A leading indicator of development activity – billing and inquiries at architectural firms nationwide – tells us that the slowdown isn’t ending anytime soon.
Yet as the home-building industry waits for financing costs to come down, demand for new units continues to build.
New families in the state of Utah, which includes millennials leaving their parents’ home at a rate much higher than the national average, continue to fuel housing demand.
Given the unaffordability of for-sale homes in the Salt Lake market, rental demand, and continued but slowed rent increases, are likely permanent features of the immediate future.
Let’s look at a couple of recent trends that have crossed our desk.
Canaries in the coalmine singing the blues
If designers aren’t getting new work, professionals downstream aren’t likely to see much action either. The American Institute of Architects’ monthly work-on-the-boards survey reports that business continues to soften across the country.
That decline for architects is especially intense, since July, in the Western region. 50 is the survey’s neutral point, where business has remained unchanged from the previous month.
Residential is the hardest hit of the three sectors, with Institutional almost holding steady from the previous month.
Not only are the value of new contracts down, for the third consecutive months.
Firms are also reporting a decline in inquiries – for the first time since July 2020. An extended lull of projects in design development stage may forecast a long tail of consequences for others in the industry.
And firms are starting to shed FTEs. In September 500 jobs were reported lost nationwide. Since July, positions have shrunk by 2600. While the profession has still added more jobs this year than it has lost, the decline in hiring looks to be a year-over-year trend for 2024.
Utah’s 10-year housing boom ended in 2022
The State of Utah Housing 2022-24 report from James Wood and Dejan Eskic of the Gardner Policy Institute at the University of Utah documents the slowdown that has gained further traction in October.
2023 is on track to have the fewest number of new-build housing permits since 2015.
The downward trends are stunning – a 27% decline in multifamily permitting, surpassed by a 32% drop in single-family construction permits granted across the state in 2022.
The 2023 Wasatch Front numbers are even worse – a year-over-year 37% drop in residential unit permitting.
But demand for new housing isn’t slowing down
The Gardner Institute’s report noted that the housing shortage – defined by the difference between new households and new units constructed – narrowed during the last five years of the boom, 2017-22.
But it is again widening, expected to reach 37,000 units statewide in 2024.
And the affordability crisis in home ownership will add to demand for rentals. The Gardner report notes that “only 15% of Utah’s rental households have enough income to purchase a modestly priced 300,00-400,000 home.”
Rental rates in Wasatch Front counties increased annually 6.5-7.5% annually since 2011 until very recently. This year’s rent drops have been in the 5-6% range, explained by the delivery of an unprecedented number of new homes into the rental market.
Utah Millennials and Zoomers leave the nest at high rates
Generational demand looks like it is part of the picture.
RentCafe, a nationwide apartment search website, crunched public population survey data in a recent Market Snapshot to find that younger adults in Salt Lake City are moving out of their parents’ home at greater rates than in most US metros.
52% of Salt Lake City’s Millennials “flew the nest” in the last five years, they found, the 8th-highest rate in the country. Only 16% of people in this age group currently live with relatives in the metro.
At the same time, while 68% of Zoomers still live in multi-generational households (in line with the national average), 40% of them have moved out in the last five years. That rate is also the 8th-highest in the country.
A look at the report’s data from cities across the country shows that higher young-adult move-out rates seem to negatively correlate with housing costs. Not surprising really.
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