The law of supply and demand is a basic principle of economics, seen in action daily at the grocery store and gas pump. When demand rises and products grow scarce, prices jump. When supply is high and demand is low, prices fall.
That same principle governs the Valley’s housing market.
On an average day in the Valley, nearly 300 people move in, according to Census statistics. Last year, the metro area added more than 106,000 new, pushing the Valley population to 5.1 million. Thousands of new residents require thousands of homes. Developers have not been able to build new rental housing and single-family homes quickly enough to match this surge in humanity.
The population explosion has sent rent surging upward, along with rising costs for construction materials, payroll and property taxes. The COVID-19 pandemic and the accompanying 18-month eviction moratorium also drove rent higher, with a majority of single-family rental homeowners reporting they suffered from the inability to collect rent – including 23 percent of property owners who were forced to sell off some or all their properties.
How can we help Valley housing prices go down? We must build more housing at all price points, and do so quickly and cost-effectively. If we fail to correct this shortfall in supply, Arizona’s renters, would-be homeowners, our workforce and economy will pay a heavy price.
Economist Elliott Pollack, speaking at a Greater Phoenix Chamber of Commerce 2022 Economic Outlook event, framed this year as a pivotal moment. Pollack reports the Valley needs to build about 34,000 new housing units annually to keep up with the population surge. Beyond that, there’s a shortage of 25,000 homes and 15,000 apartments, the economist explained.
“That’s a big hole and it’s going to take years to fill,” said Pollack.
This shortage of homes creates enormous competition for the few rentals that are available. In 2021, there were 20 applicants competing for each vacant apartment in Phoenix, according to RentCafe. If this shortfall in the housing supply remains unaddressed or grows – while demand continues to rise, as expected – more people will be priced out of the market.
The state’s economy is equally in peril if the new employers we count on to create jobs and revenue cannot find homes for their employees.
As obvious as that may be, the reality has been anything but simple. Cities like Scottsdale, Gilbert, Surprise, Goodyear and Buckeye have been resistant to building new homes and apartment communities, while proclaiming the need for more affordable housing.
In Scottsdale, Mayor David Ortega has been a formidable stumbling block, constantly playing politics in an effort to foil new housing. His opposition may play well with the “not in my backyard” NIMBY crowd, who oppose virtually every new home or apartment community, but it ignores the impact of constantly saying no or demanding costly changes to projects: This resistance forces the price housing higher by stifling the marketplace or raising overhead costs in a business already operating on razor-thin profit margins.
Supply and demand says a price that goes up will keep going up until there’s enough of the product to go around. We must build accordingly.
Courtney Gilstrap LeVinus is president and CEO of the Arizona Multihousing Association.
Author: Courtney Gilstrap LeVinus