A report for the right-wing Centre for Policy Studies said forcing tenants to come up with enough cash for deposits – which average around £1,041 – meant many people struggled to move between properties.
It also found the average renter lost more than £300 per tenancy due to missed interest and inflation.
The report suggests introducing a new deposit replacement insurance system, which would allow renters to insure against potential damage or missed rent payments without having to find up-front deposits.
Under such a scheme, renters would retain more of their own money when moving into a property, earn interest accrued during the tenancy, and avoid borrowing from friends, family, or payday lenders.
They could also build up a reputation as a good tenant through a ratings system similar to no-claims bonuses for motor insurance, while landlords would still receive protection against property damage and missed rental payments.
A YouGov poll carried out on behalf of the think tank found 43% of renters would support the introduction of an insurance system.
Robert Colvile, director of the Centre for Policy Studies, said: “This government has a real opportunity to rectify the damage done by Labour to the rental market.
“By endorsing an insurance-based model as an alternative to a rental deposit, the government would rectify an unfair system which polling shows is unpopular with hard-pressed tenants.”