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Utah hopes a $300M incentive will jumpstart starter homes. But would zoning work better?

A 1,448 square-foot starter home for sale in Salt Lake City’s Rose Park neighborhood, March 22, 2024. It’s listed at $479,000.
Saige Miller
/
KUER
A 1,448 square-foot starter home for sale in Salt Lake City’s Rose Park neighborhood, March 22, 2024. It’s listed at $479,000.

With February’s median home list price in Utah at more than $548,000, the house hunt can be discouraging for those whose pockets aren’t lined with cash.

Realtor Alta Hernandez has seen the disappointment firsthand, especially for first-time home buyers. Many don’t qualify for home loans because of their income, she said, or they're anxious to speak with a lender because they anticipate being denied.

“It breaks my heart,” she said. “I know they want to own their house and not have neighbors and not have apartment management and have somewhere for their kids to ride their bikes that's safe. I get that.”

Those who do qualify can afford a sizeable downpayment, which makes their mortgage payment more digestible. For one of Hernandez’ clients, “the wife got a second job” to build their savings. “For those that are lucky,” financial assistance from family members for a down payment allowed them the chance to purchase a home.

Gov. Spencer Cox called the unattainable price point of a home “not good” during his March monthly news conference and something he is “deeply worried about.” As of 2023, 85% of renters were priced out of the market. A 2023 legislative audit indicated that Utah needs to build nearly 28,000 new housing units just to keep up with projected growth.

To help put homeownership back within reach, Cox hopes $300 million approved by lawmakers this session to incentivize developers to build cheaper, smaller homes does the trick. The money, Cox explained, is “for builders to get construction loans working through banks,” at a lower interest rate between “3 - 5%” instead of “8 - 10%.”

If they take advantage of the subsidized dollars, Cox said “60% of the homes they build in their project have to be under $350,000.” The homes couldn’t be sold to corporate investors and would need to “stay on the market as starter homes” once the buyer decided to sell it.

“This is how we change this. It's the only way to do it. We have to have more supply,” Cox said. “We've got to really get developers building again.”

The governor emphasized smaller homes, around 1,500 square feet, are the pathway to increase supply and reduce the overall price of a home.

But, Andra Ghent, finance professor at the University of Utah and Ivory-Boyer chair in Real Estate, said the subsidies for developers aren’t the most important piece of the affordable homeownership puzzle. While “it’s a good program overall,” Ghent said it’s not feasible because of current zoning laws.

“The biggest barrier is not financing costs — it is land use to build starter homes in most Utah cities,” she said. “The concern for these starter homes is that they're just not allowed to be built in a lot of cities, because the minimum lot sizes in most cities are just too big to get this done,” she said.

If more cities permitted the construction of 1,500 square foot homes, Ghent theorized the pot of money “would be gone in a few months.” But that’s not the reality Utah currently lives in. Either the municipality’s city council or the Utah Legislature needs to update the zoning laws to approve that construction. The Legislature “has the power” to mandate the minimum lot size but “they chose not to use it this legislative session.”

To put it bluntly, Ghent said if zoning laws don’t change to allow for smaller homes to be built, “it doesn’t change much” of the housing landscape in the Beehive State.

Saige is a politics reporter and co-host of KUER's State Street politics podcast
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