Here’s what is being done to meet skyrocketing housing demand

The fact that Phoenix is growing at a faster rate compared to all other major cities in the U.S. isn’t breaking news. In fact, it was in Aug. 2021, that our Valley of the Sun made national news, highlighting exactly how rapidly the Phoenix Metro is expanding. The 2020 census revealed that the City of Phoenix had grown by upwards of 160,000 people from 2010 to 2020. Municipalities west of Phoenix — Goodyear and Buckeye — were discovered to rank in the 10 fastest-growing cities in the U.S., with Buckeye topping out as the fastest, with its population increasing nearly 80% within the last decade. All that adds up to skyrocketing housing demand.

And really, why wouldn’t the masses flock to an epicenter of incredible weather (at least the majority of the year), amazing quality of life and bountiful recreational and entertainment options?

Yet, while residents pile in from feeder locations like California and the East Coast, there’s one major issue to consider: where will they live? The mass migration to Phoenix, Goodyear and Buckeye, as prime examples, have — as witnessed in the past year-plus — reduced housing inventory, thus driving the residential market value skyward. So, it’s not simply lack of available homes for locals and transplants, but accessibility in terms of cost to consider.

“The main challenges to address this growth is the availability of housing and ensuring the infrastructure is in place to handle it,” says Steve Betts, managing director of development for Holualoa Companies. “On the development side, I think you are seeing a continued and expanded focus on increasing the amount of housing available in Phoenix — across the economic spectrum — especially attainably priced and workforce housing. And on the government side, you are seeing proactive efforts to plan for the growth of our community when it comes to transportation, education, natural resources and other infrastructure.”

Adds Chris Anderson, senior managing director for Hines, “The industry is trying to keep up but there is a lot of pressure on all costs in the housing delivery model including land, permits, materials and labor.”

Cost of housing

In April 2022, the Monthly Housing Report revealed the median listing price for a home in Metro Phoenix at a hefty $500,000 — close to $100,000 above the national average for home prices.

According to Housing and Urban Development’s Fair Market Rents, the cost of a two-bedroom apartment in Arizona is $1,097. “To afford this level of rent, as well as utilities,” says Kate Gallego, mayor of Phoenix, “a household would need to earn $43,892 annually, or an hourly wage of $21.10 — more than nine dollars above Arizona’s minimum wage.”

Brian Craig, development services director for the City of Buckeye, notes that the same sized home on the same sized lot would cost less in the Buckeye area than elsewhere in the Valley, due to the distance from the urban core. “However, as growth in employment land uses ( e.g., distribution centers, advanced manufacturing, retail, restaurant, and hospitality brings jobs and services closer),” he says, “housing demand increases and home prices are keeping pace now with the rest of the Valley.”

Additionally, according to Craig, as long as job opportunities increase in Buckeye, housing needs will increase as well. “Buckeye is well suited to accommodate all housing types ranging from multi-family, retirement and conventional single-family residential,” he says, “including the full spectrum from workforce to executive level homes.”

Demand and inventory

In March, the Associated General Contractors of America (AGCA) reported that while construction employment rose by 19,000 jobs between Feb. and March 2022, available jobs still outpaced filled jobs totaling 364,000 at the end of February (the largest February total on record). With labor shortages far and wide throughout both residential and commercial real estate — with no immediate change in sight — can Greater Phoenix keep up with housing demand?

“There’s an opportunity here for the solutions to this problem to be synergistic,” Betts says. “If we can provide current and future Arizona residents with a wide range of housing options, including quality, attainably priced rental housing, that will attract workers to a broad range of employment.”

Betts goes on to explain that this includes construction and trades jobs that not only will help address growth, but will also ensure that the economy continues to grow in ways that benefit all Arizona residents.

Yet, although demand for housing continues to rise sharply in Greater Phoenix, inventory has not dipped the way it has in other comparable cities. The Monthly Housing Report demonstrated an overall 16% decrease in inventory of homes actively for sale among the 50 largest U.S. metros. In comparison, Phoenix was among six metros to experience an inventory bump in March 2022, albeit a marginal +0.4%.

The sustainable success in meeting housing demand in more populous regions in the Valley has been largely in part to preparedness.

Addressing demand

In 2020, the Housing Phoenix Plan (the first-ever initiative of its kind) established a goal of creating or preserving 50,000 homes by 2030 to address the housing shortage in Phoenix, according to Gallego. Through December 2021, the city has created or preserved 23,090 units. Of the preserved units, 1,370 are housing units that are newly created or will remain affordable through the city’s housing rehabilitation programs, new landlord incentives and the pilot Community Land Trust program.

Adds Craig, “With Buckeye having fully zoned master-planned communities, many of them have preliminarily completed the back-end planning on density, infrastructure needs and development standards. This puts them a step ahead when a developer decides to move forward.”

Currently, notes Craig, Buckeye has 26 large, master-planned communities with an estimated 300,000 lots planned within these master-planned communities. “Having properties fully entitled saves time for the developer and makes for more attractive property when looking at speed to market,” Craig says. “Much of the growth in Buckeye is credited to these master-planned communities and the planning done in Buckeye over the last 15 years.”

In Phoenix, Gallego reports that 10,814 single-family permits and 18,241 multi-family permits have been issued year to date in the Fiscal Year 2021-22. “On March 2, 2022, the city council approved approximately 1,800 planned new dwelling units,” she says. “In addition, the city operates 1,567 public housing units, administered more than 7,000 Housing Choice Vouchers and provides 1,200 housing units to seniors.”

Gallego also notes that approximately 1,500 new Section 8 admissions were leased into the program between January 2020 and December 2021. “We have nearly 160 new landlords leasing a Section 8 unit for the first time,” she says.

One of the most robust and coveted areas of housing activity — from Phoenix proper to the West Valley — has been multifamily. According to Craig, Buckeye historically had little to no multifamily activity. In the past two years, demand has significantly increased. “Buckeye encourages dense multifamily and other owner-and renter-occupied options in appropriate locations as we work to expand housing choices in our community,” he says.

For as much as inventory is holding out for now, will it continue?

“Demand will exceed supply for a long time and hopefully the market levels off when inflation and supply chains correct,” Anderson says.

Additional measures

In an effort to ensure demand for housing is met amidst challenges such as rising interest rates, exorbitant listing prices and supply-chain/labor issues, Anderson explains that there are legislative measures that can be taken to potentially improve matters.

“At the federal level, they need to speed up the 404 wash-permitting process or provide clarity on what is a true wash or not,” he says. Section 404, for which Anderson refers is part of the Clean Water Act that requires a permit for construction within certain parameters of a designated wash area.

Anderson further adds,“At the City level, they need to hire more staff to process applications and move through the zoning process quicker. Local governments are having the same issues with labor, and they are trying hard to work through them but demand is outpacing their abilities. Governments should remain out of the free-market process related to picking winners and losers as the market changes too fast and creates issues.”

As far as legislative intervention to curb, manage growth or regulate housing, Betts considers such involvement “improper interference in our economy, property rights and economic development.”

Government should instead, he says, “continue to focus on infrastructure and to fund the kinds of things that improve our quality of life, including quality transportation, improved education, access to water resources, preservation of natural and open spaces.”

Adds Craig, “For any city, as it grows, it shouldn’t grow just for growth’s sake. Keeping residents, business owners and development partners engaged and actively participating every step of the way as you grow results in a successful, coordinated, highly desirable community to live, work and raise a family.”

Gallego also points to The Landlord Incentive Program, which she relays has encouraged 570 landlords to execute 1,297 Housing Assistance Payments (HAP) contracts. “Each of these owners received a one-time payment of $500,” she says. “On Feb. 16, 2022, City Council approved increasing the incentive payments to $2,000. We also have the HOME Investment Partnership Program, which has been successful in delivering approximately 6,300 affordable housing units, with 1,200 more underway.”

Housing and commercial growth

As Craig previously mentioned, more job opportunities in the Valley’s hotspots will trigger an increase in housing demand, which has developers and city leaders turning their attention to trends in commercial development.

“Population growth is one of the key determinants of commercial development, with the old adage ‘rooftops drive retail’ holding true,” says Dave Roderique, deputy city manager and economic development director for the City of Buckeye. “Obviously, when you add 10,000 new residents every year (as is the case in Buckeye), you will need retail and services to support that growth.”

Currently, Roderique notes that Buckeye is already one of the most underserved markets in the Valley in terms of retail and medical services as examples. “And with every new resident we add, we fall further behind,” he says.

With that said, Roderique and fellow city leaders do see hope on the horizon in meeting future demand for homes as well as inviting commercial development. “Buckeye’s future is quite bright. Over the past year Buckeye attracted about 6,000 new jobs and over one million square feet of new commercial development,” he says. “We are on an even stronger pace this year.”

So far, upwards of 20 million square feet of new industrial development and two million square feet of new commercial development has been proposed in the past six months throughout Buckeye.

Adds Anderson, “Long-term outlook for Metro Phoenix is good because we have business-friendly policies relative to our region. All types of housing need to be embraced by the cities for different stages of life and lifestyles.”

In closing, Betts predicts continued growth in all sectors. “There’s currently a great deal of demand for just about every product type, including single-family, multifamily, build-to-rent and high-rise residential,” he says. “But future demand for attainably priced, workforce housing — the so-called ‘missing middle’ housing — might be our biggest issue given all of the manufacturing and advanced industry jobs we’ve been creating.”

About Real Estate Intelligent Marketing (REIM):
REI Marketing is an innovative Real Estate Marketing Company that offers distinctive real estate services to developers and multifamily investors.  We are a vibrant, dedicated team of industry professionals with international experience in marketing and multifamily investment.