The Bard said it best, something is rotten in the state of Utah. Our current housing market has seen better days, and it is the topic on every tongue. Talk of the crisis has become a way to break the ice. We’ve all been subject to a housing-related rant or enrapt by rental ruminations. Has it ever been this bad before? How can anyone afford a home or rent nowadays? And what’s causing it to be this way? The consensus seems to be that this housing crisis is the result of too much of a good thing. It is the pound of flesh owed in exchange for the state’s booming economy.
UT ZIP Codes With the Most Expensive Homes
1. 84060 (Park City)
Typical home value:
2. 84098 (Park City)
Typical home value:
3. 84004 (Alpine)
Typical home value:
4. 84108 (SLC)
Typical home value:
5. 84124 (Holladay)
Typical home value:
The latest U.S. Census data confirms it. Utah is the fastest-growing state in the country. Population growth, job growth and economic growth have Utah bursting at the seams of the fabric of our society, exposing our soft, fleshy weaknesses. Authorities and advocates alike have been trying to call attention to one such weakness for decades: housing affordability.
“We’re in a deep affordability crisis. It’s not the first time, but it’s the deepest one we’ve been in, and it’s the most widespread,” says Steve Erickson, a housing advocate for the Crossroads Urban Center. “A lot of people have been left behind, even in a burgeoning economy.”
All of that dramatic growth is applying upward pressure on housing prices. From 2015 through 2020, Utah was the fourth highest in the nation for housing price increases.
To demonstrate just how unhealthy the current housing market is, Jim Wood, Director of Research and Science at the Kem C. Gardner Policy Institute at the University of Utah, provided an example at a Greater Avenues Neighborhood Council meeting this past spring. In the last five years, housing prices have gone up about 10% on average every year in the Avenues neighborhood, all of Salt Lake County and the entire State. “That’s a really unhealthy market,” says Wood. “If you did that for 7 or 8 years, you’ve doubled the price of a home. You can’t do that. It’s just not sustainable.”
Not sustainable and a seemingly impossible barrier for anyone trying to enter the housing market. The only way to get into the market is to rent, buy an old home or buy a new home, “and all three of those show stress,” says Wood.
Apart from COVID, it’s what everyone is talking about, so we asked our readers to share their stories. The situations we received largely fell under three separate scenarios.
In 2015, the median sale price of a home in Salt Lake County was $269,000. In 2020, it was $405,000.
Source: Housing Affordability: What Are Best Practices and Why Are They Important?, Kem C. Gardner Policy Institute, University of Utah
Scenario One: Left Behind
“My family moved into my parents’ basement at the beginning of the pandemic. We’re back to work now, but our income doesn’t stretch as far as it used to. We want to rent but can’t find a place that meets our needs within our budget, after fees, utilities and everything else. We’ve even been priced out of an apartment in our old building.”
“All indications are we do have a housing shortage,” says Wood. “Before, at least people could get in the rental market. Now that’s pricing people out, too.”
That shortage is hitting low-income residents the hardest. While overall housing affordability is not improving at all, Utah also has a huge shortage of available affordable housing (housing set aside for low-income households through government assistance). According to the National Low Income Housing Commission, there are not enough affordable units available for the 22% of Utah renters (66,855 households) who are extremely low-income households. That means those whose incomes are at or below the poverty guideline—30% of their area’s median income (AMI)—or, for example, a family of four making only $25,800 annually.
“Many do have some sort of housing assistance, but it’s not sufficient to meet demand. They are on the edge of homelessness,” says Wood. As many as 40,000 households, about one-eighth of all Utah renters, are extremely low income and severely housing cost-burdened.
Housing advocates, experts and policymakers alike have long employed the 30-percent rule to determine not only housing affordability but as a guide for how much we should be spending on housing. In general, we should not spend more than about 30% of our income (before taxes) on housing costs. That should include rent or mortgage as well as necessary utilities and associated fees. Households that pay more than 30% of their income on housing are considered “cost-burdened.” Those who pay 50% or more are considered “severely cost-burdened.”
“If you’re in that position, you think of the pain every day,” says Wood. “You think of how you’re going to make ends meet when your housing is eating up so much of your income. There’s a lot of pain out there.”
It’s more than just a supply problem. It’s a wage problem and an investment problem, according to advocates. “The supply issue is real, but even if we had sufficient supply, we would not be housing our folks making 30% of the AMI,” says Erickson. “They’re never going to own a home or build wealth with that income. So, you either have to raise incomes or subsidize more housing.”
Utah wages have not kept pace with the increasing housing costs, but that’s been going on for a while. In Salt Lake City, between 2011 and 2014, rental rates increased two times faster than the wage increase for renters. Additionally, home sale prices increased four times faster than the wages of homeowners.
Low income or not, on average, most renters are spending too much on rent along the Wasatch Front. An analysis of rental rates by the Policy Institute reported, by 2017, the average rent had risen above 30% of the renter median household income in Salt Lake, Utah and Weber Counties.
UT ZIP Codes With the Fastest Rising Rents
1. 84041 (Layton)
1 year rent change: +10.3%
2. 84404 (Ogden)
1 year rent change: +8.8%
3. 84015 (Clearfield)
1 year rent change: +8.5%
4. 84043 (Lehi)
1 year rent change: +5.6%
5. 84005 (Eagle Mountain)
1 year rent change: +3.8%
Scenario Two: The Rents Are Too Damn High
“My family has been renting for a long time, living below our means. Now we’re ready to buy our first home. To keep it in our budget, we’re looking at older homes, but we keep getting out-bid by people offering way above the asking price. In the meantime, our landlord keeps raising our rent, and we’re afraid that will start eating into our savings meant for our future home.”
For anyone trying to buy a home in this economy, expect a bidding war. “People try to buy a home and it’s an auction every weekend,” says Wood. Days on market are the lowest they’ve ever been in the Wasatch Front. In the first quarter of 2020, the median number of days for a home on the market was 20. In the first quarter for 2021, it was just five days. “That’s another indicator of severe shortage,” says Wood. “It’s really competitive out there.”
Utah is also seeing more cash home sales and more above-list sales than ever before. Low interest rates are partially to thank (or blame, depending on which side of it you’re on) for that. The Federal Reserve responded to the COVID-19 pandemic by reducing interest rates, stimulating the demand for homes. “We’ve seen a rush of renters trying to become homeowners,” says Wood. “All of that feeds into rising prices.”
With interest rates low, there’s an incentive to take the money that would be saved on interest and offer an additional 5 to 10% above list price when buying a home. If the buyer can afford the gambit, it doesn’t add much to their long-term mortgage payments. (Although, the monthly mortgage payment on a median-priced home in Salt Lake County has gone up from $1,490 in 2015 to $2,110 in 2020.)
“The Fed is providing a lot of liquidity to the system,” explains Wood. That extra money in the economy is also driving up the demand for housing. Before the Great Recession, the Fed’s balance sheet was about $800 billion. After quantitative easing and COVID, the Fed’s balance sheet is now approaching $6 trillion. “They’ve pumped a lot of money in,” says Wood. “So this year will run really hot. The economy is going to be gangbusters. It’s going to be blazing.”
By the end of the year, Wood suspects that more new housing inventory opening up could provide some easing on rents, but he says, “I don’t see any relief this year for people getting into the housing market.”
From 2015 to 2020, the median monthly mortgage payment has gone from $1,490 to $2,110.
Scenario Three: We Got Lucky
“We bought a house in a friendlier market. We could never afford to buy our house now. We’d like to sell it and upgrade to a new home, but the market is too crazy right now and we could end up with no place to go after we sell. So, we’re staying put until the market becomes less competitive and considering renovations instead. It could be worse. We were lucky we bought our house when we did.”
People who bought their homes in the 1990s, 2000s or 2010s consider themselves fortunate to have become homeowners when they did. Now, many of them don’t want to move or simply can’t move. In fact, fewer people are moving out of places like Salt Lake City than ever before, which is another stress factor contributing to this housing mess.
While some are quick to blame the mass exodus of Californians to Utah for the growing housing shortage (and all of the subsequent ails of the housing market), in reality, it’s not just that more people are moving in; fewer people are moving out. The Utah Foundation actually looked into whether we were seeing more demand as a result of an influx of Californians, and that does not appear to be the whole answer. The increase in housing demand appears affected more by fewer residents than normal leaving the Salt Lake area.
But still, Utah is an attractive and affordable market for “Californians,” which has become a catch-all term for locals. It’s our boogeyman. The word applies to anyone coming out of other, more expensive markets to take advantage of Utah’s comparably cheaper home prices. “So, while we still see people getting priced out of the market here, people are coming in to replace them,” says Wood. This means it could be some time before the housing affordability crisis starts to threaten the booming economy that helped create it. The Salt Lake City metropolitan area is ranked 21st out of 180 cities for the highest housing prices, higher than 89% of the metro areas in the U.S. And if Utah prices keep climbing, it could start pricing out even people moving in from other, more expensive markets. Yes, Utah homes could get too rich even for the dreaded “Californians.”
“It would take time before we would see it start to hurt us,” says Wood. “But, at some point, it could start to impact growth.”
As with most widespread crises, some will and are profiting from it. And it’s not just one-percenters. People who already own homes are accumulating wealth that renters and those priced out of the housing market cannot hope to access. From 2015 to 2020, the median sales price of a Salt Lake County home increased from $269,000 to $405,000. Housing wealth accounts for about half of the net worth of moderate-income households. Harvard’s Joint Center for Housing Studies found that, nationally, moderate-income households with a head of household between 50 to 64 years old have a median home equity of $75,000. That’s national. In Utah, housing prices have increased at more than double the national rate in the last 30 years. So, the same moderate-income homeowner in Utah could have as much as $150,000 in home equity. Lucky, indeed.
There are some things existing homeowners can invest in that could help alleviate the current affordability crisis, albeit incrementally. This year, the Utah State Legislature passed a bill designed to relax zoning restrictions on internal Accessory Dwelling Units (ADUs), such as basement apartments. With more ADUs, lawmakers hope to increase housing supply, and building an ADU can give homeowners an additional revenue stream by renting them out.
Ask A Lot, Get a Little
While in most cases housing advocates did not get as much as they wanted from the state legislature, Wood sees some glimmers of the hope ahead in the recent progress made by local lawmakers:
In 2019, lawmakers passed S.B. 34, which encourages local city officials to plan and zone for affordable housing.
In 2020, they passed S.B. 39, allocating $10 million to fund housing for low and moderate-income residents.
In 2021, we saw H.B. 82 (the ADU bill) and S.B. 164, which set aside $35 million for affordable housing projects this year.
State and local governments have not given themselves direct control over the market forces contributing to the current lack of housing affordability. Land to build on is limited and expensive. Material and labor costs are up because of supply chain issues and labor shortages.
“The trajectory is in the wrong direction right now for affordability,” says Erickson. “And the only way you’re going to change that course is a real big downturn in the real estate market on the macro level. But, what we’d prefer to do is build more units at prices that are affordable.”
Wood hedges away from comparing the current crisis to the housing bubble burst that brought on the Great Recession. “Are we in a bubble?” Wood asks. “I don’t know. But, we don’t have the situation we had in 2008 and 2009 when credit markets were way out of whack and then froze. We are in a very different time. A very unique period. I’m not sure how it’s going to play out. But I think, right now, we have an unhealthy market.”
“In the meantime, let’s take advantage of the crisis by passing the right policies,” says Erickson. “Every time we miss the opportunity, we’ll run into it next time because we’re already behind the curve and the next boom will be worse.”
One hopeful sign: there is much more interest in housing affordability now among the general public. A Salt Lake Chamber survey found housing was one of the issues that Utah households are most concerned about, along with education, air quality and transportation. Wood hopes that awareness, along with more education on the issue, will make people less resistant to the possible solutions.
Solutions to Utah’s housing crisis have largely come down to two words: increase supply. That includes incentivising the repurposing and renovating of existing property and investing in building more at higher density. And therein lies the rub, as it were. Established residents often don’t want to see their neighborhoods change to incorporate much-needed high-density housing. Even in seemingly more progressive areas of the state, it’s a struggle.
Wood detailed an Ivory Homes plan to develop an empty lot in the Greater Avenues Neighborhood that met heavy opposition from residents. The three-acre lot on F Street at 13th Avenue would have become 25 new single-family homes, 20 of them with ADUs already built-in. A neighborhood coalition resisted the plan, afraid of the increased traffic and diminishing values of existing homes in the area.
While concerns over the possible strain on infrastructure are valid, Wood raises recent evidence that suggests falling home values is a misconception about bringing high-density housing to a neighborhood. The Gardner Policy Institute found that new high-density housing had no adverse effects on the value of nearby single-family homes in Salt Lake County. But, changing people’s minds takes time, and anecdotal examples like the snarl of development in the heart of Sugar House remain cautionary tales for the average Utahn.
When it comes to solving the housing crisis, “In a lot of ways it’s like climate change,” says Wood. “It takes dedicated, committed focus, high intensity and the political will. You have to get everyone on board and coordinate to make a difference.”