Junk Fees in Rental Housing Are a Distraction

By Vanessa Brown Calder of Cato.

"So‐​called junk fees have become a popular topic this year, and rental housing is a particular area of interest as US markets struggle with affordability challenges. The White House selected rental housing as the focus for fee crackdowns over the summer, and a recent hearing on Competition and Consumer Rights in the Housing Market described junk fees as an affordability issue increasing costs for low‐​income renters, which may prevent them from moving to a new home.

According to the White House, junk fees in rental housing include repeated application fees and convenience fees, like fees to pay rent online or for mail sorting and trash collection, which result in a “serious burden on renters.” Other critics have suggested that fees for internet use or pet rent also qualify as “junk” and argue that these fees “confuse or deceive” consumers and take advantage of market power.

But are these fees meaningful, or are they a distraction from genuine housing issues? To begin with, the economic logic for junk fees also applies to fees in rental housing. For example, rental fees are small compared to the total amount spent on housing by renters. Whereas rental application fees typically cost between $25-$100, the national median rent is over $2,000 monthly. Application fees usually cover the costs of doing a credit or background check for a potential tenant and sometimes the time and labor associated with application processing—in other words, genuine business costs.

Moreover, attempting to control so‐​called junk fees, including rental application fees, late payment fees, pet fees, parking fees, or internet fees, would likely lead total rents to adjust upward. In this case, regulating junk fees would mean consumers are subject to a higher base rent and would be required to subsidize the preferences and behaviors of other tenants even though they intend to pay rent on time, do not have a pet, are not planning to drive or park a car, etc. In this way, eliminating junk fees would reduce tenant choice so tenants cannot opt out of services they do not require. Counterintuitively, regulating junk fees would reduce affordability for some tenants.

If regulating fees wouldn’t lower overall rents, could regulating fees at least improve transparency? Regulation requiring landlords to provide would‐​be tenants with a singular, up‐​front price counterintuitively introduces new opaqueness, as consumers may not have access to information regarding the component parts of their rent. Moreover, in a market economy, there are incentives for businesses and entrepreneurs to provide the transparency that consumers desire. Even the Biden administration’s fact sheet notes that Zillow, Apart​ments​.com, and Afford​able​Hous​ing​.com plan to provide consumers with total, upfront cost information on rental properties.

Although regulating junk fees is unlikely to reduce costs or meaningfully improve transparency, policymakers could improve housing prices more meaningfully by prioritizing other reforms. An influential study from 2003 found that zoning regulations pushed up the cost of apartments by around 50 percent in Manhattan, San Francisco, and San Jose. Notably, zoning frequently limits development to large homes on large lots, with more expensive materials and other features that are best absorbed by owners rather than renters. Zoning largely prohibits building apartments, duplexes, fourplexes, townhomes, and condos that comprise much of the rental market.

Other policies also increase the cost of rent by limiting housing supply or increasing costs, and federal lawmakers could remedy these issues. For instance, transferring just 0.1 percent of federal lands to states could result in almost 3 million new homes, eliminating or substantially reducing the housing “shortage” in fifteen Western states.

Meanwhile, reforming federal trade policy could reduce the cost of housing construction inputs, between 1.4 percent for kitchen cabinets to 22.4 percent for vinyl flooring.

Getting serious about these issues would make the most significant difference for renters. Unfortunately, in the broader scheme of things, so‐​called junk fees are more of a distraction than a solution to affordability problems."