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New apartments keep going up — but so do rents.
Venturing out as some pandemic worries ease, residents along the Wasatch Front can’t help but notice new residential projects going up seemingly everywhere as a 10-year building boom hits new heights.
If you think the regional pace of apartment construction is a little bonkers right now, just know there are more on the way. Probably lots more. Studies show nearly as many new multifamily dwellings could be poised for construction in the four-county region centered on Salt Lake City now as have been built over the past four years.
Maps reveal a widespread rush of apartment building in Salt Lake, Utah, Weber and Davis counties, one that is likely to press ahead for years as the state’s population swells. But even after banner rates of apartment growth and a record 30,000 or more new rentals upcoming, experts say pent-up demand still is far greater — and all this new supply won’t do much to alleviate a housing shortage and rising rents.
As they have for almost nine years, vacancy rates on all these apartments continue to scrape historic lows of around 5% or lower. In some places, the share of vacant units is hovering at 2.5% — and landlords report they are having few problems leasing apartments when they open up.
“We’re just building at an equilibrium or maybe even less,” Paul Smith, executive director of the Utah Apartment Association, said of current boom. “We’re not catching up.”
A national report issued Wednesday indicates the U.S. lacks nearly 5.5 million housing units, including 3.5 million rentals. In Utah, the shortfall is estimated at around 50,000 single-family homes, apartments and other kinds of housing. The Wasatch Front’s rapid and historic shift since the Great Recession away from single-family homes to building more multifamily complexes has barely dented that gap.
Data shows that most of these new apartments coming on line in Utah will have market-rate rents — meaning, as much as the market will bear — compared to relatively few affordable units within the budgets of the state’s average wage earners.
“Some attention has to be paid to real affordability for working-class people who already live here,” complained Jacob Rosenzweig, an advocate for low-income renters in Utah, “and that’s not happening right now.”
At the same time, nearly 1 in 5 Utahns is severely cost-burdened. These residents spend at least half their income on housing and often struggle to pay for food, transportation and other bills, according to federal data for 2013 to 2017. More than 63% of Utah’s lowest-income residents fall into this category.
A boom by any definition
Depending on where you live along the Wasatch Front, monthly rents range from about $767 in Provo to $1,518 or above in downtown Salt Lake City, according to a recent survey. Most of those prices have risen between 4.5% and 6% yearly since 2010, even as apartment construction has surged.
Based on the numbers alone, the decades-long apartment bonanza across Utah’s population centers has been stunning — and it shows several signs of accelerating, particularly with interest rates at their lowest in more than a generation.
Salt Lake County saw nearly 1,081 multifamily dwellings completed in all of 2010, compared to 8,022 in 2019, with nearly 6,135 of those new apartments in the heart of Salt Lake City. The county had another 8,706 units under construction as of 2020, and 10,907 more likely to start near term, according to data from the commercial real estate firm CBRE.
Almost 50 apartment complexes fill the county’s construction pipeline, data shows, with projects ranging in size from eight units to 449. Adjacent counties show a similarly dramatic pattern, putting them all on course to match or exceed the past four years of apartment construction in 2021 and 2022 alone.
Utah County has more than 7,090 new apartments either going up or in pending stages. In Davis and Weber counties, there are at least 3,583 and 3,051 new units, respectively, in the works.
Maps reveal that a significant portion of this higher-density construction is happening along mass transit corridors, letting tenants reduce their driving with potential benefits for Utah’s air pollution issues. Many cities, including American Fork, Farmington, Salt Lake City and South Salt Lake, have encouraged that with special zoning concessions for properties along transit lines.
“Rail has meant a kind of renaissance for apartment construction in Salt Lake County,” said Dejan Eskic, a housing economist and senior research fellow at the University of Utah’s Kem C. Gardner Policy Institute.
Other analysts noted that nearly $463 million in new spending approved by Utah Transit Authority to expand and improve its network will likely further boost apartment and town home construction along TRAX and FrontRunner corridors.
‘Diamond in the rough’
Utah’s pre-pandemic economic performance has also been a huge factor in the apartment trend, boosting in-migration and creating high-paying jobs that have driven demand for new high-end rentals.
That, in turn, has lured wealthy investors seeking to widen their portfolios to pour money into multifamily projects in Utah at unprecedented rates. The sector has been considered a relatively safe haven for financial backers of commercial real estate development, while investments in retail and office properties have grown more risky with impacts of the coronavirus.
The fact that the Beehive State appears to have navigated COVID-19 with its jobs base relatively unscathed is making it even more attractive to large pension funds, investment trusts and other institutional money backing development.
Kip Paul, vice chairman of investment sales at real estate brokerage Cushman & Wakefield, said he is getting two to three calls daily from investors worldwide — each wielding tens of millions of dollars per deal — “and they want to build apartments.”
“They all kind of have this idea that they’ve discovered Salt Lake City as a diamond in the rough,” he said. “I try to tell them, ‘Yes, you and a thousand other people.’
“And it just keeps going,” Paul added. “Salt Lake City it isn’t going to stay little any longer.”
Large numbers of new luxury apartments going up for rent in Utah’s capital — including Liberty Sky, one of the city’s first high-end residential skyscrapers offering rental units and top-flight amenities — have pushed the city to a new market high on rents: charging $3 per square foot. That’s a common benchmark for investors, according to Paul, as they vet the prospect of build apartment towers.
“There are not $3-per-square-foot rents in our valley right now,” Paul said, “but there are soon going to be.”
While rents as high as $1,500 to $2,000 a month on some of the new higher-end apartments may feel out of reach to many Utahns, Salt Lake City remains more affordable by regional standards, according to Patrick Bodnar, first vice president at CBRE. Turns out, the ability of apartment owners and managers to raise rents steadily and not lose tenants is an immense draw.
“The runway allows for greater rent growth,” Bodnar said. “And there’s no question that Salt Lake is going to mimic what [high-growth] cities like Denver are experiencing and that those rates will keep climbing.”