For decades, Arizona’s economy thrived in large part because of new home and apartment construction, which drove commercial and industrial growth.
But in the last year, Arizona has been experiencing a much different trend.
New single-family home building permits plummeted 12% from August 2024 to August 2025, according to a new report from the Arizona Legislature.
The constricting supply of new single-family homes presents emerging challenges for policy makers on everything from budgeting to the continued crisis of housing affordability.
Interest Costs Squeeze Builders
Connor Devereux, market analytics director for CoStar Group/Homes.com, said homebuilders are not immune to the cost increases squeezing much of the United States since COVID-era inflation took hold.
“The main reason is the cost and availability of capital,” Devereux said. “Interest rates have gone up significantly. That raises the cost of capital for homebuilders. It can make it more difficult for their projects to pencil out.”
Home sales throughout the Valley have plummeted in recent years, with fewer people upgrading to larger homes, instead deciding to stick it out through this period of higher interest rates. An economy in flux is also preventing people from making big purchases.
“If economic uncertainty is reduced, that will be a help,” Devereux said, calling the unpredictability of the current economy a “paralyzing factor.”
Devereux said he expects home sales to pick up as interest rates start to come down.
New Construction Faces Water Issues
Gov. Katie Hobbs essentially issued a moratorium in 2023 for new home construction on the outer edges of the Valley, in places like Buckeye and Queen Creek.
She ordered her Department of Water Resources to halt issuing 100-year water certificates needed to build new subdivisions in those areas. However, recently Hobbs lifted her moratorium and homebuilders are looking to move forward again.
He pointed to Teravalis in Buckeye, which has opened and sold its first home in an area that could eventually see 100,000 new residential units built.
A Diversifying Economic Base
Although population growth has long fueled Arizona’s economy, Devereux points out the state has worked the last 15 years to diversify its economy, becoming a chip manufacturing center thanks in part to the large Taiwan Semiconductor Manufacturing Co. factory underway in north Phoenix.
“I think our state has done a pretty good job of being more durable,” he said. “It’s a less fragile economy.”
But single-family construction permits won’t begin to pick up until homebuilders can be assured that the homes will sell at a profit, Devereux noted.
“If you can’t build at a price point that the traditional buyer can buy, it causes homebuilders to not build,” he said. “It comes down to what makes sense from the homebuilder’s perspective.”
