Starter condos? Here's Utah's new plan to get more affordable housing built

Yahoo

27-05-2025

Last year, Utah launched Gov. Spencer Cox's novel plan, making some $300 million in public funds available for low-interest loans to encourage developers to build more affordable homes for first-time buyers.
But just $10.7 million has been transferred from the fund, in February for a Nilson Homes project just outside Plain City, Weber County, according to the Utah State Treasurer's office. The first dozen of what eventually will be 275 homes priced below $450,000 have been built and sold.
It's a slow start toward meeting the governor's goal of 35,000 more starter homes by 2028.
So the 2025 Legislature quietly made a change to the program that allows for a new type of affordable housing in addition to the traditional single-family house to be built with money from the funds set aside.
Starter condominiums.
'They're the natural entry point into the housing market,' said Steve Waldrip, a former state lawmaker and the first to fill the recently created role of senior adviser for housing strategy and innovation to the governor.
The apartment-like, multistory housing can be much less expensive than a single-family home and, Waldrip said, allow developers to take advantage of smaller and odd-sized lots, particularly around public transit stations.
'The governor has been very vocal about wanting single-family homes to be the priority of the administration. So we've done and are doing things in that arena. But there are places where you just can't do that,' he said.
Say there's 2 acres available to develop. Instead of building just a couple of houses, Waldrip said, 'you could do 50 condos, or 100 condos. You get ownership in both instances. But because of the volume benefit of the condo process, they come a lot cheaper.'
Although many communities have balked at high-density development, he said they 'are much more amenable to condos than apartments because you have that ownership component. It provides much more housing stability.'
In Utah and the rest of the country, though, there's been little interest in building lower-priced condos for years because of costly insurance and regulatory issues, he said. Such projects are seen as offering a lower reward for a much higher financial risk than building apartments.
Utah lawmakers have taken steps to remove some of the roadblocks but there's more to be done. Last session's legislation also extended the availability of funding for building starter homes and now condos for an additional year, until 2028.
Waldrip said the state is working to create a Utah-specific construction defects insurance policy to counter premiums that can be four times higher for condo than apartment development because of regional pricing.
While that might take more legislation, he doesn't see it as a 'show-stopper' for the administration's new push for starter condos, especially since a larger financing issue was resolved by allowing the nonprofit Utah Housing Corporation to make loans, just as banks have.
That change in the law, slipped into a larger housing bill after being successfully pitched to the Legislature's closed-door caucuses last session, is a way around federal regulations requiring 50% of a condo project to be sold before FHA loans that first-time buyers rely on are available.
'We're just talking about taking some of the risk away from condo development,' Waldrip said. 'What have we been building? Apartments. We've been building apartment after apartment after apartment. ... We have all these built-in disincentives to creating condos.'
So will that be enough to get apartment developers to shift to condos?
Waldrip believes it is. He said the changes being made to the starter home program are in response to a developer who came to the state for help making the switch, Tom Henriod, a partner in the Holladay-based Rockworth Companies that develops projects throughout the West.
'That was the beginning of the discussion of how to create this condo project,' Waldrip said.
Henriod's detailed proposal from late last year for 'Advancing Affordable Condominium Development in Utah' fills the front and back of a single sheet of paper. It spells out that the supply of affordable homes 'is nearly nonexistent,' so more and more households remain renters.
There's also a warning about the '(w)idening wealth gap between owners and renters fostering greater class distinction, discord between classes and increased risk of societal unrest,' noting that the government's solution is usually to subsidize rental units for low-income residents.
'We're not trying to be alarmist ... but we mean it,' Henriod said, making a point to single out that statement in his proposal. 'We need people to feel like they have ownership in their community, literally.'
Condo units could be built for $350,000 or less and sold at or near cost to lower-income buyers, Henriod said. Developers would be paid a yet-to-be determined fee of maybe 10% of the project's overall cost, he said, similar to what they get for building subsidized apartments.
What's not sustainable in his mind is continuing to build multifamily housing only for renters.
'There should be a large contingent of it that's for sale,' said Henriod, who has built thousands of apartment units over the years. 'This idea is really borne from that thought, that we need more for-sale housing at smaller purchase prices, period.'
But his last condo project, near Trolley Square in Salt Lake City, was some 15 years ago. The challenges of building multiple units sold to individual buyers versus an apartment complex with a single owner are just too steep for developers, Henriod said.
'I've got better tax options if I do apartments. I've got liability issues that exist with the condos that don't exist with apartments. It's so much easier for me to get financing and I don't have to worry about figuring out how my buyers of all these individual condos can get financing,' he said.
Those issues have led developers to say 'why bother' building something sold as a 'box in the air' with a fractional interest in shared parts of a building, Henriod said. 'It's tough. It's super tough. There's a lot of reasons why no one has been doing this.'
A mortgage payment on an affordable condo may actually be a little less than the nearly $2,000 typical rent for a two-bedroom apartment, he said, allowing the owner to build equity estimated to be valued at $158,000 over a decade.
'It's not rocket science,' said Henriod, a father of four children ages 10 to 21. 'I'm thinking about my kids and what are they going to buy. I'd like them to be able to buy something, gain equity and get into a move-up market. I think that's what the American dream really is.'
Nothing's planned yet, but the company's already scouting property, including in Cottonwood Heights, Salt Lake City, Ogden, Spanish Fork and Murray. Henriod said he's just waiting for the state to come out with specifics of the starter condo program.
'Hopefully soon,' he said, adding the company would love to be able get started in the next year or so since it takes at least three to four years to secure the necessary permits and then build a 200-unit complex.
It's the Utah Housing Corporation that will fund condo projects from the state monies set aside for starter homes once the details of the program are in place. Just how long that's going to take remains to be seen.
'We make no promises,' said David Damschen, who served as Utah state treasurer before becoming president and CEO of the nonprofit agency created some 50 years ago. 'We're moving as quickly as we can. ... We're not messing around.'
The hope is that Utah Housing Corporation's new role in the governor's starter home program as a lender to developers will be fairly well defined by late summer, he said. A new hire has already been made to help with what will be a significant expansion of the agency's construction financing.
'Obviously, we're very subject to how things unfold. We're spending a lot of time with the developer community as well as legal counsel, making sure we understand the sources of risk, making sure we understand how the incentives will be viewed,' Damschen said.
If the new program 'doesn't work for developers to do really great work, produce high-quality, affordable units, it's not a good program. So we have to strike a delicate balance,' he said, between the risk of financing condo construction and the reward of more affordable housing.
Claudia O'Grady, vice president of Utah Housing Corporation's Multifamily Finance Department, said it's possible there could be units for sale as soon as next year. She said she's been hearing from developers interested in converting existing apartment projects into condos.
'If it can get done in a manner that meets our program requirements, and our objectives of affordability, a quality product at affordable, entry-level prices, we're going to entertain those applications,' O'Grady said.
She said the condo projects would be fee-based to incentivize developers to participate and hopefully allow the units to be sold at cost, although the 'finer points' of that model still need to be worked out. That includes the size of the fee paid to developers.
'Yes, there's profit in it,' Damschen said. 'We don't want to let them make too much.'
For buyers, for now the intention is to require owner occupancy for at least five years. Income limits are also being discussed, but Damschen said there's value in keeping it simple for Utahns seeking to become homeowners.
'You can overcomplicate programs such that they're not as appealing either to developers or to homebuyers, or mortgage lenders. So there's a focus on simplicity. There's a focus on the cost,' he said, noting down payment assistance would be available to first-time buyers.
Damschen believes the starter condos will be welcomed.
'It's not really single-family homes versus condos. It's apartments, rental apartments, versus condos. That's really where the initiative stemmed from, was generally, cities are more interested in ... housing units that provide home ownership opportunities,' he said.
At the same time, making the transition from renter to owner by purchasing a single-family home is often out of reach for Utahns.
'Increasingly, single-family detached homes at $400,000, $450,000, $500,000 are not affordable to first-time homebuyers,' Damschen said. 'But for a lot of folks buying their first home, a condo at $300,000 will do the trick.'
Utah's largest homebuilder, Ivory Homes, backs the governor's efforts. Chris Gamvroulas, president of Ivory Development, said the starter home program was initially geared to small- and medium-sized builders.
Asked if Ivory was interested in building starter condos, he said 'we have so many other projects that are in our pipeline already that for us, it wouldn't make sense. But I know there's a lot of builders that are looking into it now and are hopeful that it can bridge the gap.'
Gamvroulas said high-density housing that for sale could enable more Utahns to earn equity rather than paying rent. Over time, he said, they could sell their unit and buy a single-family home like the ones Ivory builds.
'We're homebuilders. We sell homes. That's our business. We want to get people into homes and have them own them. It's good for families. It's good for individuals. It's good for our state. It's good for business,' Gamvroulas said, adding, 'It can be a condo. It can be a town home.'
Jed Nilson, the owner of Ogden-based Nilson Homes, is the first and so far only builder to participate in the governor's starter home program. Now, he's eager to do the same with starter condos.
When the JDC Ranch development near Plain City is complete, 275 of what's now 1,000 homes will be single-family detached houses priced for first-time buyers. The 12 starter homes built so far cost between $370,000 to $400,000 and were all snapped up by eager buyers, Nilson said.
'The governor did a press conference there on Thursday, Oct. 31. By the following Wednesday, we had a waiting list of 150-ish people. So there's huge demand. We have done zero marketing,' he said, noting that list continues to grow.
The $10.7 million he received through the state program was used to buy 130 lots and add roads and utilities for the initial phase of the development started last year as well as to build the 12 starter homes, Nilson said.
The phase also will include another nine single-family detached starter homes as well as 70 townhomes priced under $450,000, he said, citing a requirement that homes in that price range must make up at least 60% of the project to qualify for the state loan program.
For the construction of the market-rate homes in that phase, Nilson said he took out a separate loan at a higher rate.
It took months to put together the initial loan from the state fund, made by First Utah Bank, Nilson said, so he initially had to fund all of the development and construction. 'It was a little bit of a nail-biter,' he said, but worth the wait.
Nilson, who took over a business started by his father in the late 1970s, said Utah's lack of affordable housing is 'my problem to fix. If anybody can fix the problem, it has to be builders and developers.' So why aren't more participating in the program?
'Builders have been building large homes on large lots for the last 20 years,' he said. Bigger means more profits, even though Utahns are clamoring to buy smaller brand-new homes on smaller lots.
'I do still make money, I just don't make as much money as if I were building the market rate homes,' Nilson said. 'Here's the thing that also helps me out, the fact that when I build these starter homes, I get to build more homes.'
He's not just talking about shrinking the lot size to accommodate smaller, less expensive homes. Local governments have long resisted a push by state lawmakers for them to accommodate smaller lot sizes.
For the 240-acre JDC Ranch development that's expected to take seven years to build out, Nilson said with help from the governor's office, he was able to secure permission from Weber County to build on about 30 acres that normally would have to be set aside as open space.
In exchange, he said the county expects a total of 275 detached starter homes built, so the development has been redesigned to add those alongside the homes originally planned, bringing the total number of units in the project to 1,000.
Lot sizes range from around 4,000 square feet for the two models of starter homes, to between 6,000 and 13,000 square feet for the market rate homes, Nilson said.
His starter homes have a deed restriction requiring the owner to live there, he said, so properties can't get bought up by investors and turned into rentals. They also come with landscaping and fencing, and ongoing maintenance through a homeowners association.
'We don't have to worry that we're going to put in affordable housing and people won't be able to afford to put their yards in or they won't be able to afford to maintain their yards,' Nilson said. 'Even if my last name weren't on the business, I want to be proud of what I create.'
Starter homes will sell as fast as they can be built because there's so little on the market for Utahns who want a new house priced under $450,000, he said, adding that his 12 starter homes all closed on the day they were finished.
'If I had a hundred more, they would all be sold,' Nilson said.
The next phase of the JDC Ranch development with more starter homes is underway and other projects are planned in Utah and Box Elder counties. He said there's still some money available from his first loan from the state fund and his company is in the process of borrowing more.
Nilson said he's also ready 'to test one on the condo side,' using a loan from the state fund to build a starter condominium project somewhere along the Wasatch Front since 'the true way that we start to create affordability is if we go up.'
Opening up the starter home program to condos 'is a huge game-changer for the state of Utah, where developers like myself in a master plan like this where it has a thousand units, maybe we could have done some condos and brought it up 1,100 units,' at even lower price points, he said.
'This program is going to help the state significantly,' Nilson said, because including condos may be what makes it possible to meet Cox's goal of 35,000 new starter homes. 'Now I see how we're going to be able to do it. I think it's really brilliant.'