Peter Reichard: Rising housing costs and rising concerns in Utah

Our housing market is tight because fewer Utahns are moving away.

(Leah Hogsten | The Salt Lake Tribune) The neighborhood north of Liberty Park, October 20, 2020. Aproposal aimed at tucking more homes into some Salt Lake City neighborhoods is under intense debate as the pandemic makes affordable housing even more scarce than before. The idea is to allow tiny homes and row homes to sprout in backyards in neighborhoods north of Liberty Park.

Concerns about housing affordability in Utah have become acute, to say the least. In Utah Foundation surveys dating back to 2008, housing affordability had never been a top-10 issue. That changed in 2020.

In an initial Utah Priorities survey before the economic shutdown, we found that housing affordability had surged to become the second most important issue. In a new survey several months later, it remained in the top 10, even after the pandemic crisis began to dominate the public’s focus. Younger Utahns – those most likely to be looking to climb the first rungs of the housing ladder – are particularly worried about housing costs.

To be sure, home values in some areas of Utah have been rising rapidly. Over the course of 2020, Utah’s home values increased by more than 15.4%, which was the third-highest increase among U.S. states. Much of Utah’s increase seem to have been driven by high-priced second homes in Summit and Wasatch counties. If you look at the housing prices in the Mountain State Region’s major metropolitan areas, increases are still present, but the Salt Lake area is more in line with comparable locations. Still, the monthly supply of housing stock (how long the inventory of houses will take to be sold based on current sale trends) is at historic lows.

The rental picture in Utah is a bit less remarkable, though the disquiet regarding rentals may be more intense. Previous Utah Foundation research indicated that housing affordability was of much greater concern among renters than homeowners. While the increasing cost of owning a home is potentially offset by record low interest rates, there is no such offset for renters.

From a national perspective, rents in key Utah markets are high. In 2021 the Salt Lake metro area had a fair market rent of nearly $1,700 for a three-bedroom residence. This is among the most expensive areas calculated in the U.S. – more expensive than 94% of the other areas measured. However, the Salt Lake area’s fair market rent over the past five years falls among the middle of the pack compared to other regional metropolitan areas.

What’s to blame for high housing prices? In some Mountain States, particularly Idaho, housing cost escalations are being blamed on the population exodus from California. Many Utahns are also using anecdotal information to advance that narrative here. But it may not be the biggest factor.

When looking at Utah’s larger metropolitan areas, the recent rate of people moving in is actually down. Rather, the recent increase in demand is due in part to fewer residents than normal leaving – particularly in the Salt Lake area – thus pushing up housing costs and rent.

Looking ahead, the Utah Foundation is currently researching the “missing middle” of the housing market: housing options and related land uses that allow some Utahns to downsize while allowing others begin climbing the housing ladder. Our study on the topic, to be released this summer, will include a particular focus on first-time homeownership options.

In the meantime – barring something utterly unforeseen – the Utah economy will continue to surge forward, meaning there will be little letup on the housing market in the next year or two. If forced to guess, I would say the pressure will just intensify. Economic meltdowns in other states will continue to drive capital (and workforce) to Utah. Meanwhile, high labor and material costs will continue to put upward pressure on construction costs.

That said, the “utterly unforeseen” has become a major feature of life so far in the 2020s. But let’s hope it doesn’t define this decade.

Peter Reichard is president of the Utah Foundation, a nonpartisan, independent public policy research organization. Reach him at peter@utahfoundation.org and find more information on housing affordability at utahfoundation.org.