The Kem C. Gardner Policy Institute at the University of Utah has released a report on the rapid appreciation of housing prices in Utah and the threat to affordability. The report expands upon an earlier research brief released in March.
Researchers found that Utah’s rapid employment and demographic growth has produced exceptionally strong demand for housing, which in turn has put upward pressure on housing prices. A housing shortage has ensued, with the supply of new homes and existing “for sale” homes falling short of demand. While the impact of higher housing prices is widespread, affecting buyers, sellers and renters in all income groups, those households below the median income and particularly low-income households are disproportionately hurt by higher housing prices, the report found. For these households, higher housing prices can lead to a severe housing cost burden — paying more than 50 percent of their income toward housing — a situation faced by one in eight households (120,000) in Utah.
“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.”
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. The term is often confused with affordable housing, which is a term often used to describe the availability of affordable housing units targeted for low, very-low and extremely low income groups.
Additional key findings and details from the research include the following:
• Housing price appreciation trends. Over the past 26 years — a generation demographically — the average annual increase in housing prices has been 5.7 percent. If that rate of increase continues for the next 26 years, the median price of a home in the Salt Lake and Provo-Orem metropolitan areas would be $1.3 million. Even when applying the real rate of increase (inflation-adjusted) over the past 26 years of 3.32 percent, the median price would be $736,600. And if this real rate of increase is cut in half to 1.7 percent, the median price would still be $483,000 in real dollars, equivalent to Seattle housing prices in 2017.
• 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 its income toward housing, while a household with income above the median has a one-in-130chance.
• 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.
Market and demographic conditions are primarily responsible for driving up housing prices;however, government policies at all levels can help to temper price increases and mitigate the impact of higher prices.
The Salt Lake Chamber contracted with the Kem C. 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.