This story is part of The Salt Lake Tribune’s ongoing commitment to identify solutions to Utah’s biggest challenges through the work of the Innovation Lab.
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Will rent decrease? Why are developers building so many apartments? Will interest rates ever go down?
Readers had these questions and more about Utah’s housing markets, which are the least affordable they’ve ever been as demand and interest rates remain high.
Here are some answers from Dejan Eskic, a senior research fellow and scholar at the Kem C. Gardner Policy Institute specializing in housing.
The Salt Lake Tribune will work to address other questions from readers through long-term stories because of their potential impact. Housing supply and affordability also are expected to loom large in the upcoming legislative session.
Q: Are rents going to go down?
Eskic: Rents have come down for apartments. For example, in Salt Lake County, apartment asking rents are down about 1% since the beginning of the year due to an influx of new apartment supply.
However, at the same time, rents for single-family homes are up a little [more than] 5%.
Q: Did higher interest rates slow down home buying?
Eskic: Absolutely, sales are down approximately 15% from last year and [down] 27% from the historical average through October.
Note: As of November, sales are still down year-over-year, according to the National Association of Realtors.
Q: Why do interest rates rise so fast but usually take years to fall?
Eskic: Simply put, it’s always easier to break things than to fix them. COVID-19 shut down the global economy. The last time that happened was World War II.
As government spending increased, inflation followed. There is still pent-up demand in the economy and therefore interest rates are the tool to cool off that demand, which takes time.
Q: Why is so much development focused on apartments instead of condos, town homes, etc.?
Eskic: Several factors, but mostly cost and affordability. Over the last decade, single-family [homes] have gotten significantly more expensive to build, therefore leading to fewer people being able to afford them.
(Bethany Baker | The Salt Lake Tribune) Crews work at a construction site for new town homes that are expected to be available in 2024 along Redwood Road in Salt Lake City on Friday, Dec. 22, 2023.
Town homes become significantly cheaper than single-family homes when comparing prices in the same neighborhood. In part, they are smaller and have smaller lots.
Q: Are we likely to see more developers building smaller houses, town homes and condos in 2024?
Eskic: That seems to be the case. There is a lot of momentum from the state. But the market is cognizant of this as well. Today, 75% of Utahns cannot afford the median-priced home of approximately $500k.
If you are a homeowner, that is not an issue. However, if you are a renter (30% of Utah), the path to homeownership is hard.
Note: Only 15% of Utah’s renter households have enough income to purchase a modestly priced $300,000 to $400,000 home, according to an analysis that Eskic co-authored earlier this year.
Q: Did home prices level out more in other states than they did in Utah?
Eskic: On the contrary, most states saw their prices increase this year. According to the FHFA HPI, every state had positive price growth in [the third quarter] of this year except Hawaii. Utah’s index was barely positive at 0.4%
Q: How closely do the housing market and the state’s growing problem with homelessness correlate?
Eskic: Very [closely]. If we look at data across all 50 states, the cost of housing is directly correlated with homelessness rates.
Note: Eskic points to data available at usafacts.org/articles/which-states-have-the-highest-and-lowest-rates-of-homelessness/. The Salt Lake Tribune updated the graph with new housing price estimates for 2022.
Q: How does zoning impact housing availability?
Eskic: Zoning determines what can be built. Typically, the mechanism for housing is units per acre. In most places, if you allow more units to be built per acre, then the housing prices are cheaper than they would be for a home with a larger lot.
The larger the lot, the bigger the home and therefore more expensive. The more expensive the home, the fewer people can afford it. The same logic applies to the inverse for the number of units allowed per acre.
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