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High interest rates mean Salt Lake City is playing the long game with housing

City officials say zoning changes, like the ones aimed at boosting affordable housing construction, typically aren’t felt until three to five years after they are implemented.
Sean Higgins
City officials say zoning changes, like the ones aimed at boosting affordable housing construction, typically aren’t felt until three to five years after they are implemented.

Salt Lake City’s new affordable housing incentives go into effect April 20, 2024.

Aimed at encouraging more affordable housing construction, the changes include things like allowing quadplexes in residential zones, increased building heights and unit counts for larger projects, and a streamlined approval process.

But one question remains: how soon will the city see results?

That, experts say, is largely up to economic factors like interest rates. But those are outside of the city’s — or even the state’s — control.

“Right now we're in this very difficult interest rate environment,” said Kem C. Gardner Policy Institute senior research fellow Dejan Eskic. “We have to be cognizant of how we measure the impacts of these policies, knowing that in the next year or two we probably will not get as much housing built as we probably could just because the financing of these projects is challenging right now.”

According to the Federal Reserve, the national average for a 30-year fixed-rate mortgage sits at 6.95% in December. Two years ago, it was 3.12%. That means projects looking for financing today will be paying more than twice as much in interest than they would have in 2021.

Those numbers, said Eskic, will be the main driver behind short-term changes in the city’s housing market.

If we think about housing demand in the next 18 months, it's all about the [interest] rates,” he said. “It's really what can the developers actually build?”

For their part, city officials have also been looking at the market and seeing the same forecast.

“I think the financial conditions are probably going to temper the results on this until [the rates] get more in line or if somebody is able to find a financing resource like a low income housing tax credit or something,” said Salt Lake City planning director Nick Norris. “The city or or the state or sometimes even private lenders have affordable housing funds available. There's got to be something to kind of offset those costs right now.”

The Federal Reserve did indicate this week that interest rate cuts are coming next year. That could offer some relief for developers keen to take advantage of the city’s new incentives once they come online in April.

Norris said although some of the process will soon be streamlined, it will still take time for design, approvals, construction and then filling those units with tenants and buyers.

“This definitely is something that is looking more down the road than more immediate,” he said.

In the long term — think five to ten years — Eskic said the state’s changing demographics will play a much larger part in shaping the housing market as more people move to Utah, move out of their parent’s house or get older and age out of the housing market. That is about when Salt Lake City officials expect to see the impacts of these efforts.

“All kinds of zoning changes that are aimed at producing housing, whether it's affordable or market or anything else, are really a long-term game,” said Norris. “It takes, typically, three to five years after something is adopted for a project to even open.”

For those who have felt the pinch of the rental and home buying markets, news that measurable change might still be years away can be disheartening. But Eskic said in the broad scope of housing policy, change could come faster than some people might think.

“Overall, there is a lot of good in these proposals and I do think long term they'll make a difference,” he said. “Three to five years in the policy world is pretty quick. I think the city is on the right track.”

Sean is KUER’s politics reporter.
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