Deposit to hold property

I recently saw a property and decided to rent it. It was the middle of the month and as we didn't need to be out of our current place I asked the landlord if he would hold the property until the first of the month. He said he would, but we would need to place a deposit down to hold the place and that it would not be refunded if we changed our minds. The end of the month came and after several attempts to contact him we were told that he wasn't going to rent the property to us and that he wasn't going to return the deposit as it was non-refundable. I understand that if we chose not to take the place we would forfeit the deposit, but we still wanted it and have a witness that heard us ask when we could meet to sign the lease and pay the first months rent and also heard him say that he had decided not to rent to us. It seems to me that if he was allowed by law to do this then he would never actually have to rent a house, just take people's deposits and then refuse to rent the property to them. What a way to make money. Is this something I could pursue in court, i.e. is it illegal or just unethical?

He cannot do this. He may take a non-refundable holding fee to secure your performance in signing the lease and taking occupancy. He may not just keep this fee if he chooses not to rent the property at all. You may sue him in small claims court to get your fee returned. Send him a certified letter telling him you intend to sue for the return of all monies paid him if he does not refund within 10 days.