April 27, 2018 (Salt Lake City) – The Kem C. Gardner Policy Institute today released a landmark report on the rapid appreciation of housing prices in Utah and the threat to affordability. This report greatly expands upon an earlier research brief released last month.
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 are 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. 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 households) 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 an owner or tenant pays 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 new 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 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.
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, Utah’s largest business association, contracted with the Kem C. Gardner Policy Institute to conduct this 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.