Utah needs 37,000 more homes — are smaller homes and lots the answer?

Utah lawmakers have passed a slew of bills over the last several years aimed at addressing the state’s housing affordability crisis. But many of them were directed at “low hanging fruit,” according to the chairs of Utah’s commission on housing affordability.

This year, state Sen. Lincoln Fillmore, R-South Jordan, and Rep. Stephen Whyte, R-Mapleton, said legislators are hoping to cut straight to the root of the problem, formulating bills to remove barriers that prevent housing supply from meeting the state’s growing demand.

“Utah is now at a point of addressing the very big, the very complex, and the very challenging issues” related to housing costs, Whyte told the Deseret News on Thursday.

Affordable housing was cited as a top priority by legislative leadership going into the nascent 2024 legislative session and formed the core of Gov. Spencer Cox’s fiscal year 2025 budget recommendations, which include a $150 million investment in homebuyer assistance and infrastructure programs.

The Commission on Housing Affordability met regularly during the interim to provide policy and budget proposals to the governor’s office and the Legislature, Whyte said. But with this year’s tight budget outlook, lawmakers appear to be more focused on the regulatory piece of the puzzle, as opposed to subsidizing consumption or development.

Rep. Ray Ward, R-Bountiful, the author of a successful 2021 bill that forced cities to allow more mother-in-law apartments, introduced another major reform to city zoning practices this session that he says reflects the need to take a centralized approach to a statewide problem.

In the next week or so, additional legislation can be expected, Fillmore and Whyte confirmed, potentially dealing with home lot sizes and standards for modular housing.

Why is housing so unaffordable in Utah?

These efforts come less than three months after legislative auditors released a report warning that “time is running short” for Utah policymakers to take action on the state’s growing housing problem.

Under current city and county general plans the Wasatch Front would begin to run out of space in roughly 20 years, state auditors predicted. The report concluded that Utah needs 28,000 units a year to keep up with demand — which is only feasible if the state sees an increase in zoning density and additional incentives and penalties for noncompliance with the state’s housing goals.

Just this year, Utah is expected to face a housing shortfall of over 37,000 units, according to the University of Utah’s Kem C. Gardner Policy Institute.

Lack of supply is the main driver of rising home prices, Ward said, noting that Utah is now the most expensive Republican state to buy a home. This is according to a measure used by the Gardner Institute, Ward said, which divides the average home price in an area by the average income of its residents.

A multiple of less than 3 is considered “very affordable,” while a multiple of more than 5 is “severely unaffordable.” In Utah, Ward said, that ratio is more than 6:1.

“Things are going awful,” he said. “I hope everybody’s thinking about it. And when something’s going really bad, it is good to zoom out and say, how did we even get there?”

Unfortunately for lawmakers, there’s no one simple cause of Utah’s housing crisis, according to Whyte. A decline in construction following the Great Recession, an increase in demand for homeownership during COVID-19, inflation of building costs, spiking interesting rates and a rapidly growing population are all contributors.

While some constraints are outside of state government’s purview, like sprawling sectors of federally-owned land, Ward said the factors under lawmakers’ control are clear.

“We have a ton of regulations that we put on where housing can be built that limits how much housing you can build, and that when you do, makes it way, way, way more expensive,” he said.

What is Utah doing to bring down home prices?

During the past several years, the state has passed over 20 pieces of legislation dealing with affordable housing, Whyte said, including bills establishing development standards, streamlining regulations and supporting first-time homebuyers who purchase new homes.

Cox has proposed expanding this initiative as part of his Utah First Homes program, which outlines a plan to build an additional 35,000 homes in the next five years. This would be achieved through a series of investments — in a state infrastructure bank, sweat equity program and community land trust — as well as incentives paired with a starter home innovation fund.

In addition to the governor’s budget proposal, the commission Fillmore and Whyte chair has produced a number of other recommendations with local officials, industry experts, business leaders and stakeholders.

Whyte said to expect lawmakers this session to pick up policies facilitating the construction of starter homes by allowing smaller lots and smaller home sizes in zoning plans.

“The challenges and the opportunities are in the details — how to do that, while respecting local control, local decision-making within each of the cities, and to also help identify what can be done statewide to be able to help as well,” Whyte said.

According to Whyte, attention will also be given to what obstacles are preventing developers from turning the shovel on the state’s estimated 190,000 entitled lots that cities and counties have given the green light for construction.

Finally, Whyte said, lawmakers may want to tackle adopting a statewide building code to enable modular housing production in Utah because current regulatory processes are ill-equipped to handle this new approach to single-family and multi-family residential construction. Modular homes, which are prefabricated and then assembled at the home site, could reduce building costs by 20%-30%, Whyte said.

Can the state change local zoning rules?

For Ward, conservative principles suggest you cannot “subsidize your way out of the problem.”

Instead of providing financial incentives to spur supply or enable demand, Ward has proposed legislation that would prohibit cities and counties from restricting certain zoning designations. This double negative would, Ward said, open up opportunities for developers to build the kind of homes Utahns are looking for on the state’s vacant lots.

Ward’s bill, HB306, which is currently sitting with the House Rules Committee, would require urban municipalities to approve single-family starter homes — defined as a home below the area’s mean home price — on one-eighth of an acre.

But this provision would do almost nothing by itself, Ward said, because cities can often cite other regulations that would make it unrealistic for developers to build smaller homes on smaller lots. So to avoid similar work-arounds, Ward’s bill would categorize starter homes as “permitted use” in residential zones in urban municipalities, which would include Davis, Salt Lake and Utah counties, as well as some cities with over 15,000 residents.

Ward is ready for pushback from those who say it is not conservative to override local preferences with state mandates. But just as the federal government delivers edicts regarding problems that effect the entire country, Ward said, so should the state be able to implement requirements to remediate statewide struggles.

“It’s not a citywide problem; It’s a statewide problem,” Ward said.

While cities and counties may push back by saying that it is the developers’ fault for not building on already approved lots, Ward said the number of requirements, including burdensome impact fees, that municipalities implement reduce profitability “close to zero” for many construction companies.

“The regulations that they put on do a very, very good job of serving their current residents who don’t want change and they do a very good job of the city building out their vision of what would be perfect only for their city,” Ward said. “But those two objectives are actually diametrically opposed to making it easy to build more housing, especially easy to build more smaller housing.”

Changing the conversation around housing policy

The legislative audit in November found there was not sufficient evidence to conclude that cities intentionally made home building difficult. However, it qualified those findings by saying that that “does not necessarily mean that all cities are acting appropriately in terms of requirements and timeliness.”

Whyte said in his experience, local officials in Utah have recognized the gravity of the state’s housing shortage and have been willing to contribute to the solution.

“Cities and counties, and the state, and homebuilders are working together right now collaboratively to make homeownership possible, especially for first time homebuyers so the American dream of homeownership can continue to be a reality,” he said.

Ward understands why cities, counties and other conservatives might resist increasing the state’s role in local zoning rules. But he points to past precedent as proof that statewide measures that free up construction inevitably increase supply.

This was the outcome of a bill he introduced in 2021, Ward said. It required internal accessory dwelling units, like basement apartments, to be considered permitted use in certain portions of every city. The legislation allowed homeowners to fight back against restrictive zoning plans and HOAs, Ward said, and increased the number of homes built with rented-out sections in mind.

If lawmakers are serious about increasing the supply of affordable homes, and bringing the American dream back in reach for many families, Ward said, they will have to get used to discussing large-scale reforms that allow for those kinds of homes to be built in the first place.

“It’s going to be a discussion we have for a while,” Ward said. “I think it will take multiple sessions of thinking about it and going back and forth. But I don’t think we will ever get housing affordability unless we make some changes kind of like this.”