New research: Utah facing several threats to housing affordability
Anyone paying attention to Utah real estate news knows that housing prices continue to escalate. And that may not be a good thing, according to a research brief release by the Kem C. Gardner Policy Institute at the University of Utah’s David Eccles School of Business. The report found that the rapid escalation presents a threat to housing affordability.
Researchers found that market conditions confirm a housing shortage in Utah, that the state experienced the fourth-highest housing price appreciation since 1991 (outpacing every state but Colorado, Oregon and Montana) and that Utah incomes fail to keep pace. Utah households with income below the median for all households experience the greatest affordability challenge. The research identifies strong housing demand; increasing land, labor and permitting/development costs; and Wasatch Front topography as major reasons for Utah’s rapidly rising cost of housing.
“Housing prices in Utah will continue to increase at rates well above the national average due to relatively high rates of population and economic growth,” said Jim Wood, Ivory-Boyer Senior Fellow at the Gardner Policy Institute. “But, the threat to affordability from rising prices may be secondary to increasing interest rates, which could significantly reduce housing affordability and homeownership opportunities for a large share of Utah households.”
The Salt Lake Chamber contracted with the Gardner Policy Institute to conduct the research. Senior business leaders in the state wanted a better understanding of Utah’s housing market and the challenges to affordability in the Beehive State, the chamber said in a statement. Housing affordability is defined as a housing unit in which owners or tenants pay no more than 30 percent of their household income toward housing costs.
Additional key findings and details from the new research include the following:
• Household income and affordability. For households below the median income, high housing prices often jeopardize economic well-being and prevent homeownership while for most households above the median income, homeownership is still achievable, due primarily to several years of historically low interest rates. However, an increase in mortgage rates to 6 percent could jeopardize homeownership opportunities for many households with incomes above the median and seriously reduce housing affordability in Utah.
• Incomes not keeping pace. Housing affordability in Utah, over the long-term, is threatened due to the gap between the annual real rate of increase in housing prices of 3.32 percent and the annual real rate of increase in household income of 0.36 percent. In Utah housing prices increase much faster than incomes. Consequently, many households face high levels of housing cost burdens.
• Greatest challenge is households with income below the median. The current affordable housing crisis in Utah is concentrated in households with income below the median. A household with income below the median has a one in five chance of a severe housing cost burden, paying at least 50 percent of their income toward housing, while a household with income above the median has a one in 130 chance.
• Economic competitiveness. Housing prices in Utah have not yet been a constraint to economic growth but there is cause for some concern. The median sales price of a home in Utah’s two large metropolitan areas is already 20 percent higher than home prices in Boise, Las Vegas and Phoenix — three cities Utah
competes with for new business expansions.
• Policies of local government can help. Many of the causes of housing price increases are beyond the control of policy makers. Labor shortages, Wasatch Front topography, and material and labor costs are three of the most important causes unrelated to public policies. But one potential source of cost control is the policies and ordinances of local government. Those cities that adopt measures encouraging and supporting housing affordability will improve the overall prosperity, air quality, housing and transportation cost not only for their cities, but for the region and the state.