28 June 2008 - Right now as we hear about the wide selection of homes currently available for sale, it's difficult to imagine that we could ever have a housing shortage.

But a close look at Utah population projections shows that such a possibility could be plausible in the near future.

This article attempts to illustrate the reasons for this conclusion using relevant research and economic data. Even though no one can predict the future exactly, an understanding of this data can help us accurately identify what housing trends we can look for in the years ahead.

Consider these figures: Over the next few years, Utah's population is estimated to grow by about 200,000 people - up from 2.7 million residents in 2007 to 2.9 million by 2010, according to the Utah Population Estimates Committee.

For this year and next year alone, Utah is expected to add 142,000 new people, a figure that translates into about 46,100 new households being formed over the next two years. In other words, the state will need about 46,100 new housing units in the next couple years to house these additional people.

At this growth rate and under the conservative assumption that approximately 2,000 units are demolished or become uninhabitable each year (a figure based on calculations from National Association of Realtors chief economist Lawrence Yun), about 25,050 homes will need to be built each year to house our growing population and replace the structures that have been torn down.

Some have said overbuilding took place in Utah during the middle part of the decade, with a peak of 28,285 residential building permits issued in 2005 (which included both single- and multi-family homes). But when compared to a needed 27,000 housing units - based on population increases for that year and units to replace demolition - the building didn't seem to be too much out of line.

Since that time, new homebuilding activity has seen a substantial slowing, with permits dropping sharply after the credit crunch in the second half of 2007.

Recent numbers show Utah homebuilding activity in the first quarter of 2008 was down 58.5 percent from the previous year, according to the University of Utah's Bureau of Economic and Business Research. In fact, the Governor's Office of Planning and Budget predicts there will only be 13,000 residential building permits issued in 2008.

Some have blamed the drop-off in residential construction on overbuilding, but an analysis of Utah's 10-year housing needs shows, in fact, that if building continues to slow, the state may not have enough housing for its population. The slowing we've seen is actually the result of affordability and credit issues, not lack of demand.

"This does not appear to be a problem of building too many houses in relation to too few households. Homebuilding seems to be in line with the formation of new households in Utah - they seem to be in balance," said Bureau of Economic and Business Research Director James Wood in the January/February publication of the Utah Department of Workforce Services.

Since 2000 and including projections for 2008 and 2009, the state has added an average of nearly 65,000 people each year, which translates into the formation of about 21,000 new households. Including housing to replace demolitions, about 23,000 units on average would need to be built each year over the 10-year period. However, data from the Bureau of Economic and Business Research and the Governor's Office of Planning and Budget show an average of only 21,064 units being built each year from 2000-2009, a shortfall of about 2,000 units per year.

"Utah's demographics suggest that the demand for housing will remain strong," Wood told the Department of Workforce Services. "We still have several more years of anticipated strong household formation as the influential demographic surge of 20- to 30-year-olds into Utah's labor market continues to unfold."

With the U.S. continuing to see population growth as well, a shortage may also be possible on a national level despite current headlines about an overwhelming supply of inventory. Yun said that once the nation has absorbed its housing supply, builders will need to ramp up production in 2010.

"The next big house price gains will not be due to easy credit conditions, but could arise due to housing shortage conditions," Yun wrote in an economic commentary.

Ultimately that means if you are in the market to buy a home, now may be a good time to start your search and take advantage of the plentiful choices in housing. It also may mean that going forward new types of housing will need to be built in order to meet demand and solve affordability issues.