New-home construction in Utah takes nose dive

The housing slowdown hit Utah hard in 2007, as the number of building permits issued for new residential units dropped by 22 percent — the largest decline in more than 20 years.

The University of Utah's Bureau of Economic and Business Research reported Wednesday that the total number of dwelling permits issued last year was 20,535, compared with 26,322 in 2006. Construction of new single-family units fell even more significantly — 32 percent — to 13,500 in 2007, a decline from 19,900 units in 2006.

Bureau director Jim Woods said the biggest single-year drop occurred in 1980, when housing starts declined 38 percent from the previous year.

The 2007 decrease "reflects some excess in the market that is created by speculators and investors," Wood said. "Demand was reduced suddenly by the credit crunch this summer, and builders were left with too many unsold units."

The result was that builders were forced to pull back heavily on new construction projects, he said.

Lehi, which led the state in new single-family construction in 2006 with 1,519 single-family units built, saw new home construction fall by 60 percent to just 641 units in 2007, according to the report.

In stark contrast to the single-family market, new construction in the condominium and apartment markets climbed. The bureau reported that permits for new condominium units increased 13 percent to 3,801 in 2007, compared with 3,353 units in 2006.

In the apartment sector, new construction rose 23 percent to 1,757 units last year, up from 1,427 units in 2006. However, the bureau noted that even with the dramatic increase, apartment construction remains at low levels statewide, despite high demand for rental units, low vacancy rates and rising rental rates.

"What you have in that market is there's actually conversions going on with apartments being taken from the rental market and being converted into condos," Wood said. "That's wiping out the increase from new apartments."

Rental inventory essentially remains unchanged, but the demand continues to grow, particularly because fewer people are now able to qualify to purchase homes or have lost their homes during the housing crisis, he said.

In Salt Lake County, Wood said, the market would need to add about 2,000 to 2,500 new rental units annually for a few years to meet current demand, if the population continues to grow at current rates.

The report said the value of nonresidential construction in 2007 was the second highest ever, with permit-authorized nonresidential construction totaling $2.05 billion. Adjusted for inflation, 1997 saw the highest construction values, at $2.2 billion.

The biggest ticket projects last year were the $80 million IHC Riverton Hospital and the $79 million Hamilton Partners office tower located in downtown Salt Lake City.

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