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SALT LAKE CITY — Mark Jensen remembers what it was like to live in downtown Salt Lake City about two decades ago before its current housing boom began to alter the city.
Living on the 10th floor of the 12-story Broadway Tower, on 300 South, he believes it was one of only two options for anyone wanting to live downtown. That has since changed and there's no hint that downtown Salt Lake City will stop changing anytime soon.
"We've just seen this growth that's been incredible," said Jensen, executive vice president of investments for real estate company Colliers International. "People are moving here with a higher expectation and a lot of the stuff that's getting built is really to meet that expectation of a renter coming into the Utah market … and we're going to see just more incredible product."
Salt Lake County communities have issued permits to add about 46,100 apartments since 2000, to meet the growing demand for apartments as Utah's population continues to explode, according to a new report released Wednesday by the University of Utah's Kem C. Gardner Policy. There are another 18,167 units expected by 2024.
Many of the new projects have come to Utah's capital city. About 43% of new units added in the county since 2014 were in Salt Lake City, and it accounts for nearly two-thirds of projected units.
"It really is a historic boom … these last few years has really been really unique, very unusual and, in a lot of ways, difficult to analyze and gauge," said James Wood, an Ivory-Boyer senior fellow at the Gardner Policy Institute and the study's author. "We're in new territory."
Despite the sudden spike in unit growth, Wood says it's still not enough to really meet the county's housing demand; and that, in turn, is bad news for affordable rent.
Among the report's key findings:
- The county's rental vacancy rate dropped to about 2% for the first time. It's estimated there were only 3,000 vacancies among 148,500 rental units last year. The previous low was 2.6% in 2017, and it's remained below 4% since 2012.
- The average cost for a rental unit — a combination of studio, one-bedroom and multi-bedroom apartment units — has skyrocketed during the same span. The average rate nearly doubled from $720 per month in 2010 to $1,301 in 2021.
- The average cost of studio and one-bedroom units had the largest percentage increases since 2010, of 104% and 89%, respectively. There was also a 10.1% jump in average rental unit rates from 2020 to 2021, as the vacancy rate fell from 3.9% to 2%.
- One in five renters faced housing cost burdens in 2009, meaning that at least 30% of their income went toward rent. It jumped to 41% by 2018, per U.S. Department of Housing and Development data. Nearly 60,000 renters dealt with cost burdens in 2018.
"(The market is) just really exceptionally tight," Wood said, as he discussed the report alongside market experts during an online presentation Tuesday.
Housing experts aren't surprised by the findings. Dan Lofgren, president at properties company Cowboy Partners, says the report fairly articulates the current state of the rental market in Salt Lake County, as the unprecedented growth hasn't helped affordability.
2018 is the most recent cost burden dataset made available by the federal housing department. It's still unclear how many residents still face housing burdens with the average cost of rent jumping $229 per month in just three years.
"Although we're producing product in record numbers … the affordability of that product continues to erode," he said.
What's causing this 'tight' market?
Wood says he can't recall ever seeing the rental situation that Salt Lake County is in now, even with over 45,000 rental units added in the past 20 years. During a recent survey of 4,000 units in Salt Lake City alone, Wood found just 42 vacancies.
The vacancy rate shows how strong the demand is and why the market is the way it is. It's so tight that Wood found many new renters are applying for a unit, getting approved and then are told they will have to wait several weeks — even a couple of months — before a unit becomes available.
There are a few factors leading to the county's current rental market crunch. It starts with the single-family home market.
Most county residents still own their property; however, the percentage of renters in Salt Lake County is slowly rising as the cost of buying a home also increases. Renters accounted for 31% of the county's total housing units in 2000 and 34.3% in 2021, according to the new report.
Based on the current house ownership market, Wood says a family needs about $115,000 a year to afford the median price for a home in the county. That means rental units aren't just important, they're the only option for many people.
Second, the county housing market didn't respond fast enough to the sudden rise in population. The report found that about three-fourths of apartment units added since 2000 were built in the past 11 years, but the spike in new units really began in 2014 as developers tried to keep pace with the number of people moving in.
"We reacted pretty slowly to a dip in 2010 and 2011 — not on purpose. That's just sort of what happened in the market," Jensen said.
As for the rising cost of rent, the COVID-19 pandemic and other global issues have resulted in ongoing supply chain shortages and now inflation, which result in the growing cost of a new project. A developer may charge more to make up for suddenly more expensive projects.
Wages are generally going up, meaning that even as rent is increasing to record-high levels, there are still renters spending less than 20% of their monthly income on housing. With the demand the way it is, Jensen said property owners are still feeling comfortable raising their rates.
There's this mismatch between the product that's being delivered and where the demand is, based on affordability. So that affordability is what's getting sort of trampled.
–James Wood, an Ivory-Boyer senior fellow at the Gardner Policy Institute
There's also a demographic change among the people moving in, and experts say developers favor those willing to buy rental units first. The level of interest from national and global investors is "unprecedented," according to Jensen. That's a result of rising profitability.
"Just as an example, probably like 10 years ago, we had a record year, I think we did ($500 million) in multifamily (properties); in 2020, we did $1.7 billion (and) in 2021, we did just under $2.3 billion," he said. "Now people can come here, they can invest here but they also know there's liquidity to get it out — and that increases the interest of the buyer pool."
It's bringing in new businesses to Utah which also pull in new people from out of state who demand luxury housing, resulting in new buildings like the Liberty Sky high-rise in downtown Salt Lake City. The city and county markets are akin to "sister markets," like Denver, Las Vegas and Boise, Jensen adds.
All of these factors are driving up rent while not yet matching demand, essentially crushing the affordability of rental units.
"We're building at that high-end and there's this mismatch between the product that's being delivered and where the demand is, based on affordability," Wood said. "So that affordability is what's getting sort of trampled. It's what's eroding in that equation."
The 3-year outlook
The situation has forced people out of housing in the county. But the county's current affordable situation would be "very dire" without tax assistance programs going toward nearly 30,000 units, Wood said.
Of the 18,000 units currently expected over the next three years, only about 3,000 are set aside as affordable housing through assistance. It's still a record, but may also be difficult for families. Looking at households at 80% of the area's median income, Wood says a family of four would need at least $50,000 for housing. That may not even be enough for places like downtown Salt Lake City, where rental expenses are 30-40% higher compared to other parts of the county.
This is why municipal, county and state leaders are suddenly looking to improve affordable housing stock. Salt Lake County Mayor Jenny Wilson just last week proposed $27 million in federal recovery spending go toward affordable housing within the county, while the legislature also directed $70 million toward affordable housing-type projects.
The funds are helpful but Lofgren isn't sure any of the government proposals will make much of a difference.
"I don't see that there is ... a policy move that is going to make the difference in housing affordability," he said. "There are policy moves that will be incremental, that will be helpful in moving in that direction but it's my opinion that, at the end of the day, affordable housing is a matter of resources ... for whom the market doesn't provide any options."
If anything, overbuilding may turn the affordability tides. Wood believes the increase may jump by double digits again this year but the report projects that the vacancy rate will climb to 5.7% over the next three years because the supply may start to exceed the demand. That could slow down rent increases or reduce the cost of rent to make it more affordable.
Should that be the case, Wood says he believes it may benefit renters but perhaps not enough to make a major difference.
"It will still be a landlord's market but I think we're going to see a little bit, (smaller rent) increases," he said. "A little relief for the renter, I hope."
