Record number of new apartments put online. Will rents start to come down?
The latest snapshot of the Salt Lake County apartment market might look attractive to real estate developers and investors, but for average renters, it could be more dire than ever.
Even with a record 12,367 new rental units under construction in the county and another 9,665 in the pipeline, vacant and available apartments remain at an all-time high — 2% or less — and rents are climbing 10% or more a year.
All of this speaks volumes about the demand for rental housing in Utah’s most populous county, even with a historic increase in supply, conditions for renters are not expected to ease until perhaps 2024 or at least. -of the.
Last year saw “the tightest rental market in our history,” said James Wood, a senior economist at the University of Utah’s Kem C. Gardner Policy Institute, which released new research Wednesday on the apartment boom. Yet even as builders jostle, the dramatic increase in the number of additional units this year is unlikely to slow the rise in rents.
Of the nearly 150,000 rentals currently in Salt Lake County, approximately 3,000 are currently vacant. That’s the lowest in 20 years, according to Gardner’s study, and includes everything from bachelors to three-bedroom units, which now fetch average rents of $1,301 a month.
One in three Utahans rents, and soaring prices for homes for sale leave them with little choice, Wood noted. With skyrocketing construction costs, rising interest rates and other economic trends, “we are worried about affordability.”
And with the county’s median home sale price now reaching $585,000 in Salt Lake County, Wood said, renters could be even more stuck. “I worry about the long-term future.”
Affordability “gets trampled”
Developer Dan Lofgren, with Cowboy Partners, said the long-standing axiom of spending no more than 30% of income on housing costs “is well in the rearview mirror”. Even lifestyle renters who choose to rent when they could buy, he said, are spending a greater share of what they earn on housing.
While a traditional supply and demand analysis suggests that building new apartments would eventually slow rising rents, Lofgren said, “the exact opposite is happening.”
“It’s a tough market to understand,” said the veteran apartment developer. “There’s all this new production; yet affordability continues to erode.
Several key trends appear to be driving the mismatch.
Soaring costs of building materials such as wood, steel and concrete currently make it difficult to build apartments at lower unit prices. This adds to a trend of building luxury apartments, especially in downtown Salt Lake City, where rents are 30-40% higher than in the suburbs.
“We build at the high end,” Lofgren said, “so affordability is what gets trampled on.”
Cowboy Partners recently opened the 21-story Liberty Sky, Salt Lake City’s first luxury residential skyscraper, with 272 units ranging from studios to two-bedroom apartments.
Its well-appointed homes and amenities — and those of several other luxury towers rising downtown — attract many foreigners drawn here for new jobs, said Mark Jensen, executive vice president of real estate firm Colliers International. .
“It’s what they expect,” Jensen said, “and the rents they’re encountering in Salt Lake seem affordable.”
With occupancy virtually guaranteed for years to come, the majority of these new multi-story apartment complexes sprouting up on the Wasatch waterfront are also staples for investors, Jensen said. Immense volumes of capital continue to flow into multifamily real estate from out of state and overseas, as the state’s quality of life and job growth keep its economy going. booming.
A decade ago, the investment broker said, $500 million in investment sales in apartment complexes in Salt Lake County was considered a stunning one-year record.
“In 2021,” he said, “we made just under $2.3 billion.”
This, in turn, has a pronounced effect on existing, cheaper rental housing, which policy experts sometimes refer to as “natural” affordable housing. Between 2014 and early 2017, Jensen said, investors bought more than 40,200 rental units, renovated them and then rented them out with an average monthly rent of $264 per month.
It also pushes the current apartment building mix to the upscale, with rents generally out of reach for those earning the average Utah salary.
“We’re going to see a lot more high-end housing,” Jensen said.
Rising rents have forced thousands of residents to seek cheaper housing in the suburbs, often with longer commutes. For thousands more, it brought them one step closer to a financial precipice.
The burdens increase
In Salt Lake County, according to federal data, about 20% of renters spent more than 30% of their income on housing in 2009. In 2018, that number rose to 41%, or nearly 60,000 renters,
Against these gigantic economic forces, government policies aimed at encouraging the construction of more affordable housing do not seem to make a huge difference. Of about 300,000 rental units statewide, according to Wood, about 50,000 offer some kind of rent subsidies, through tax credits.
Of those units currently under construction or on the drawing board, about 3,500 will be subsidized, a relatively high number in recent years.
Wood noted that while affecting most renters, Utah’s housing issues are greatest for those with lower incomes. He said he was encouraged that the Legislative Assembly recently approved its first major round of housing funding aimed at helping those earning 30% or less of the average median income.
“These people,” Wood said, “face a housing crisis every day.”