How have investors impacted Utah’s housing shortage?

June 30, 2022

Several recent news stories have talked about the impact of real estate investors on the housing market. Of particular interest are findings from Harvard’s “The State of the Nation’s Housing 2022” report, which show growth in investor purchases since the pandemic and a subsequent reduction in homes available to owner-occupants — especially first-time and moderate-income buyers.

For example, 28% of U.S. sales per month during first quarter 2022 were to investors compared to 19% a year earlier. The share is also up substantially from the 16% average from 2017-2019.

Investors have also been active in Utah’s housing market. Here’s a look at how the Beehive State compares to the U.S.

Institutional buyers purchased about one in six Utah homes

The share of residential home purchases to institutional buyers was 16% in Utah in 2021, according to a May report from the National Association of Realtors. That puts Utah at No. 10 on the list of states with the highest share of institutional buyers, even though Utah saw a 0.6% decline from 2020.

The study defines institutional buyers as companies, corporations or limited liability companies that purchase homes.

On the local level, Utah had several counties with a large percentage of institutional buyers including Carbon County followed by Summit County. Other counties with a high share included Cache, Box Elder, Weber, Salt Lake, Wasatch, Iron and Washington followed by Davis and Utah counties.

The NAR report said certain conditions appeal to institutional investors, including high household growth, a high density of Millennials, high education, many people moving to the area, a low vacancy rate, strong sales activity over the past decade, fast rent growth and fast home appreciation in affordable areas — all elements found in Utah.

With such appealing conditions, this may explain why Utah has a higher share of institutional buyers compared to the U.S. (16% versus 13%).

Housing shortage not caused by investors

While there is a presence of investors in Utah’s housing market, the housing shortage is the result of insufficient home-building activity rather than investor purchases.

From 2010-2020, Utah created a housing shortage of 44,500 units because of significant cuts in housing production combined with new household formation, according to the Kem C. Gardner Policy Institute.

In fact, the combination of a lack of home building after the Great Recession, the huge generation of Millennial buyers reaching the prime ages for home-buying, people moving to the state because of a favorable economy, and supply-chain and labor challenges have all contributed to rising home prices in Utah.

“The growth of institutional investors is a symptom, rather than the cause, of extremely tight housing markets,” said Jenny Schuetz, a senior fellow at Brookings Metro, in a June 28 statement to the U.S. Housing Committee on Financial Services.

“Since the Great Recession, the U.S. has not built enough housing leading to historically low vacancy rates and rapidly rising costs,” she said. “Private equity firms and other institutional investors benefit from tight housing supply, but they did not create the problem. Local governments across the U.S. have adopted policies that make it difficult to build more homes where people want to live.”

While there’s still work to be done to address Utah’s affordable housing challenges, the good news for today’s home buyers is they have more choices than they did just a few months ago.

In fact, the number of active Utah home listings increased about 60% in May, according to the Utah Association of Realtors.

To learn more about what’s happening in your housing market, contact a local Realtor.