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Housing prices have surged dramatically in recent years. According to the Federal Housing Finance Agency's Quarterly House Price Index, housing prices in Utah have increased by 65% over the past five years.
In the second quarter of 2019, the median price of a single-family home in Salt Lake County was $385,000. By the second quarter of 2024, that same home had a median value of $625,000—a staggering 62% increase, according to UtahRealEstate.com.
So, if you wonder why prices have gotten so high, here are four key drivers behind the rise in housing costs:
Housing shortfall
One of the main drivers of high housing prices has been a significant housing shortfall. This issue has been exacerbated by an even steeper decline in the supply of entry-level single-family homes, commonly referred to as starter homes (homes that are 1,400 square feet or less).
According to a study by Freddie Mac, the share of entry-level homes in overall construction declined from 40% in the early 1980s to just 7% in 2019. By the end of 2020, the U.S. faced a housing supply deficit of 3.8 million units.
Pandemic rush
The housing shortage was further amplified by the COVID-19 pandemic. As people began leaving big cities for more rural areas across the U.S., the demand for housing surged. A Bloomberg article noted that the shift of tech jobs and companies away from expensive coastal hubs to less expensive locations resulted in a rise in rental prices, leading to housing price increases in previously affordable areas. This phenomenon could be described as a form of pandemic-induced gentrification.
"As knowledge and tech workers spread out in search of more space, housing prices and rents surged in once-affordable communities across the country," the article noted. "You can even call it a new kind of pandemic gentrification."
In Salt Lake County, the steepest two-year increase in housing prices on record occurred during the pandemic years of 2020 to 2022, according to the Salt Lake Board of Realtors 2024 Housing Forecast Report.
Millennials enter the market
Millennials, typically defined as those born between 1981 and 1996, now represent the largest group of home buyers, according to the National Association of Realtors. This influx of millennial buyers significantly increased demand for homes, further tightening an already limited housing inventory.
Millennials now account for 38% of the home-buying market, up from 28% last year. Many are entering homeownership for the first time or transitioning to larger homes as they start families and seek more space.
Government regulations
Excessive regulations are another factor contributing to rising housing costs. The National Association of Home Builders estimates that nearly 25% of the cost of building a typical new single-family home — approximately $94,000 — is attributable to government regulations.
These regulations, which range from zoning laws to building codes, can price out approximately 14 million American households from the market for new homes. While regulations are necessary to ensure health, safety, and environmental protections, the NAHB argues that they must strike a balance to avoid overburdening home builders and buyers.
The news isn't all bleak, though. While the dramatic rise in housing prices can present challenges to first-time home buyers, most homeowners have increased their wealth in the form of home equity. A 2023 study by the National Association of Realtors found that middle-income homeowners nationwide accumulated more than $122,000 in wealth due to their homes appreciating by 68% over the past 10 years.
Each of the elements listed has contributed to the increasing cost of homes, making it more difficult for many Americans to achieve homeownership. Addressing this complex issue will require targeted solutions to increase housing supply, reform regulatory frameworks, and balance affordability with the evolving demands of today's homebuyers.
