The state of Utah is trying to build 35,000 starter homes over the next five years. Last year, $300 million was allocated to something known as the Utah Homes Investment Program (UHIP). The initial idea was that these funds would be provided as low-cost deposits to financial institutions so that they could, in turn, offer low-interest loans to homebuilders who committed to building single-family starter homes.
But this didn’t go as planned. Apparently, the low-cost deposits weren’t low enough to compensate for the perceived lending risk. So Governor Cox asked if the funds could instead be directed to the Utah Housing Corporation. Enter the Condominium Construction Loan Program. The way this newly created program works is that UHC can now provide low-cost loans — up to 100% LTC — directly to developers.
However, there are some stipulations:
Warrantable projects: The projects must be warrantable to the Federal Home Loan Mortgage Corporation, meaning the property and the individual condominium units need to be eligible for conventional mortgage financing.
Owner-occupancy requirement: The individual condominium units must be sold to an owner-occupant, with a recorded deed restriction in place for a period of not less than five years. This is obviously to stop investors from buying and reselling.
Equity sharing: The equity appreciation on the condominium unit is shared between UHC and the first owner-occupant. The homeowner earns 75% of the equity appreciation (15% per full year of occupancy, through five years), with the balance going to UHC upon sale of the unit.
So it’s a trade-off: buyers get access to new homes at below-market pricing (because the developer’s cost structure is reduced), and in exchange, they give up some of the potential upside. Will it work and help Utah achieve its starter home goal by 2030? I don’t know. But it’s clear recognition that if you want to deliver below-market housing, you need to provide subsidies.