Are short-term rentals pricing out homebuyers?
Utah might not be affordable to Millennials—or anyone middle class—in the years to come. Housing prices have increased rapidly within the past year, and income is not keeping up with the trend, causing a housing affordability crisis in Utah and the rest of the nation.
It seems that those who can buy homes are doing so only to turn them into short-term rentals. According to Gov. Cox, the state reports that an estimated 20,000 homes are considered short-term rentals on places like Airbnb and Vrbo.
People who turn their newly purchased homes into rentals may do so because there is currently no law in Utah that requires a landlord license to rent out a home, states software company Avail. However, special restrictions are in place in some regions.
“Here [in Kanab], you need to have a business license to rent out a home,” says Sara Mortensen, a realtor at Coldwell Banker. “If you don’t live an hour from your property, you need to hire a business manager, and you have to have a fire inspection. I think Airbnb is a good way to know the home is being cared for while you’re away.”
Between 2019 and 2021, Utah saw a 36.8 percent increase in short-term rentals, according to the Short-Term-Rental Inventory released by the Kem C. Gardner Policy Institute. Short-term rentals are the most concentrated in Summit, Washington, Salt Lake, Rich, and Grand counties.
In 2021, 32.2 percent of all short-term rental listings were in Summit County, while 23.3 percent of all listings there are short-term rentals. That number has grown 2.3 percent since 2020. Salt Lake County is home to 18.2 percent of the total short-term rental units in 2021, even though short-term rentals only account for 0.8 percent of the total units in the county.
The report officially counts 17,236 short-term rentals in the state since 2021, up from 12,868 in 2019. That number directly impacted the number of private room listings, which declined from 1,914 to 1,507 from 2019 to 2021.
“In my opinion, it’s really vacation homes that make up short-term rentals,” Mortensen says. “People from Salt Lake buy vacation homes down here in Kanab, which is close to a lot of scenic areas like the Grand Canyon.”
The housing affordability crisis has caused a huge surge in single-family home prices compared to the last two years, and everyone is seeing it, from realtors to mortgage aid funds, according to the Kem C. Gardner statistics.
According to data released by the Utah Association of REALTORS, Summit County has seen the highest median sales prices in 2022 with an average of $1,337,500 year-to-date. These skyrocketing prices are followed by Wasatch County and Morgan County, with year-to-date median sales prices of $969,939 and $707,000.
Deon Spilker, who has worked as VP of mortgage banking at the Utah Housing Corporation for 22 years, confirms many of these trends. She has been in the mortgage industry since 1978 and sees the market going up. “We’re seeing a decline in first-time homebuyers because the price of homes are so high,” she says. “The incomes have not increased as rapidly as the price of home prices and the interest rates.”
“The first step to getting a home is getting down payment assistance, and I think it’s important to know that there are assistance programs to help first-time homebuyers.”
Though the median household income was only $75,705 for the state in 2021, Spilker has seen the average price of houses for first-time homebuyers in the state jump up to the mid-$400,000s from the mid-$300,000s.
“There is a quite a sizeable reduction in the amount of loans being purchased now versus years ago,” she says. “We are also seeing a change from the traditional first home purchase. Single-family quarter-acre homes used to be what everyone wanted, but the more popular ones today have become townhomes and condos.”
Financial hardships are affecting many people, and those who are able to purchase homes only to rent them out might be pricing young homeowners out of their potential first home purchases, and its putting additional strain on the housing affordability crisis.
To qualify for a mortgage loan, buyers need a credit score of 650 or higher to qualify for mortgage aid programs or 740 for many established banks like US Bank.
US Bank’s mortgage rate calculator allows people to estimate their monthly mortgage payments. For a $600,000 home with an interest rate of 4.75 percent, for example, monthly payments would be $2,858 with 12 percent covering taxes on a 30-year fixed term.
Spilker knows that interest rates for home loans have risen significantly as well. “First-time home buyers need down payment assistance,” she says. “We provide a sort of second mortgage to them.”
It’s no wonder that short-term rentals are growing in popularity. A quick search on Airbnb for month-long rentals will yield between $1,000 to $2,000 per month for an entire apartment or small-sized home. One listing that calls itself a “stylish city retreat” offers an entire home with a queen bed, backyard, kitchen, washer and dryer, air conditioning, Wi-Fi, television with Hulu, and free parking for $1,860 a month. A studio apartment with a washer and dryer, full kitchen, and queen bed can be listed for $997 per month in the 9th and 9th neighborhood.
“What we need to do is help our homebuyers who need increases in their salaries to purchase homes,” Spilker says. “The first step to getting a home is getting down payment assistance, and I think it’s important to know that there are assistance programs to help first-time homebuyers.”
The Utah Housing Corporation offers grants to law enforcement officers to help with home payments and a grant to first-time homebuyers who are veterans. Law enforcement officers can obtain a grant for 3.5 percent of their purchase price. Veterans can apply for a grant of $2,500 with no restrictions.
Utah was awarded $60 million in federal funding to assist homebuyers who are behind on their mortgage payments due to the pandemic. The Homeowner Assistance Fund (HAF), part of the American Rescue Plan Act (ARPA), is finalized for Utahns.
“I don’t see this trend turning around any time soon,” Spilker says.