This startup wants to help make renting a home more affordable

A New York City-based startup is calling on U.S. lawmakers to consider legislation that would require landlords to accept alternatives to cash security deposits.

The change would infuse $45 billion into the economy by 2021, more than triple the individual municipal budgets of Los Angeles, Chicago, Houston, Phoenix, San Antonio and Philadelphia, according to Ankur Jain, co-founder and board member of Rhino, which partners with landlords to offer renters insurance in lieu of security deposits.

“Why is it that you have to lock up all this money when security deposits are just insurance?” said Jain.

In the U.S., $191 billion are tied up in security deposits, and as rental prices rise, security deposits become even more hefty. These upfront costs can require thousands of dollars during a time when more than 40% of the U.S. population has under $400 in savings, according to Rhino. Jain said the move would bolster the economy more than the 2017 Tax Cut and Jobs Act.

Offering renters a choice and insurance services like Rhino’s, which charges as little as $3 per month for insurance that covers landlord risks, like damage and non-payment, in lieu of a cash security deposit would help people afford housing, he said.

Large housing landlords, like UDR, Inc. (UDR) and Greystar Real Estate Partners, already allow tenants to opt for security deposit alternatives. Over the past year, insurance has saved renters in New York City over $60 million, according to Rhino, which estimates that renters could save more than $200 million if such a policy was implemented nationally.

Rhino also calls for allowing renters to transfer security deposits between rentals when relocating, according to the proposal.

Landlords ‘don’t make any money on security deposits’

Rhino said offering renters alternatives to security deposits benefits landlords, too, as a lower barrier to entry attracts renters and lowers vacancy rates in buildings.

“Landlords use [Rhino] because they don’t make any money on security deposits, but it’s become a huge barrier,” said Jain, who is also the CEO of Kairos, a private venture capital fund that focuses on affordability solutions.

Jain proposed that politicians back a national bill that would be favored by young voters, who would have better access to the rental market because such a a law would waive upfront costs. Whether Rhino’s proposal will ever be adopted on a national level is unknown, but the startup, which recently completed an initial $21 million round of funding, is collaborating with members of Congress in a national push for legislation and local politicians in New York City, Richmond, Philadelphia, and Miami Lakes to target local markets, according to Jason Novak, a Rhino representative. Last year, Rhino partnered with New York City Comptroller Scott Stringer to propose legislation in the Big Apple.

Rhino is not the first company to try to disrupt the rental security deposit system. Rentberry, a California-based company that aims to streamline the leasing process, seeks micro-lenders to cover 90% of a security deposit, which the renter repays over time, according to the company’s blog.

Some cities like Seattle, Washington and New York also allow renters to pay installments. But Rhino argues that installment payments do not provide the same protection for landlords that insurance or a traditional security deposit would offer.

Correction: Kairos was misidentified in an earlier version of this article.

Sarah Paynter is a reporter at Yahoo Finance.

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