Record numbers of new apartments are being built in Salt Lake City, but those new housing units have yet to slow rent increases.
Analysts from the University of Utah’s Kem. C. Gardner Policy Institute on Tuesday told city officials that regional population growth, the state’s hot economy and other key trends in housing markets seem to have temporarily suspended traditional rules of supply and demand.
One city leader called the combined effects “frightening” as officials continue to try to address a shortage of affordable housing. Salt Lake City Councilwoman Amy Fowler said the studies made clear that officials needed to expand their policy strategies on housing.
“We’re not going to build our way out of this,” Fowler said.
Utah’s capital city had slightly more than 12,000 apartments in 2000, a number that grew to nearly 20,554 units by last year, according to research presented to the City Council. And builders have been on something of an apartment-construction tear since 2013, with 91% of the city’s total residential building permits issued for apartments between 2013 and 2017.
“It’s been an absolute explosion,” said DJ Benway, economist research analyst at Gardner Institute. “I don’t want to call it a boom, because that implies a bust.”
With costs for land, labor and building materials only continuing to rise, Benway said, many developers are choosing to move up the timing of their projects to avoid additional expenses.
Some developers, Benway and other analysts said, are also scheduling new construction now in hopes of taking advantage of so-called opportunity zones in the city, newly created under the recent federal tax overhaul to encourage investors to build in disadvantaged areas.
“We are seeing a good rush,” Benway said.
Standard economics might predict that such increases in residential supplies would eventually lead to more empty apartments and slowing rent hikes, he said, “but we’ve not yet found that point.”
Vacancy rates, in fact, remain near all-time lows, within city limits and all across the Wasatch Front’s most populous counties. Average apartments rents for Salt Lake County have gone from $647 per month in 2000 to nearly $1,153 in 2018, for a jump of 78%.
In the same time period, rents rose 83% in Utah County, and by 64% and 59% in Davis and Weber counties, respectively.
“You’re not seeing any rents going down anywhere,” said Dejan Eskic, senior research analyst at the Gardner Institute. “The market is severely overpriced, but it’s also severely undersupplied.”
Cities in southern Salt Lake County have also seen apartments going up at a record pace, analysts said. And while downtown Salt Lake City remains attractive to would-be renters wanting to live close to nightlife and employment, those new apartments in communities such as South Jordan, Sandy, West Jordan and Draper are commanding some of the region’s highest rents.
Those south-valley rent prices— often with a premium charged for new construction, more spacious living quarters and other high-end amenities — are pushing up rents elsewhere, analysts said.
Since 2010, rent hikes have outpaced household income gains in all four Wasatch Front counties, in some cases, dramatically. In Weber County, where rents have been generally lower than adjoining counties, apartment rent increases were nearly four times the pace of household income gains for the typical renter.
That, in turn, has put thousands in the “cost-burdened” category, meaning, they spend 30% or more of their incomes on rent.
And if that continues, the analysts said, greater numbers of households in the region will be forced to seek alternative living arrangements, including living with relatives, doubling up with roommates or leaving the area. Those pressures, they said, are especially acute for lower-income households.
Council Chairman Charlie Luke said the housing market information would be “very helpful” in informing where city incentives meant to encourage affordable housing might be more effective.
The city has spent an estimated $38 million since 2016 to encourage affordable housing, including discounts on land for developers, low-interest lending and other subsidies. That has helped build more than 2,000 housing rentals affordable to those making below the region’s average wages.
By the city’s own estimates, it lacks about 7,500 affordable housing units.
The researchers also urged that more public funds be devoted to rehabilitating existing, older housing stock in the city.