Real estate agent Kip Paul gets the question all the time: “Are apartments being overbuilt?”
With all the big apartment buildings going up in downtown Salt Lake City and Sugar House, it seems like a logical concern.
But his company’s recent report on Salt Lake County’s 2017 apartment market found the lowest vacancy rate — 2.6 percent — encountered by Cushman & Wakefield in its 16 years of compiling statistics.
“We’re just keeping even with demand,” Paul said.
Governments around the Salt Lake Valley issued 4,500 permits for new apartment units in 2016, the most since 1984. As of July, nearly 6,600 units were under construction in 35 complexes, and another 6,400 were in various stages of approval.
Rents are increasing as an influx of new residents chase the few available units; among all types of apartments, rents are up 6.5 percent since July 2016, the report said.
This scenario is good for owners of apartments and the contractors who build them, Paul said. As for renters, “if you can afford that top-line project, and you want something new and contemporary and are willing to pay for it, there are a lot of fantastic choices in Salt Lake with amenities you can’t believe,” he said.
“But if you’re a moderate or low-income person, these rising rents are hurting you.”
‘Going with something much smaller than I’d hoped’
Chris Myers moved from Los Angeles to Salt Lake City in part because he thought it was going to be more affordable. His apartment search proved otherwise.
“Finding something reasonable in a mid-range/non-“luxury” place (say a decent-size, one-bedroom place for $700 to $1,000) was tremendously difficult,” said the 39-year-old performing arts consultant, one of the apartment hunters who responded to a Salt Lake Tribune online query last week. “I ended up going with something much smaller than I’d hoped in order to stay in my price range.”
Breanna Kilpack, a 23-year-old sous chef, said it’s impossible for her to afford an apartment of her own, so she’s had to share one with roommates. “Solo places are $800 minimum, which is 70 percent of my paycheck.”
The price pressure is greatest on people seeking a one-bedroom apartment, where the year-over-year price jumped 8.8 percent to $906 a month, the Cushman & Wakefield report said. Demand for two-bedroom units shot those expenses up 6 percent to 7 percent, too.
It’s clear that new multifamily projects are not being built fast enough to keep up with demand, the report said, despite a recent surge.
For years, builders were adding 1,000 units to 1,500 units a year in Salt Lake County. But 3,000 building permits were issued in both 2014 and 2015 before last year’s explosion to 4,500.
Why the boost in demand? The Cushman & Wakefield report points to net in-migration, which nearly doubled in 2017 over the previous year, and job growth, which is at its highest mark in 10 years.
“People are catching wind of what makes Salt Lake County such a unique place to live and work,” it said. “This demographic growth will put additional pressures on the housing market in terms of demand and prices.”
Over the upcoming year, it will be “critical” to invest in midsize projects, which have the lowest vacancy rates and highest rents on a square-foot basis, the report said.
The eastside squeeze
Software consultant Stuart Johnson, 25, spent two months looking for a moderately priced apartment northeast of 500 East and 700 South in Salt Lake City, finally finding a place “without some of the upscale trappings.”
He feels fortunate to be able to afford a more expensive apartment, he said, but is comfortable “in lower-midscale quality housing as I am working to save at a young age. I don’t know how capable I would be of building wealth if I had to live somewhere more expensive.”
Danielle Ravy and her husband looked “intently” for a three-bedroom apartment downtown but found that “more affordable places are either in rough neighborhoods or farther from the city.”
They ended up at a place in Layton that “works for my family, but I have a longer commute to work,” Ravy said. “There needs to be a lot more affordable housing. My husband and I both work and still struggle. I can’t imagine how hard the search and wait list is for those who have lower incomes than us.”
While westside apartment properties typically have lower vacancy rates than eastside complexes, the situation is different this year because so many new units have been built and rented quickly in downtown Salt Lake City and Sugar House.
That has left rental properties on the east side with a 2.3 percent vacancy rate, compared to 2.7 percent for the west side.
“Salt Lake County’s east side is essentially ‘fully occupied,’” the report said. With fewer available units to choose from, the average rent east of Interstate 15 has risen to $1,031, about $32 more than west of the freeway.
Despite the building boom, the report noted that three west side cities — Taylorsville, West Valley City and South Jordan — have no apartment complexes under construction.
Because of the high demand, only 22 percent of the apartment communities surveyed by Cushman & Wakefield were offering incentives to entice people to sign leases.
But more could be in the offing. With 13,000 apartment units projected to hit the market in the next four years, the report said, “the supply of new rental units could exceed demand by as much as 1,000 units by 2020 ... which could result in a vacancy rate near 6 percent by year-end 2018.”
SALT LAKE COUNTY APARTMENTS: WHICH ARE CHEAPEST?
The least expensive apartments tend to be in complexes with less than 100 units. Rents there average $909 a month.
The most expensive units are in complexes with 100 units to 250 units, which rented in July for an average of $1,024.
Apartments were a bit cheaper in large complex of 250 units or more — $1,008 per month.
Cushman & Wakefield based its findings on a survey of 82 apartment communities randomly selected from among 390 communities in the valley. These communities totaled 16,364 units, about half of which were two-bedroom apartments, while another 40 percent had one bedroom. These complexes ranged from 25 units to 588 units. The oldest was built in 1909; the newest in 2015.
This story was informed by sources in the Utah Public Insight Network. To become a news source for The Salt Lake Tribune, go to: bit.ly/PINTribune.