applicants are denied a mortgage, the highest among all races, and much higher than the 10.7% of white applicants who are denied. Black applicants have the highest denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%) and South Carolina (25.8%).

“Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and white homeownership rates and home values paints the picture of who those winners actually are,” Zillow economist Nicole Bachaud said in late January. “While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity.”

Earlier this month, an interagency task force at the White House also outlined a plan aimed at rooting out racial and ethnic bias in home valuations. The Property Appraisal and Valuation Equity (PAVE) task force released a five-step action plan yesterday to increase oversight and accountability. It also includes steps for homebuyers and homeowners to take when they receive a valuation lower than expected.

The National Association of Realtors said it had a part in the formation of the action plan, including meeting with the PAVE task force to propose solutions on how the Biden administration, real estate professionals, and the broader appraisal industry could work together to address concerns and improve public trust in the appraisal process.

“Historically, many groups have faced unfair home undervaluation,” NAR President Leslie Rouda Smith said in a statement following the task force’s release of its report. “Addressing those wrongs is key to providing financial stability to not only homeowners, but entire communities, and benefits the nation as a whole.”

A recent report from Freddie Mac showed that appraisals for home purchases in majority Black and majority Latino neighborhoods were about twice as likely to result in a value below the actual contract price compared to appraisals in predominantly white neighborhoods.

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