How Utah is ensuring homes go to owners, not renters

SALT LAKE— Lawmakers are working to make sure newly built homes are being sold to owners and not renters. As homeownership is a large part of Utah’s housing crisis.

Cons of too many rental properties

Once homes become rental properties, it is nearly impossible to return them to the market for homeownership.

“Small individual homebuyers can’t compete with large financial institutions that are paying cash for these homes,” said Senior Advisor for Utah Housing Strategy and Innovation, Steve Waldrip.  “It prevents homes that would be available for purchase from being able to be purchased by Utahns to build equity.”

Once homes are taken out of the ownership arena and placed into a rental arena, it becomes very difficult to pull them back into ownership because the income stream for an investor must also be paid.

“You’re not just buying real estate, you’re purchasing it generally at a higher price than you would buy it as a single-family home,” said Waldrip. “Generally speaking, once it goes in that direction, you don’t get it back.”

Last year, 2 in 5 homes bought by investors were starter homes. Additionally, 17.6% of homes were bought by investors in the first quarter of 2023, according to data from Redfin.

Waldrip said that some reports detail how, “30% of the homes built in Utah in 2023 were purchased by institutional investors. Which is a massive… frightening number.”

Benefits of homeownership

The median net worth of a renter in the nation is $10,410. The median net worth of a homeowner in the United States is $396,500. There’s almost a $400,000 wealth gap between renters and homeowners.

This means the 10,000 newly built homes in Utah represent around $4 billion dollars of wealth for homeowners.

“It’s generational wealth creation,” said Waldrip. “Homeownership is… the key to maintaining our middle class. To the extent we lose that, we are really going to regret it in years to come.”

According to Waldrip, increasing homeownership also helps stabilize the housing market.

“[Institutional investors] put upward pressure on the market because they’re cash purchasers and because they have more flexibility in managing their return expectations,” explained Waldrip. “Rather than for a homebuyer where… it comes to a point where you can’t bid any higher… and you can’t afford it.”

Waldrip explained an increase in homeownership doesn’t necessarily mean that home pricing will decrease. However, it will help the market to stabilize in pricing.

What is being done to promote homeownership

Lawmakers understand the benefits of homeownership, which is why Waldrip said they are doing all they can to make sure Utah’s newly built homes will be going to owners and not renters.

“All of the programs that we are implementing now have a component in them of ownership,” he explained. “Anything having to do with the state support or assistance requires ownership.”

This includes the first-time homebuyers assistance program and HB 572, the housing investment program.

The housing investment program makes funding available for developers as long as they make projects where 60% of the homes they build are attainable. To ensure the new developments are going to owners, they also must have a deed restriction for at least five years of homeowner occupancy.

“We can’t allow a large institutional investor to come in and snap up our affordable housing… it’s a limited resource,” said Waldrip.

Vetting home sales

The Utah Housing Corporation has a vetting program. It makes sure new homes go to first-time homebuyers rather than industrial investors. The company also has long-term procedures to ensure that anyone receiving funding stay within the rules, which includes no rentals.

Several other restrictions are in place to make sure developments are not being bought by industrial investors, but it becomes much more difficult to make sure homes are not being bought than placed on rental sites like Airbnb. This is why there is an ongoing monitoring component in several home assistance programs.

“It generally falls down to the city level to ensure any deed restrictions are maintained,” said Waldrip.

Overall, Waldrip says he and Gov. Spencer Cox are aware of the problems in state homeownership. So, they are actively working to make sure new homes go to prospective owners.

“We’re riding the wave of housing we built in the 50s… where we built attainable housing… If we don’t regenerate that wave and create that opportunity for our young people, we will, as a nation, be in a very different position 20, 30, 40, 50 years from now,” said Waldrip. “So it is absolutely critical that we do something about this now.”

Related reading:

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• Homebuyers pause as mortgage rates jump