Build Out: Population growth will reshape Utah’s housing landscape

Utah’s residential real estate market has had a similar story over the past few years: dwindling inventory leading to increasing prices, along with continued growth in the multi-family sector. But Utah is projected to double its population by 2065. That unprecedented growth is expected to have an even larger impact on housing in communities—and those trends of the future are already starting to show up today.

A challenging environment

Jed Stewart, vice president of land acquisition at EDGE Homes, says one of the biggest challenges builders are facing right now is the ability to deliver homes on demand. That’s directly related to the lingering labor shortage from the Great Recession, when many construction workers left the field and pursued careers in other trades.

And while the lack of inventory and labor is not a new concern, it’s a lingering one, Stewart says. However, he believes it will get better over the next couple of years. “Those of us who are in the industry still feel the pain of 2008,” he says. “People are nervous to add staff and build companies back up and grow again because they’re worried it’ll all fall down again. With more years of solid growth, that fear will go away—that’s my hope anyway.”

Ari Bruening, chief operating officer at Envision Utah, says while the labor shortage is a current challenge, the even bigger challenge Utahns will face in the near future is a lack of land supply.

“We can’t just keep growing outward because we hit mountains and lakes and federal land,” he says. “Increasing prices are just going to get worse. Are we going to create the opportunity for more housing within the existing valleys along the Wasatch Front or are we going to eventually require our growth to happen in the next valley over? I think what we’re seeing right now is the tip of the iceberg. The lack of land is going to be an issue for a long time, and I think that raises the question: Are we going to find ways to accommodate limited land or not? Will people pay a lot for housing close to their job or pay less and live farther away?”

Because land is becoming less and less available, builders are choosing smaller and smaller lots to keep homes affordable, adds Stewart. “Land rates are around $300,000 an acre now and can go to a price point over $400,000. Unless we do multi-family, it eliminates so many buyers,” he says. “Our business model is building about 1,200 units a year. Three years ago we were exclusively single-family [home] builders, but as the market shifted and land got more expensive, we had to migrate to multi-family and build condos and townhomes to stay at a price point that people can afford. The days of the quarter acre lots that everyone wants are coming to an end, unless you have a significant budget to afford a home on a bigger lot.”

Dan Lofgren, president and CEO of Cowboy Partners, says the land use factor will in some part be driven by cost and in some part be driven by lifestyle choices as people opt to become more frequent users of public transit.

“We sometimes think of Salt Lake as a wonderfully unique place, and in many aspects that’s true, but on the other hand, if you look at the life cycle of other medium-on-their-way-to- large cities, they’re becoming more vertical in housing configurations, and that’s sort of predictable as a metro area grows. There’s nothing that suggests that won’t happen in Utah as well.”

“We can’t just keep growing outward because we hit mountains and lakes and federal land. Increasing prices are just going to get worse. Are we going to create the opportunity for more housing within the existing valleys along the Wasatch Front or are we going to eventually require our growth to happen in the next valley over?” – Ari Bruening, Envision Utah

Bruening agrees that millennials are showing changing preferences in the housing product they prefer, which is sometimes related to affordability, but not in every case.

“That’s not to say every millennial wants to live in an apartment, but more of them want a more urban style of living and not having to take care of a yard like previous generations,” he says. “If you look at some of the higher-end apartments being built in downtown Salt Lake City, those people aren’t choosing to live in an apartment by necessity, it’s by choice.”

Overall, why does a land shortage matter? Bruening says it matters because things like air quality will suffer by forcing people to drive longer distances to work, and workers could feel excluded because they won’t be able to afford to live in the communities they work in.

“One reason we’ve done well economically compared to places like California is because we’ve been affordable for setting up business,” he adds. “We don’t want to lose that competitive advantage. On the other hand, it’s a good challenge to have, because we’re a growing place where people want to be and our economy is doing well. We just have to recognize the constraints of land supply.”

Unprecedented growth

James Wood, Ivory Boyer senior fellow at the Kem C. Gardner Policy Institute at the University of Utah, says housing is primarily driven by household formations, which his organization has been able to project out to 2065.

“The growth is what you would expect,” he says. “The four Wasatch Front counties and Washington County will account for a large share of the growth, somewhere around 80 percent over the next 40 years. Utah County, in terms of absolute numbers, will be the highest growth county, where household numbers will increase by about 370,000. Technically you’d need 370,000 additional housing units for those households. Right now, Utah County has 175,000 households. Their work is cut out for them with that growth rate at 3.5 percent. You need about 6,000 units a year added.”

The growth will largely take place in Utah County because there is still land available in Cedar Valley, in areas like Eagle Mountain, while the other Wasatch Front counties—Salt Lake, Davis and Weber, are all constrained by mountains and the Great Salt Lake. Wood also expects Tooele County to become a hotspot for growth, especially after major projects, such as the Salt Lake International Airport expansion and the Amazon fulfillment center, are completed.

“What you have in that area is about 100,000 jobs and a place like Tooele County which is relatively inexpensive,” he says. “It will see long-term rates of development and growth. Even Box Elder County will see some growth.”

Housing prices are increasing faster in Utah than at the national level, Wood adds. Though those prices are not skyrocketing like they are in cities like Denver or Austin, they are climbing rapidly.

“Housing prices in Utah’s metro areas will continue to increase faster than the nation, and it will push more people toward higher density, affordable housing,” Wood says. “Right now, looking at numbers for the first nine months of [2017] on residential construction, single family is up 15 percent, but condos are up 60 percent and apartments are up 36 percent. We’re seeing a real boom in condos. That’s a reflection of affordability. People want to get into ownership, but they can’t afford single family, particularly if they’re a young household. That gives us a trend of pushing home ownership out farther geographically, which then creates sprawl.”

The leading indicator of housing demand is job growth, says Lofgren. “We expect to continue to see demand for housing as long as there’s job growth,” he says. “The multi-family sector is a beneficiary of the millennial lag, meaning millennials are not buying homes as early in life as their parents or grandparents did. They tend to stay in multifamily a little longer, but I don’t think that’s a dichotic shift. Many are still looking to buy single family homes at some point.”

“The four Wasatch Front counties and Washington County will account for a large share of the growth, somewhere around 80 percent over the next 40 years. Utah County, in terms of absolute numbers, will be the highest growth county, where household numbers will increase by about 370,000. … Right now, Utah County has 175,000 households. Their work is cut out for them with that growth rate at 3.5 percent. You need about 6,000 units a year added.” – James Wood, Kem C. Gardner Policy Institute

Decades down the road

Ten years from now, Stewart expects the real estate market to be even more robust than it is now. “You’ll have more national builders that have already either entered the Utah market or have plans to enter the Utah market,” he says. “It’ll be more competitive. When we look back at permits from 2006, the Wasatch Front peaked at like 17,000. This year we’re on pace to pull about 11,000. Even though it feels busy right now, we’re still 50 percent under where we were. I think we could support 17,000 permits with buyer demand, but it’s just those limits on resources.”

Stewart does expect to see a slight dip in housing at some point, because real estate is cyclical, but overall, he says Utah is a place where people want to be, and in comparison to the rest of the Western United States, it’s still relatively affordable.

“All the different products types will be in the same neighborhood,” he says. “Those stigmas of living across from someone in a townhome are gone. We’ve done projects that have townhomes, condos and single-family all together on just a couple hundred lots.” – Jed Stewart, EDGE Homes

Bruening says there will be a conditioned shift away from single-family housing to more townhomes and condos, and single-family homes will be on smaller and smaller lots. Another interesting situation Bruening expects to play into residential real estate is the retail market, which is also changing because of the popularity of online shopping.

“We have a lot of retail areas that are probably not going to be viable long term, and those may be good places to accommodate housing close in,” he says. “Some retail may stay and then those areas will become a vibrant, mixed-use area where people can walk to restaurants and shops from their homes.”

Stewart agrees that the future of Utah real estate is mixed-use development. “All the different products types will be in the same neighborhood,” he says. “Those stigmas of living across from someone in a townhome are gone. We’ve done projects that have townhomes, condos and single-family all together on just a couple hundred lots.”

While multi-family housing is one of the pockets of demand, Lofgren says there will still be very robust pockets of demand spread across the spectrum of housing choices. Bruening agrees and says there will always be growth on the edge that’s going to be more single-family homes, but that edge will be in the next valley over—whether that’s in Tooele County, Utah County or Box Elder County.

“There will always be people looking for affordability who are willing to make that trade off in exchange for a longer commute,” he says. “But gradually we’ll see less of that and more desire for apartments and townhomes and small lots.”

Wood says home ownership, though the way it looks may ultimately change, won’t ever disappear in Utah.

“Utahns love their homes,” he says. “We are the only state in the country where the home ownership rate hasn’t dropped below 60 percent. Currently, 69 percent of occupied housing are homeowners.”

While that number may drift down over time, according to Wood, and the days of building a home on a quarter- to half-acre lot will be a faded memory, Utahns will still want to take part in home ownership, as long as housing remains affordable.

“What we need to be worried about is what it costs for that young family with two children trying to move up into their next home,” Lofgren says. “We need to be careful not to erode affordability across the hierarchy of housing. We’re all too familiar with the San Francisco story—where people can’t both live and work there. Our land mass isn’t constrained the way it is there, but on some level we have those natural constraints, and we do have to worry about that broader affordability factor.”

Single-family home prices increased by 8.1 percent in 2016 Apartment rentals are increasing at a rate of 5 to 8 percent annually Average lot size in Salt Lake County in 2007 was 9,926 square feet; in 2016 it was 7,953 square feet
Developable Land Available by County

Salt Lake County: Approximately 40,000 acres (15,000 additional Kennecott acres)

Davis County: Approximately 20,000 acres

Weber County: Approximately 40,000 acres

Utah County: Approximately 240,000 acres

(Source: Envision Utah)

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