Construction Continues in Utah's Apartment Market
Mon, 10/19/2009 - 15:26
The Florentine Villas in Midvale are one of many apartment projects under construction throughout Utah, according to James Wood, director of the Bureau of Economic and Business Research at the University of Utah.
By Kelly Lux
Real Estate News Utah Editor
Building in the apartment market is the key to surviving in the construction industry during the current financial crisis, according to one local economist.
With construction in the housing market still down, James Wood, director of the Bureau of Economic and Business Research at the University of Utah, said construction in the apartment market has managed to increase in Utah. Building in that sector has gone up by 97 percent from June 2008 to June 2009, Wood said.
With construction in the housing market still down, James Wood, director of the Bureau of Economic and Business Research at the University of Utah, said construction in the apartment market has managed to increase in Utah. Building in that sector has gone up by 97 percent from June 2008 to June 2009, Wood said.
Traditionally, construction of multi-family housing is less than 10 percent of the building activity in Utah, Wood said. Currently, nearly 40 percent of all building activity is in apartments, he said.
“The apartment market is where the money is,” Wood said. “There are still a couple of government programs that provide financing for the development of apartments. … We are still approving projects in Utah.”
Three thousand new apartment units will be added to the market this year. And Wood predicts another “chunk” will be added next year as well.
While good for the construction industry, the additional units do not bode well for apartment owners, Wood continued. Apartment vacancies are increasing. Turnover is going up. And rental rates are sluggish, if not declining.
But Wood still has faith in the industry.
“Apartments will play a bigger role long term in the housing market,” Wood said.
With continual population growth, Wood believes the demand for housing will increase as the supply continues to diminish. But the current state of the economy, particularly with high unemployment, could create a shift toward apartment living.
“We may be at the front-end of a transition,” Wood said. “We should have a higher percentage of housing units in apartments. Mobility really declines in a recession if you own a home. But if you rent, you can move to a location where the employment market is better.”
Wood foresees a market where people choose luxury apartments over custom-built homes. Although he admitted that this scenario is less likely to happen in Utah where homeownership is part of the culture.
Home construction in Utah, which is still down 29 percent, will recover, Wood predicted. He believes the depression in the housing market is nearing the bottom, but Utah isn’t in the clear yet. Housing prices are stabilizing but will remain sluggish, he forecasted. And foreclosures in the state will continue to rise for a time, he said.
Non-residential construction “is the other shoe to fall,” Woods said. The downfall in commercial construction will hit banks hard, especially local, community banks, he said. A decline in the commercial sector could last four to five years, he said.
Despite the foreseen gloom in the commercial industry, Wood said there is still reason for hope in all sectors of the construction industry.
“Hang on. Maintain perspective,” Wood said, pointing out that 1.2 million people still have jobs, there is still a natural population increase in Utah and net in-migration is still occurring. “All these fundamentals are still in place. Once this economy turns around in the nation and in Utah, then Utah should be back to its spot of out-performing most states.”
With continual population growth, Wood believes the demand for housing will increase as the supply continues to diminish. But the current state of the economy, particularly with high unemployment, could create a shift toward apartment living.
“We may be at the front-end of a transition,” Wood said. “We should have a higher percentage of housing units in apartments. Mobility really declines in a recession if you own a home. But if you rent, you can move to a location where the employment market is better.”
Wood foresees a market where people choose luxury apartments over custom-built homes. Although he admitted that this scenario is less likely to happen in Utah where homeownership is part of the culture.
Home construction in Utah, which is still down 29 percent, will recover, Wood predicted. He believes the depression in the housing market is nearing the bottom, but Utah isn’t in the clear yet. Housing prices are stabilizing but will remain sluggish, he forecasted. And foreclosures in the state will continue to rise for a time, he said.
Non-residential construction “is the other shoe to fall,” Woods said. The downfall in commercial construction will hit banks hard, especially local, community banks, he said. A decline in the commercial sector could last four to five years, he said.
Despite the foreseen gloom in the commercial industry, Wood said there is still reason for hope in all sectors of the construction industry.
“Hang on. Maintain perspective,” Wood said, pointing out that 1.2 million people still have jobs, there is still a natural population increase in Utah and net in-migration is still occurring. “All these fundamentals are still in place. Once this economy turns around in the nation and in Utah, then Utah should be back to its spot of out-performing most states.”
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