The Salt Lake Valley sees a wave of new homebuilding, but prices are still rising

(Rick Egan | The Salt Lake Tribune) Twin home in Millcreek, Monday, Sept. 24, 2018.

Riverton • Homebuilding has surged along the Wasatch Front, but those waves of new construction are doing little to make housing more affordable.

Several reports indicate substantial increases in new home and apartment construction across Utah’s urban core and up into Summit and Wasatch counties over the first half of 2018, with thousands of new dwellings slated to come online for sale and rent.

But basic construction costs also continue to rise — on everything from land to labor to lumber and steel — pushing up prices even as supplies expand.

“There is tons of new construction,” Salt Lake City real estate broker Myra Petersen said one busy morning last week as she showed newly built homes for sale in Riverton and Millcreek.

“And people want new,” she quipped, “but they don’t necessarily have an $800,000 budget to do it.”

A spokesman for Utah’s largest homebuilder, Ivory Homes, said escalating prices have led it to develop new home designs and development strategies over the past year to remain more affordable. The company now considers homes below $400,000 to be “moderately” priced for Salt Lake, Summit and Wasatch counties. And that same moderate price point is now at about $350,000 for homes in Davis, Weber, Tooele, Utah and Washington counties, said Ivory Homes’ senior economist, Michael Parker.

Average prices for a newly built home in Salt Lake County are now estimated to be just shy of $400,000. And even that listing price for a new home is considered a bargain in many pockets of the county.

“I’ve never seen any new construction for that price,” Petersen, with Windermere Real Estate, said. “I’d be all over it.”

Rent or buy

An August report documented the relatively rapid expansion in apartment building in Utah’s capital city since the end of the Great Recession. Nearly 91 percent of all Salt Lake City building permits issued since 2014 have been for apartments, or about 5,898 dwellings — a sharp increase from the pace of apartment construction before the economic downturn.

In 2000, rental units made up 49 percent of all occupied housing in Salt Lake City, said the report, published by the University of Utah’s Gardner Policy Institute. By 2016, about 53 percent of city housing was apartments.

And, given the shrinking supplies of undeveloped land and projections that Utah’s population could grow to 5 million by 2050, the report concluded that apartment development “was likely to remain the dominant residential construction type in the city.”

As the population rises, those additional apartments are being snapped up. Vacancy rates in Salt Lake City remain at or near historic lows, recently estimated by the California-based commercial real estate company Marcus & Millichap at between 3.9 percent and 4.1 percent.

The company’s analysts predict that Utah’s rapid job growth will continue “to propel demand in an already strong apartment market” — likely pushing rents for the average one-bedroom above $1,100. Those rents in Salt Lake City are now hovering around $1,040 a month, up 15.6 percent over last year, according to an October 2018 report from Zumper, an online clearinghouse for U.S. rental rates.

Housing advocates estimate that half of Salt Lake City’s renters already spend more than 30 percent of their incomes on housing, leaving them “cost burdened.”

Building spurt

New starts on single-family homes for sale leapt 25 percent in April, May and June across the seven-county area centered on Salt Lake County compared with the same months a year ago. The quarterly survey by real estate research company Metrostudy found a total of 3,725 new homes either under construction or poised to break ground.

Metrostudy’s numbers also reveal a 43 percent jump year over year in construction of attached homes for sale, including condominiums, duplexes, town homes and row houses.

According to Eric Allen, Metrostudy’s regional director, the “extremely rapid” growth in construction of less-expensive attached housing partly reflected a trend of buyers seeking a cheaper place to live. The median unit price for attached housing in the region was $263,300 as of June, compared with $377,700 for a detached single-family home.

And new evidence suggests some of those early-spring trends in new housing construction have stretched into the summer.

Trulia, a San Francisco-based residential real estate website, released a study Thursday saying inventories of homes for sale in the Salt Lake City metro area increased by 45 percent over July, August and September compared with the same period in 2017.

That jump placed Salt Lake City with cities such as San Jose, Calif., and Seattle, other less-affordable markets that are seeing sizable increases in their housing stocks, Trulia said.

“Homebuyers may be pleasantly surprised to see more homes on the market as housing inventory starts to make a comeback after years of decline,” said Cheryl Young, senior economist for Trulia. But she said the increase in housing stocks was reason to be “cautiously optimistic” at best.

“While this is ultimately good news for frustrated buyers,” Young said, “years of steadily increasing prices mean that those hoping to buy a home will need to spend a bigger share of their income once they find one.”

Starter homes, she noted, continued to make up about a fifth of available housing inventories across the country over the summer months, while premium homes account for more than half.

Moving on up

It’s not hard to find the many reasons home prices are climbing in Utah.

Matt Sneyd, a developer and real estate broker, walked last week through the wooden shell of a new home going up in the historic Old Town section of Park City.

Wedged between two existing homes on a tiny lot, the five-bedroom, 4,900-square-foot house has been under construction for a year and will probably take another year to finish, Sneyd said. At this point, the final listing price will likely top $3.2 million. Sneyd said he intends to pitch it to rental investors and well-heeled tourists looking for a second home in Park City.

“They want new,” he said, “and they have the money to demand it.”

These days, Sneyd said, it’s a challenge to get construction workers to show up reliably. Residential builders are competing for labor with several immense commercial construction projects, he said, including the $3.6 billion overhaul of Salt Lake City International Airport, new buildings for Amazon and Overstock and a host of industrial projects.

When workers do show up, Sneyd said, they’ll quickly leave if necessary building materials aren’t already delivered on-site, often not returning for weeks. As he guided visitors through piles of lumber and other supplies, Sneyd noted that costs of some building materials had more than doubled since work on the house started.

“This is probably the most stressful project we have right now,” he said.

Big picture, Sneyd said he foresees a period of stagnation in housing markets as supplies of new and existing homes move increasingly out of reach for average buyers. Between a lack of affordable homes, rising prices and the prospect of interest rates going up, he said, “it doesn’t leave any room for opportunity for people to make moves.”

As Utah’s population continues to grow, driven both by those migrating here and current residents having children, “we have to create housing, which is why I think affordable housing in single-family homes is even more important than apartments,” Sneyd said.

In Millcreek, Petersen recently showed a newly built duplex in a cluster of town homes near 700 East. With four bedrooms and about 3,000 square feet, the dwelling will probably list for $450,000, she said.

Across the Salt Lake Valley, she said, dwindling supplies of undeveloped land are also having a profound effect on home prices.

“You go to Ninth and Ninth [in Salt Lake City] and you buy a 0.09-acre lot for $250,000 right now,” she said. “I mean, they have a structure on them, right? But people are wiping the lot and doing these expensive pieces of construction.”

Another stand-alone home she’s showing on a quiet cul-de-sac in Riverton has 4,767 square feet, high ceilings and white quartz countertops. It’s taken 14 months to build, and while priced at $635,000 during construction, it sold for $830,000.