By Nigel Swaby
Affordable housing is a term that gets thrown around a lot these days, especially with record-high home prices and rising rents in the Salt Lake valley. Everyone has a different idea of what affordable housing is. Some people think it’s simply what one can afford as a monthly housing expense. Others think of low-income housing for the most economically at risk in our communities like single mothers and “Section 8” government paid housing.
Looking at the Department of Housing and Urban Development’s definition, affordable housing is 30 percent of one’s gross monthly income. Based on Salt Lake County’s median income of $64,601, anyone paying more than $1,615 per month would be considered cost-burdened. Zooming in to the zip codes of 84104 and 84116, those incomes are $43,476 and $47,002 respectively. Of course, family size will play into housing cost and other monthly expenses.
HUD doesn’t differentiate between rental or ownership housing. In Salt Lake County, the median housing price hit $315,000 in June. Just the principal and interest payment with three percent down is $1,642 a month. The property taxes and insurance guarantee a family making the median income and buying the median priced house is cost burdened. The math on two-bedroom rentals is similarly discouraging.
There are many types of people who need affordable housing. Young people, college students, people just starting their careers and retired people are all feeling the weight of high housing costs. On top of this, residents are facing high fuel costs, higher costs for automobiles, high healthcare costs and monthly child care costs that nearly amount to a house payment on their own. And, after many years of interest rates being at record lows, both mortgage rates and short-term rates for autos and credit cards are on the rise.
Salt Lake City leaders are aware of the problem. A 2016 report from the city’s Division of Housing and Neighborhood Development noted a shortage of 7,500 affordable units. This deficit has worsened in the last two years. Statewide shortages number about 40,000 units according to State Rep. Joel Briscoe, who’s introduced legislation to help address it.
There are many reasons for this developing housing crisis. The first is an ever-increasing demand for housing. Utah has a booming economy, consistently rated in the top five nationally. Businesses are moving in and bringing their employees. Unemployment is virtually non-existent — hovering several tenths of a point lower than the national rate, which is also very low.
Until recently, low interest rates are a lagging holdover from the financial crisis of 10 years ago making homeownership cheaper than renting in many cases. Both of these factors have pushed up home values to outpace incomes four times for owners and two times for renters.
Another factor is the low supply of available homes. Growth has expanded to virtually the edge of every border in the valley and we’re looking at increasing density to supply necessary housing. This is a massive culture shock for people used to wide-open spaces and a large quantity of single family homes on fairly large lots. In Salt Lake City, where higher density projects are slightly more tolerable, all the multi-story developments are rentals. Most don’t qualify as being affordable.
Two issues are driving the construction of market rate rentals. The first is rising construction costs coupled with a shortage of labor. Builders want to be able to keep what they build after future construction opportunities become scarcer. The second issue is the rise of class action lawsuits against condominium projects after the housing crash. This has severely dampened the construction of new condo projects nationally and decreased financing opportunities for builders.
With the challenges in the marketplace, many homeowners are opting to stay put rather than face searching for a new home in less than ideal circumstances. The shortage of move-up buyers has left the entry level home market with few options which has also fueled demand. Rising mortgage rates will further place these homes out of reach for those on the cusp of qualifying.
While Salt Lake City does have home ownership programs for lower income buyers, the bulk of the city’s efforts have been focused on new construction that are mostly rentals. These affordable projects also tend to be clustered on the west side of Salt Lake City, furthering a negative reputation these neighborhoods have carried for many years. The transit zoning of the North Temple corridor allows for greater density and greater height allowances than the city has ever seen. A proposed affordable project at the former Overniter Motel on North Temple with rents based off of 60 percent of the area median income (AMI) was altered in part because two other similar projects were being constructed and residents felt these affordable projects were being clustered in one location. Higher density projects in Holladay and Herriman have faced strong resistance from area homeowners.
Another attempt to address housing last year was to allow more accessory dwelling units (mother-in-law apartments) on existing properties. This also faced resistance from owners on the east side of the city and the City Council briefly considered different rules for different parts of town. Ultimately conditional use allowances for accessory dwelling units were adopted and we’ll have to wait and see if they add to the housing stock.
As a city, we are going to have to accept we’ve run out of space to build traditional single family homes with yards. We’ve undergone a significant economic shift creating a misallocation of real estate like retail stores that don’t get used in the way they once were. Many cities, nationwide, are looking at increasing the development of mixed-use buildings combining housing with retail/entertainment or work/live communities. In Salt Lake, we need a culture change to embrace opportunities for thoughtful high-density building, including taller buildings.
We also need to find a way to increase ownership opportunities for lower-income earners. Condominium development is an important part of the real estate ecosystem and current higher density zoning favors multi-story condominiums over townhouses, yet none are being built.