In theory, New York State’s new rental regulations appear to offer a glimmer of hope that the longstanding practice of asking foreign nationals to pay anywhere from three to 12 months' rent upfront will disappear. But with large security deposits no longer permitted, there are concerns that owners and management companies may become even less willing to rent to foreign nationals, even to those with high bank balances and U.S.-based jobs.

Renting as a foreign national prior to Senate Bill S6458

Prior to Senate Bill S6458, foreign nationals often struggled to rent apartments, even as high-income earners. Like their U.S.-born counterparts, they are typically asked to provide proof that they make at least 40 times the monthly rent and asked to provide U.S. bank statements, income tax returns, and a credit report. The paperwork is where most foreign nationals, especially new arrivals, run into problems. Even if a newcomer makes much more than 40 times the monthly rent, if they are new to the United States, they likely don’t yet have a stack of U.S. bank statements, income tax returns, or established credit history. While proof of a high bank balance may help, for many owners and management companies, no matter how high one’s bank balance, without an established U.S. credit history, they are automatically considered a credit risk.

To mitigate the perceived risks of renting to foreign nationals, it has long been a common practice to ask these renters for significantly larger security deposits than their U.S. counterparts. Typically, owners and management companies would ask for three months' security in addition to first month’s rent, but six to 12 months security upfront was not uncommon. As such, in the past, it wasn’t unusual for foreign nationals new to the United States to be asked to hand over anywhere from $12,000 to $36,000 upfront to rent even a modestly priced one-bedroom apartment at $3,000 monthly.

What’s changed and why it likely won’t benefit foreign nationals

While there is a lot of good news for long-time New York State residents in the Housing Stability and Tenant Protection act of 2019, foreign nationals on the rental market seem unlikely to benefit from the new legislation.

Section 25 of the Senate Bill S6458 limits security deposits to one month’s rent. In theory, this makes it illegal for owners and management companies to ask any potential renter, even someone without a U.S. credit history, to pay more than one month’s rent upfront. But some industry insiders suspect this will make it even more difficult for foreigner nationals to rent.

Jeffrey Geller is the Vice Chairman & Chief Operating Officer of Insurent —the first and leading institutional guarantor of residential leases. As Geller explains, “We’re the institutional mommy and daddy. We serve as a guarantor when renters don’t have a parent or relative who can step in.” From Geller’s perspective, the recent move to prohibit owners from asking for additional security seems nearly certain to negatively impact foreign nationals, as well as anyone else without an established credit history.

“This definitely will make it more difficult for people to rent, and this won’t simply impact foreign nationals,” says Geller. “In the past, there were several ways an owner could rent to someone without an established credit history—asking for additional security was one option. Now, what’s left are two options—a renter can either turn to an individual co-signer, usually a parent, or to lease guarantor like Insurent. But if someone is a foreign national with no U.S. credit history, they likely only have one option—a lease guarantor.”

Geller also emphasizes that the new rental regulations may have a trickle-down effect on other people working in the real estate industry. As more renters rely on lease guarantors to close deals, for example, it may become more difficult for brokers to charge established fees (usually 10 to 15 percent of the first year’s rent) since renters will increasingly be paying two fees—one to a lease guarantor and one to a broker.

So, will the Housing Stability and Tenant Protection act of 2019 help all New York City renters? There is no question that the new legislation will help protect some renters’ rights, but if you’re a foreign national with little or no U.S. credit history, there are strong indications that renting may be about to get a lot more challenging and, ultimately, a lot more expensive.