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Solutions to Utah affordable housing market crisis? New report lists ideas, some controversial

By Katie McKellar - Utah News Dispatch | Jun 24, 2024

Spenser Heaps, Utah News Dispatch

Construction crews work on a new housing development along 300 West in Salt Lake City on Wednesday, Jan. 3, 2024. The city recently completed a four-year “reconstruction” of the busy road, adding a two-way separated bike path and new crosswalks.

A new report lists a slew of policy ideas to help solve Utah’s housing affordability crisis, from ways to address “not in my backyard” attitudes, to tax policies (including perhaps vacancy taxes) to increase the supply of ownable and rentable housing.

The report released last week from the independent research nonprofit, the Utah Foundation, explores a variety of solutions, but many of them are focused on increasing the availability and supply of housing, including encouraging more density and the building of more affordable housing types.

The report also floats tax policies to increase owner- and renter-occupied housing, including vacancy taxes (or taxing vacant residential properties at higher rates to encourage occupancy), and increased short-term rental restrictions and enforcement to shore up more long-term housing for Utahns.

Some of these recommendations could be seen as controversial or difficult to get approval from Utah’s Republican-supermajority Legislature that often sides with business-friendly policy.

The issue is complex, and will require no sole answer, the report’s author, John Salevurakis, wrote.

“A single solution or sector will prove insufficient to solve Utah’s ongoing housing issues,” Salevurakis wrote. “A coordinated effort of solutions – varying in scale, scope, and focus – will help make home ownership again accessible to more Utahns.”

The report highlights the following “strategies and solutions” for state and local governments to consider:

  • Encouraging construction density can improve homeowner affordability as height limits are increased or smaller lots are embraced in neighborhoods otherwise characterized by single-family homes. A recent legislative audit told lawmakers a continued emphasis on single-family homes is a “recipe for trouble as Utah continues to grow.”
  • Factory-built housing can be used to improve affordability as economies of scale reduce construction costs. The Utah Legislature this year passed a bill to set a statewide building code for modular, factory-built homes, meant to help make it easier to build and sell these types of homes, which can be more affordable.
  • Tax policies can be used to discourage housing speculation and increase the supply of ownable and rentable housing. These could include taxes based on land-value (taxing based only on land, not structures), “flip taxes” (or taxing short- to intermediate-term housing purchases), and vacancy taxes (or taxing vacant residential to discourage unoccupied properties, perhaps homes snapped up by investors wanting to capture equity gains without concerning themselves with renters).
  • Shared equity models and downpayment assistance can be used to increase homeowner affordability and allow residents access to the housing ladder. In 2023, the Utah Legislature funded $50 million toward a new first-time homebuyer program to offer up to $20,000 in loans to eligible Utahns to help with down payments, closing costs, or buying down interest rates — but only for newly-built homes with price tags up to $400,000, so as to encourage more housing construction at lower price points.
  • ‘Not in my backyard’ or NIMBY attitudes might be related to gaps in insurance product availability, which should inform municipal actions when advocating for certain housing policies. The report’s author states the “NIMBY mindset is at least partially based on an insurance market void,” in which homeowners cannot easily buy insurance plans that can “insulate” them from “sluggish” home value increases. “Moreover, the structure of a community is a factor that strongly influences a household’s decision to relocate there,” he wrote. “Understandably, significant potential changes that threaten the desired character may be undesirable, and neighborhood residents might organize in opposition.”
  • Various policy options can encourage condominium construction and help increase homeowner affordability. The report notes condo construction is at “historic lows both nationally and in Utah,” and new construction is largely focused on renter-occupied condos rather than owner-occupied condos. “Literature suggests that federal income tax laws encourage multifamily rental property development (such as apartments) over for-sale units (such as condominiums or townhomes) due to the time and logistics required to take advantage of beneficial tax rules,” the report states.

What the Utah Legislature has — and hasn’t — done for housing

Utah lawmakers, in recent years, have chewed around the edges of policy reform when it comes to encouraging cities to build more affordable housing types.

The Republican-controlled Legislature has largely focused on a free-market approach while balancing cities’ abilities to maintain local control and regulate development. In recent years, lawmakers have passed numerous “consensus” bills that were heavily negotiated with local leaders. In 2023, those bills sought to streamline and standardize regulations to help make housing development more predictable while balancing city needs.

This year, the Utah Legislature, through another slate of heavily negotiated bills created an arsenal of new tools to leverage financing meant to encourage cities and developers to increase the supply of “attainable” single-family homes around the price of $350,000. Utah Gov. Spencer Cox has issued a goal to build 35,000 new starter homes by 2028.

Though lawmakers did not fund the $150 million the governor initially proposed for the initiative, he said he thinks it’s still possible to accomplish the goal with the legislation and tools the 2024 Utah Legislature did pass — including one bill, HB572, that leverages $300 million from the state’s Transportation Investment Fund to offer low-interest loans to developers so long as they strike an agreement with cities to build an owner-occupied housing project with at least 60% of its units defined as “attainable.”

The Utah Legislature’s approach has largely focused more on encouragement and incentives rather than forcing cities to build specific housing types or harshly punishing those that don’t — though the Utah Legislature does require cities to adopt and report progress on moderate income housing plans.

During a virtual call with reporters last week, Salevurakis acknowledged that dramatic policy actions that could be “truly helpful” to Utah’s housing crisis “would probably be viewed as relatively heavy-handed by municipalities.”

However, the report’s author said he thinks vacancy taxes and land-value taxes (or imposing taxes based on the land without regard to structures, meant to incentivize developers to develop land because development would not raise their property taxes), are both “good ideas.”

“Perhaps statewide regulations on zoning for smaller lots and additional height” would also be good for the Utah Legislature to consider, he said, as ways to move away from an emphasis on single-family homes and encourage more density and housing availability in cities across the state.

“I think we’re looking at a scenario where there is no silver bullet. There is no singular solution,” Salevurakis said. “We’re going to have to embrace a multi-solution, multi-faceted approach to help resolve this problem over the coming years.

Vacancy tax?

During the June 13 call with reporters, one potential policy solution had already caught the interest of Salt Lake City Council Member Eva Lopez Chavez: a vacancy tax.

Lopez Chavez, who represents Salt Lake City’s District 4 (the city’s downtown business hub), said she’s “excited to be pursuing this” — but Salt Lake City, on its own, can’t impose a new tax without permission from the Utah Legislature.

“There’s kind of two ways to see this. You could provide carrots, (or) you could provide kind of a strong hammer,” she said. “I like the velvet glove, iron fist approach, which is we’re going to go after these parcels that can be activated in a way that, I think, if it’s undermining our city’s supply, (that) will be met with higher enforcement, a higher rate to be paid back to the city.”

She said city leaders “want to make sure every square footage of land is being activated appropriately,” and that she’s also interested in looking at converting office space to housing. “We actually have a 23% office vacancy rate, which is quite high, so we want to see that conversion,” she said. “I’m looking at can certain floors of office buildings be converted to housing.”

Some cities, like New York City, have proposed imposing a vacancy tax, the report notes. A proposed New York bill, S339, would impose a commercial vacancy tax on vacant or abandoned commercial storefronts in cities with populations of 1 million.

Here in Utah, “the state would need to step in” to enable Salt Lake City to impose a vacancy tax. “We don’t have the ability,” she said. “We are not that flexible.”

A vacancy tax may not be something today’s Utah Legislature would authorize, “but my hope is that as more, younger legislators begin to take the helm over at the Capitol, they start to realize some of these impending consequences of trying to limit supply,” Lopez Chavez said.

NIMBY attitudes

Among one of the most “controversial” topics, Salevurakis said, is “not in my backyard” attitudes — or neighborhood resistance against housing development, especially higher density developments. He said his report seeks to point out to policymakers that these attitudes “may not be based in malice, but gaps” in insurance plan availability to protect homeowners from “sluggish” home value increases.

“Homes represent the most valuable asset most individuals will ever own,” he wrote in the report. “Since zoning restrictions and land use laws help preserve a community’s character, residents are understandably wary of any alterations that might alter their perceived quality of life. One prominent threat is housing density.”

Salevurakis added that “NIMBY residents are not necessarily ‘bad,’ but tend to be risk-averse,” and if policy makers understand where these concerns are coming from,  could help them address concerns.

Salevurakis said the purpose of that part of the report wasn’t necessarily to call for more insurance products, but to help policymakers understand the root of some “NIMBY” attitudes.

Short-term rentals

It’s estimated that Utah has more than 18,000 short-term rentals (think Airbnb or VRBOs), according to a 2022 policy brief by Dejan Eskic, housing researcher at the University of Utah’s Kem G. Gardner Policy institute. Meanwhile, Utah’s housing shortage is projected to hit over 37,000 units this year, which is expected to aggravate Utah’s ongoing affordability crisis.

“To address this, some Utah municipalities have already restricted short-term rental supply,” the Utah Foundation report notes. “However, enforcement is often relaxed or effectively nonexistent. This is due to state-mandated enforcement rules that tie municipal hands.”

It’s illegal for cities to use only the online listing of a property as evidence of a violation, the report notes, and cities “can only take action on complaint-based evidence, which tends to be tedious and less efficient.”

“A possible result is that some counties in Utah currently have over 20% of their housing stock as short-term rentals, effectively removing them from the purchasable housing pool and impacting various cities quite differently.”

For example, vacation hot spots like Grand County (Moab), and Summit County (home to ski destinations like Park City), have higher numbers of short-term rentals. In 2021, 23% of Summit County’s housing stock were short-term rentals, according to Eskic’s research. In Grand County, they made up over 19%.

What could surface in the next Legislative session?

Steve Waldrip, the governor’s senior adviser for housing strategy and innovation, briefly joined the call. While he said there are some “controversial things” in the report, he thanked the Utah Foundation for the work.

He said there is a growing interest in restricting and enforcing short-term rentals. That’s even though a bill that would have imposed regulations on short-term rentals stalled at its first legislative hurdle during the 2024 legislative session.

“I probably wouldn’t say ‘crack down,'” he said. “But I would say that there is an increasing appetite for better understanding of where we have issues with it and kind of what those issues are, what cities have been able to do at this point, and what they haven’t been able to do.”

One of the policy initiatives set by Utah’s Commission on Housing Affordability is to better understand issues around short-term rentals, as well as the impact of corporate ownership on Utah’s housing market, and “what can we do to better manage that?”

“We haven’t had an issue with market-rate housing in the past,” Waldrip said. “That just hasn’t been something that, from a state level or a local level, we really had to spend that much time worrying about. And now we’re in a different universe where the median home price is over six times the median wage.”

“That is something we have to look at, and we’re planning on looking at, in preparation for the 2024 session,” he added.

NIMBYism is also a big issue on lawmakers’ minds, Waldrip said. He noted the Utah Legislature approved about $1 million to go toward a new nonprofit, Utah Workforce Housing Advocacy, for a campaign to “change the narrative around additional density from ‘density is all bad’ to ‘density for our kids and grandkids is what we want and need.'”

Utah News Dispatch is a nonprofit, nonpartisan news source covering government, policy and the issues most impacting the lives of Utahns.

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