Two Arizona markets are among the top in the nation for multifamily rent growth. Fueled by robust population gains and a moderation in single-family home building over the past decade, healthy demand for apartments has given landlords leverage to lift rents. Among all large U.S. markets (with more than 75,000 apartment units), Tucson had the strongest year-over-year rent growth in the second quarter; Phoenix came in third, following the Inland Empire.
Tucson and Phoenix were not immune to the impact of the pandemic. Daily asking rents fell sharply in both markets in the second week of March, but rents stabilized and have now passed the March peak. Tucson’s apartment rent bounce back has been impressive; daily asking rents are now 2.7% above the March high. Phoenix rents have now just edged above pre-pandemic rates, and not all submarkets have recovered yet.
The ability to lift rents during an economic disruption that has caused a spike in unemployment was largely due to the July expiration of enhanced benefits to unemployment insurance. Renters receiving those benefits were getting an extra $600 per week, which went a long way in Tucson and Phoenix, where average rents are about $840 per month and $1,190 per month, respectively. Compare that to renters who are paying an average of $1,940 per month in Los Angeles or $2,920 per month in San Francisco. As a result, rent collections have been substantial, with most communities reporting that more than 95% of renters are paying rent.
The markets still face some challenges that will likely limit more substantial rent appreciation in future quarters. The $600 per week federal unemployment benefit provided by the CARES Act expired on July 31, and Congress failed to reach agreements on additional relief. Instead, by presidential executive order, states have been authorized to pay $400 per week to supplement unemployment benefits, with the federal government funding only $300. However, there are still many uncertainties surrounding the implementation of the program. And the statewide moratorium on evictions expires in October, which will likely soften vacancies and limit rent growth. Another significant headwind in Arizona is single-family affordability and historically low mortgage interest rates that may entice renters to seek homeownership.
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