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Rising home, rent prices partially caused by lack of housing, experts say

Census Arizona
Posted at 9:07 AM, Mar 09, 2022
and last updated 2022-03-10 17:41:54-05

PHOENIX — When the Great Recession hit in 2008, Arizona’s booming construction industry was sidelined and has struggled to recover ever since, according to Lee McPheters, the Director of the Economic Outlook Center at WP Carey School of Business at Arizona State University.

"We really had a very, very slow recovery. [It] took years to replace all the lost jobs. And as a result of that, there was a long period of under-building of single-family properties," McPheters said. "And now, here we are in 2022. And we have really strong forces pressing on us in the residential markets, both from demand and supply side."

Prior to the recession, 238,867 construction workers were employed in the state. By the end of 2008, that number dropped to 184,892. The industry reached its lowest employment rate by 2011, according to data from the U.S. Bureau of Labor Statistics.

“Over the last, you know, decade or more since the recession in 2008, we really just haven’t developed an adequate supply of new housing, both in single-family and multi-family,” Brian Swanton, the President and CEO of Gorman and Company, said.

According to data from the U.S. Census Bureau, 80,778 single-family housing permits were issued statewide in 2004.

That number dropped to 19,153 by 2008, and even further in 2011 when the number of single-family housing unit permits issued in Arizona hit a record-low of 10,306.

Since then, the number of permits issued for single-family housing units has incrementally risen in the state.

But, according to Alison Cook-Davis, the Associate Director for Research at the Morrison Institute for Public Policy at Arizona State University, the damage done by the Great Recession has created a housing deficit in Arizona.

“This is a kind of a machine that… once it turns off, you can’t just flip a switch and turn it back on,” Cook-Davis said. “It ultimately comes down to… supply and demand.”

And while the demand for housing has grown across the state, supply has not kept up.

In the first-ever Housing Phoenix Plan released by the city, researchers noted that between 2000 and 2015, Arizona underproduced 505,134 housing units.

“Fifteen years of housing underproduction has led to a housing shortage,” Jeff Andrews, Senior Market Analyst at Zumper, said. “Given we’re already suffering from a supply shortage… that’s why you’re seeing home prices rise a lot. That’s why you’re seeing rent rise a lot.”

In Zumper’s National Rent Report, Andrews’ research shows rent prices grew 1.4% in February. For context, rent costs grew by 0.3% for the entirety of 2019, and 0.6% for the whole of 2020.

“Rent and home prices tend to move together,” Andrews explained. “When one goes up, the other goes up.”

Because housing prices are increasing in Arizona, the cost of rent is also increasing, Andrews said.

Zumper’s rental data shows Phoenix is among the top three cities in the country experiencing rental growth. But Scottsdale, Chandler, Gilbert, Mesa, and Glendale have all seen rent prices for one-bedroom and two-bedroom apartments rise year over year.

“I think the sobering thing is that we expect things to keep rising,” Andrews said.