The latest snapshot of Salt Lake County’s apartment market might look attractive to developers and real estate investors, yet for average renters, it might be more dire than ever.
Even with a record-shattering 12,367 new rental units under construction across the county and another 9,665 in the pipeline, vacant and available apartments remain at an all-time low — 2% or below — and that has rents climbing by 10% or more a year.
That all speaks volumes about demand for rental living in Utah’s most populous county that even with a historic surge in supply, conditions for renters are not expected to ease now until maybe 2024 or beyond.
Last year saw “the tightest rental market in our history,” said James Wood, senior economist at the University of Utah’s Kem C. Gardner Policy Institute, which released a new study Wednesday on the apartment boom. Yet even as builders scramble, this year’s dramatic jump in additional dwellings is unlikely to slow escalating rents.
Of nearly 150,000 rentals currently in Salt Lake County, roughly 3,000 are currently vacant. That is the lowest in 20 years, the Gardner study finds, and includes everything from studios to three-bedroom units, yielding average rents today of $1,301 a month.
One in 3 Utahns rent, and exploding prices on houses for sale give them little choice, Wood noted. With sky-high construction costs, rising interest rates and other economic trends, “we’re worried about affordability.”
And with the county’s median home sales price now edging up to $585,000 in Salt Lake County, Wood said, renters may be even more boxed in. “I do worry about the long-term future.”
Affordability ‘getting trampled’
Developer Dan Lofgren, with Cowboy Partners, said the long-held axiom of spending no more than 30% of income on housing costs “is way in the rearview mirror.” Even lifestyle renters choosing to lease when they could buy, he said, are spending larger shares of what they make on housing.
While a traditional supply and demand analysis suggests new apartment construction eventually would slow rising rents, Lofgren said, “just the opposite is happening.”
“It’s a challenging market to get your head around,” the veteran apartment developer said. “There’s all this new production; yet the affordability continues to erode.”
Several key trends seem to be driving the mismatch.
Spiraling costs for building materials such as lumber, steel and concrete make it difficult right now to build apartments at lower price ranges per unit. That is combined with a trend toward luxury apartment construction, especially in downtown Salt Lake City, where rents are 30% to 40% higher than in the suburbs.
“We’re building at the high end,” Lofgren said, “so that affordability is what’s getting trampled.”
Cowboy Partners recently opened the 21-story Liberty Sky, Salt Lake City’s first luxury residential high-rise, with 272 units ranging from studios to two-bedroom apartments.
Its well-appointed dwellings and amenities — and those in several other luxury towers rising downtown — are attracting lots of out-of-staters lured here by new jobs, said Mark Jensen, executive vice president with the real estate firm Colliers International.
“That’s what they expect,” Jensen said, “and the rents they encounter in Salt Lake feel affordable.”
With virtually guaranteed occupancy for years to come, a majority of those new multistory apartment complexes sprouting across the Wasatch Front are also hot commodities for investors, Jensen said. Immense volumes of capital continue to pour into multifamily real estate from out of state and overseas, as the state’s quality of life and job growth keep its economy humming.
A decade ago, the investment broker said, $500 million in investment sales of apartment complexes in Salt Lake County was considered a breathtaking one-year record.
“In 2021,” he said, “we did just under $2.3 billion.”
That, in turn, is having a pronounced effect on existing and less-expensive rental housing, sometimes referred to by policy experts as “naturally occurring” affordable housing. Between 2014 and early 2017, Jensen said, investors bought more than 40,200 rental units, renovated and then leased them with an average monthly rent spike of $264 a month.
It also is pushing the current mix of apartment construction toward the top end, with rents generally out of reach for those making average Utah wages.
“We’re going to see a lot more high-end housing,” said Jensen.
Rising rents have forced thousands of residents toward less-pricey housing in suburban communities, often with longer work commutes. For thousands more, it has pushed them closer to a financial precipice.
In Salt Lake County, according to federal data, about 20% of renters spent more than 30% of their incomes on housing in 2009. In 2018, that number ballooned to 41%, or nearly 60,000 renters,
Against these mammoth economic forces, government policies meant to encourage more affordable housing construction don’t seem to be making a huge difference. Out of an estimated 300,000 rental units statewide, according to Wood, roughly 50,000 offer some kind of rent subsidies, thanks to tax credits.
Of those units now under construction or on the drawing board, roughly 3,500 will be subsidized, a comparatively high number in recent years.
Wood noted that while they affect most renters, Utah’s housing challenges fall heaviest on those making lower incomes. He said he was encouraged that the Legislature recently approved its first significant round of housing dollars aimed at helping those making 30% or less of average median incomes.
“These people,” Wood said, “are facing a housing crisis every day.”