ST. GEORGE — Real estate development in Washington County is trending toward positive growth but still faces challenges such as rising construction costs and prohibitive impact fees.
Thursday’s St. George Area Economic Summit included breakout sessions previewing residential and commercial real estate development in Southern Utah. The presentations highlighted how population growth, vacancy, regulation, construction costs and inventory are shaping the area’s real estate landscape.
Population and inventory
As Utah leads the nation in population growth, Southwestern Utah leads the state in growth, according to the Kem C. Gardner Policy Institute at the University of Utah. Since 2010, the county has grown by 22,000 people and is projected by the Governor’s Office to reach a population of 200,000 by 2020.
“I will tell you it’s been my experience looking at some of the population projections provided by the state, they’re almost always less than what reality is,” Washington County Board of Realtors Vardell Curtis said.
With the spike in population growth, housing vacancy rates have shrunk to their lowest numbers in decades, with rental vacancy at less than 1 percent and single family homes at around 3 percent for the St. George area, according to research by NAI Excel.
The vacancy rates are exacerbated by a relatively low supply of inventory. As of the third quarter of 2016, housing supply was projected to last only 36 months.
“We definitely are running into a shortage, and that can bring up the price of homes,” Southern Utah Home Builders Association Executive Officer Mari Krashowetz said.
Housing and employment
“Unemployment has dropped to 3.2 percent in Washington County. That is pretty much full employment. Anybody that wanted a job has a job,” Curtis said.
Residential real estate is currently ripe with buyers, creating an ideal seller’s market.
“Housing is key to continued economic development,” Krashowetz said. “When we build a thousand average single family homes in our community that creates just under 3,000 jobs and generates about $111 million for government – local, state and national.”
Housing will need to keep pace with some of the major economic developments in the area, including the expansion of Dixie Regional Medical Center and Dixie State University. Thousands of jobs are expected to be added to the economy as a result of these developments.
Regulation and construction costs
“When the 115th Congress convenes, there are some things that need to happen specific to real estate,” Curtis said. “Specifically, policy makers need to reform the regulatory process.”
Chief among regulations that create prohibitive real estate development conditions are impact fees.
Such fees range from $8 to $10 per square foot for commercial real estate projects.
“It feels like a tax on the landowners … they can’t sell the land for the price they really want to sell for because new construction doesn’t pencil when you fill in that big chunk of impact fees,” Andrew Sorensen, director for Cushman & Wakefield Commerce, said.
Getting these fees reduced will require legislative action.
Krashowetz mentioned President-elect Donald Trump’s claim that 25 percent of home building costs are due to regulation, a number he said he’d like to see reduced to 2 percent.
Construction costs are projected to go up as worker’s wages increase and immigration laws tighten.
“Those considering new construction, again, be aware that there may be some additional costs, especially if ‘the wall’ gets built and so the trades go back,” Curtis said in reference to Trump’s proposed wall along the U.S.-Mexico border.
Projects in the works
Despite looming challenges, several major commercial and residential real estate projects are already under construction or slated to begin this year.
On the residential end, some of the bigger projects include:
- St. George Downtown City View, a $30 million mixed-use development, including a hotel, 100-unit apartments and 10,000 square feet of retail.
- 300 new twin homes and new Hampton Hotel at SunRiver.
- 120-140 condos and 30-40 homes by Bloomington Country Club.
- 244 multi-family apartment units in Rivers Edge at 501 S. 2200 E.
Some large commercial projects are already in the works.
- 3,600-acre area off of Interstate 15 exit 2. This is a 20-year State Institutional Trust Lands Administration project that includes residential, resort, commercial and education developments.
- Dixie State University expansion.
- Dixie Regional Medical Center expansion.
- Ridge Top Complex.
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So what are the real costs that come with each new build? Roads, utilities, public safety, infrastructure, open public space and more all need to be paid for. I’ll do my share but don’t want to carry your load as well.
Washington County still has plenty of reminders of a time in the late 00s when it was the epicenter of Utah’s financial meltdown. Thankfully, the Larkin Team Foreclosure Bus has been retired.
Real estate prices have recovered from the foreclosure-driven lows, but affordability has deteriorated (% income for housing – even compared to Northern Utah), and interest rates will continue to rise as our federal government stops subsidizing the housing market.
If you triangulate SW Utah with Suburban Las Vegas, or Suburban Phoenix, we are paying a housing premium to live here. Granted, our air quality is superior to either alternative, but at the end of the day we are not a low cost place to live.