logo
WORDS OF WISDOM Real Estate News and Tips

CURRENT REAL ESTATE MARKET

CONSTRUCTION REPORT, YEAR-END 2016

 IVORY-BOYER CONSTRUCTION REPORT
      RESIDENTIAL CONSTRUCTION

In 2016, the value of residential construction increased to $4 billion, 7 percent higher than 2015, while the number of dwelling units receiving building permits was up 11 percent to 19,532 units (see Figure 2). Residential construction includes single-family homes and multifamily units, which includes condominiums, town homes and apartments. In 2016, single-family construction increased to 10,579 units, the highest level since 2007 (see Figure 2). Even so, the number of new single-family units continues to be well below construction activity prior to 2008. During the 15-year stretch from 1993 to 2007, the number of single-family homes receiving building permits averaged 15,300 units, well above the single-family level in 2016.

Eighty-three percent of all residential construction in the state in 2016 was located in four counties: Salt Lake County with 8,305 new dwelling units accounted for 43 percent of all new residential units statewide, Utah County (3,988 units) ranked second with a 20 percent share, followed by Washington County (2,165 units) with an 11 percent share and Davis County (1,721 units) with an 8.8 percent share. Washington County’s residential construction was up 30 percent in 2016 to the highest level in 11 years.

The demand for housing appears to be outpacing supply. All housing markets; rental market, existing “for sale” home market, and new home market, show signs of stress related to a housing shortage. Rental vacancy rates are low, existing homes are typically sold with a few days of listing and home builders are “flat out” trying to keep up with demand. The home builder is hampered by three supply bottlenecks that are holding back new construction: labor shortage, high land costs and local regulations and zoning ordinances. For the first time in over 40 years, the increase in households in Utah is greater than the number of new housing units built. The projection for household growth in 2017 is above 25,000, but it is unlikely that Utah’s home building industry can produce more than 21,000 new homes given the supply bottlenecks facing builders.

In recent years, the affordability of owner occupied housing has become more of an issue pushing a larger share of households into the rental market. Consequently, Utah has been in an apartment development boom over the past few years. In 2014, apartment construction suddenly took off with an increase of 265 percent over the previous year as apartment unit permits hit a 30-year high of 6,700 units. Activity slowed in 2015 to 5,026 units, but increased again in 2016 as permits were issued for 5,735 apartment units (see Figure 3).

Over the past three years, nearly 17,500 new apartment units have received building permits statewide, an extraordinarily high level of apartment construction. The growing preference (or in many cases, necessity) for rental housing is one of the structural changes underway in the housing market. Vacancy rates in most rental markets throughout the state are below 5 percent, rental rates are increasing at 4 to 5 percent annually, and the absorption rate of new units is brisk. The apartment boom is concentrated in Salt Lake and Utah Counties, which together account for nearly 85 percent of the new apartment construction over the past three years. In 2016 Salt Lake County had 4,465 permits issued for apartment units, the highest number of rental units for either Salt Lake or Utah County during the apartment boom.

Prepared by the Kem C. Gardner Policy Institute in partnership with the Ivory-Boyer Real Estate Center.
Copyright March 2017.