Peter Corroon, a prominent affordable housing developer and former Salt Lake County mayor, has observed a troubling trend in leasing his low-income apartments.
After previously enjoying swift occupancy rates, he has noticed that some of his studio and one-bedroom units are taking significantly longer to lease than before.
For instance, his newly launched 144 South apartment building, which opened in January, has only reached 67% occupancy after seven months.
Corroon noted, “Three years ago, that building would’ve been full after three or four months.”
This issue is not isolated to Corroon; many developers in the area are experiencing similar difficulties.
A recent influx of new rental units near Downtown Salt Lake City has led to a drop in market-rate rents, making it challenging for affordable housing developers like Corroon to fill their low-income units.
As a result, Corroon has been compelled to seek out loans just to maintain operations at his newly completed subsidized project located in the heart of the Downtown area.
Explaining this new dilemma, Corroon stated, “What’s happened in Salt Lake County, especially in Salt Lake City, is that area median incomes (AMI) have gone up a bit, while a substantial number of units have come on the market.”
He added, “The market rents and the LIHTC rents are coming together,” creating a challenging equilibrium for low-income rental units.
144 South comprises 110 studio and one-bedroom units, all priced for renters earning no more than 60% of the AMI, approximately $51,540 annually for a single person.
Originally, the market analysis conducted three years ago indicated a minimal vacancy rate of about 2-3%, but the scene has drastically shifted as reduced lending standards and low interest rates spurred an uptick in new constructions.
Consequently, some market-rate studios are now priced below the $1,321 asking price for one-bedroom units in 144 South, aggravating the situation for affordable housing developers and the authorities who offer the necessary tax credits.
In contrast to developers of market-rate apartments, affordable housing developers relying on a blend of taxpayer-funded incentives cannot easily increase rents to offset losses from unoccupied units.
Notably, the average market-rate rent rose to $1,500 per month in May, according to Zillow, standing in stark contrast to the prices of 144 South’s units.
As a result, Corroon noted, “The government’s putting in a lot of money for affordable housing developers just to compete with market rate projects, which is not what you want to happen.”
The difficulties surrounding the leasing of LIHTC units extend beyond Corroon, affecting affordable housing developers across the city.
This sector’s challenges are seen as a boon for renters due to declining rent prices, though a slowdown in rent growth could produce significant repercussions for the already short housing supply in Utah.
Corroon elaborated on the impact of vacant units, explaining that developers must offer concessions such as free rent for several weeks and reduced leasing fees to attract tenants.
“Lowering our rents puts significant financial pressure on us to cover our expenses and mortgage payments,” he remarked, noting the increased costs associated with insurance, property taxes, and interest payments.
As a remedial measure, Corroon opted for a $500,000 cash flow loan with a 1% interest rate for a 40-year term from the Olene Walker Housing Loan Fund.
In exchange for the loan, 53 studios at 144 South had their AMI lowered, with 17 studios adjusted from 60% AMI to 57% AMI and 36 studios from 60% to 50% AMI.
For the 57% AMI units, rent will be capped at $1,223, while units priced at 50% AMI will not exceed $1,073 per month.
Corroon described his financial situation as precarious, stating, “I wouldn’t say we’re in trouble, but we’re barely paying the bills.”
Industry expert Bill Knowlton, who specializes in affordable housing development and real estate law, has similarly observed vacancies in LIHTC units across the market.
He remarked, “This is a bit of a sea change in the LIHTC world.”
Knowlton highlighted the sharp contrast to his experiences from a decade ago when projects would fill in just days, often with waiting lists at the 60% AMI threshold.
The influx of new market-rate and affordable units has saturated the market, positioning some market-rate rents lower than subsidized rates due to increased availability.
Because renters utilizing affordable housing must navigate a more extensive application process to verify income and eligibility, many do not go through with it when market-rate options become competitive.
As Knowlton illustrated, “You can go to the Post District, for example, and get a brand new studio apartment with two months of rent concessions, and pay less than you will at a 60% AMI LIHTC unit, without any of the red tape.”
Blake Thomas, a senior advisor on real estate and capital projects for the mayor’s office, echoed these sentiments, noting a decline in Salt Lake City’s occupancy rates.
A May research brief from Greystar indicated that occupancy rates had fallen from 94.2% last May to 92.9% this year.
Moreover, the report revealed a 2.7% drop in renewal rents since the previous May.
Thomas commented that many properties are increasingly offering substantial concessions, rendering market-rate units more appealing to renters looking for smaller configurations, where price points have shown more uniformity.
Despite these changes, he affirmed, “LIHTC rents still offer a meaningful cost advantage overall, especially for larger units.”
While current market conditions certainly benefit renters, Thomas warned that both developers and local governments need to be vigilant about future unit mixes in their projects.
The concentration of LIHTC units in particular neighborhoods, namely around the North Temple corridor, Downtown, and along transit lines, raises questions of strategic planning.
Even as the state’s largest city presents economic and cultural promises, the growing difficulty in leasing LIHTC units calls into question the dynamics of future construction.
The city’s response to these challenges and the need to rethink affordable housing strategies will be explored further in the second part of this series.
image source from：buildingsaltlake
