Eskic: Utah needs 150,000 homes to alleviate its housing 'gridlock'

The foundation of a new home in Salt Lake County's Daybreak community sits ready for
carpenters. A researcher from the Kem C. Gardner Policy Institute told a recent gathering that
Utah needs 150,000 new housing units in the next six years to just maintain its current shortage.

Brice Wallace
Business Journal

Attempting to “put some numbers behind it,” a housing analyst recently told a Salt Lake City crowd that Utah continues to face housing shortages and affordability issues.

Speaking to an audience of more than 350 people at ULI Utah’s Third Annual Housing Summit at Rice-Eccles Stadium, Dejan Eskic, senior research fellow at the Kem C. Gardner Policy Institute at the University of Utah, said Utah needs to build 150,000 housing units in the next six years in a market that “is in gridlock a little bit.”

“Between today and 2030, to keep the housing shortage where it is, we need to build about 153,000 units across the state,” he said. “If we don’t, that housing shortage will just progress further and further, and we’ll find ourselves going through the next decade of similar conversations and similar pains.”

Along the Wasatch Front, the asking monthly rent for a single-family home is $2,200, while the mortgage payment is $3,500. “So, there’s a $1,300 premium for homeownership,” he said. “That’s really challenging right now. And as a result of our growth and of our [past] decade of underproduction, even thought we had a fantastic 2021-22, our housing shortage sits at about 37,000 units.”

At one time, the U.S. had a perfect production balance, with one new housing unit build for one household formed. But that changed between 2000 and 2009, and now the shortage of housing is between 2.5 million and 5 million, he said.

“Now we’ve kind of turned a corner, we’re back to that average where we should be, but we’re still carrying the shortage from the previous decade,” Eskic said.

Utah, he said, is a bit more resilient than the nation, able to “take a punch” better during downturns. But among the demographic changes occurring in the state is an influx of in-migration. When internal growth drives housing demands, the need for housing is slower, “but when people move here, you need housing yesterday,” he said.

Other factors boosting home prices are increases in lot and home sizes and local regulations that restrict new supply. “The smaller the home, the cheaper it is. … Of course, the bigger the lot, the bigger the home. You’re not going to put a small home on a big lot, and thus you get even higher housing prices,” Eskic said.

As for renters, they are “stuck renting.” Nearly 93 percent cannot afford a median-priced home in Utah. It was 67 percent as recently as January 2021.

And that is despite apartment construction in Salt Lake and Utah counties the past couple of years delivering a record number of units. That’s caused an increase in vacancies and a dip in rents, leaving landlords to offer concessions and rent discounts. For example, Class C apartments in those metro areas have seen rents fall 6 percent during the past year because of vacancies.

“And it’s starting to pick back slightly up a little bit, but I think we’re in a flatter rental market for the next couple of years. But what I worry about is, come 2026 and 2027, when all of this new stuff gets absorbed, we’re going to start getting significant rent hikes again across the country. So, we have this little period of calm before we get into it again in a couple of years,” he said.

Adding to housing affordability issues are rising costs of transportation to get to and from that housing, he said. “Even if we’re gaining momentum in housing, we cannot forget all the other things that are associated with housing,” Eskic said. “People don’t just live in their home; they spend most of their time outside their homes. We’ve got to think about this holistically.”

As tough as housing is to find and afford now, the future will feature Salt Lake City downtown growth and the 2034 Winter Olympic Games. “We have a whole new opportunity and challenge coming the next few years,” he said.

In housing, “nothing is black and white, other than the house either exists or it doesn’t,” he said. “And it’s such an interesting time and environment. Never in the industry’s history have we had a housing recession during a housing shortage, when interest rates are tinkering around 7 [percent], sometimes seven and a half, and we still have a mild softening.

“We didn’t experience the doomsday crash that a lot of naysayers were expecting, for better or worse, depending on how you look at it. But there are a lot of challenges ahead of us.”