One-thousand dollars or $1,500 split three ways is manageable, but for a one-wage family, it's tough to afford a new apartment. Overall housing demand is driving cost up — land costs, labor cost and material costs — making it difficult (for developers) to build moderately priced units. —Jim Wood
SALT LAKE CITY — Looking for a nice apartment that won't break the bank? Salt Lake City is the place.
A recent report showed that the Salt Lake Valley is one of the most affordable rental markets in the region.
The report released by commercial real estate firm Cushman & Wakefield Commerce showed the Salt Lake metro area had the third-lowest average monthly rents in the west region at $868. Only Phoenix at $811 and Las Vegas at $769 were lower, and each continues to battle serious economic challenges following the effects of the Great Recession.
Comparatively, Bay Area metros San Francisco and San Jose each registered average monthly rental rates in excess of $2,200 — at $2,701 and $2,281, respectively. The regional average rental rate was $1,511 per month, the report stated.
Salt Lake County offers some of the lowest rental rates in the West, said Scott Lovell, research director for Cushman & Wakefield Commerce.
“Affordability is definitely something that Salt Lake can claim,” he added. “We (compare favorably) to the other markets that surround us.”
Using one metric, the report showed Salt Lake City to be the most affordable metro area in the region. The metric took the average household income in the market and divided it by the average rental rate, with a higher number indicating the more affordable market. Salt Lake City was the only market measured in the region to register above six, while San Francisco and Los Angeles each were less than three and came in as the least affordable markets in the region.
Among the most significant changes in the apartment market has been how the renter profile has changed, Lovell explained. He noted that historically if someone could afford and qualify to buy a single-family residence, home ownership was the path generally taken, with apartment dwellers — for the most part — made up of the remaining population.
Today, the millennial generation has altered that dynamic significantly, he said.
“You’ve got this group of individuals that are pushing off marriage (and) children and focusing on their careers,” Lovell explained. “(Now) you’ve got apartments that are catering toward this demographic.”
The target market for renters has grown to include “wealthier individuals” seeking to enjoy freedom of apartment life in an urban setting rather than owning a property in the suburbs, he noted. The result has been more upscale rental developments that offer quartz countertops, gourmet kitchens, open floor plans and modern décor in an urban setting," he said.
“They are people who enjoy not having to take care of a yard (and) enjoy the flexibility of being able to move after a year or two if they decide that they want something else in life,” Lovell said. “They don’t want to be tied down to a mortgage payment.”
He noted that while many new developments are high-end with higher rents, there are many developments on the horizon that are specifically aimed at affordability, including two projects targeting low-income residents specifically.
Many areas along the Wasatch Front are experiencing near-record apartment development, explained Jim Wood, executive director of the Bureau of Economic and Business Research at the University of Utah. Despite the surge in new construction, recently completed projects are doing well with high absorption rates.
“Almost all of the new projects carry rental rates of greater than $1 per square foot, about $1,000 for the typical two-bedroom unit,” he said. Some new projects in downtown Salt Lake City and Sugar House have rental rates at close to $2 per square foot, over $2,000 for a three-bedroom unit, he added.
“Demand is high due to release of pent-up demand from parent’s basements due to improved job market,” Wood said.
Many of the new high-priced projects have renters with roommates rather than family, he opined.
“One-thousand dollars or $1,500 split three ways is manageable, but for a one-wage family, it's tough to afford a new apartment,” he said. “Overall housing demand is driving cost up — land costs, labor cost and material costs — making it difficult (for developers) to build moderately priced units.”
Vacancy rates in most markets are less than 5 percent, and rents are rising at more than 5 percent annually, he said.
As Wood noted, a major concern in the local apartment world is the unprecedented level of new development currently underway. With more than 4,800 apartments under construction just in Salt Lake County, many are concerned about the market’s ability to absorb all the new units, he said.
As of midyear 2014, the overall vacancy rate across the Salt Lake Valley was just 3 percent. It's the lowest vacancy recorded over the past decade and represents a steady decline of 2.7 percentage points over the past five years, the Cushman & Wakefield Commerce report stated. Over this same period, the average rental rate has increased by “a healthy” 3.5 percent per year, the report stated.
Lovell said that with the new construction underway and other planned projects, vacancy rates will likely climb to more historically normal levels.
“Using historical absorption over an 18-month period, these units under construction would push the overall vacancy rate to around 4.8 percent, which is right in line with the 10-year average of 4.7 percent,” he said.
The impact of the millennial generation on the area rental market is expected to be a long-lasting trend, Lovell said, meaning strong demand for apartment development and relatively low vacancy rates will likely continue for the foreseeable future.
“From the renter’s side, the market is pretty good,” Lovell said. “(Although) it’s probably hard to find a space right now.”
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