According to a state and metro Phoenix economic forecast, Arizona will continue to add a significant number of residents, housing, and jobs while dealing with inflation, supply chain issues, and a low supply of homes in the growing region.
Although Arizona is one of the fastest growing states in the country, Lee McPheters, a research professor of economics and director of the JPMorgan Chase Economic Outlook Center at Arizona State University, said the state added 98,000 residents last year, which was less than the expected 107,000.
“Unfortunately, there’s a somewhat somber story behind that,” McPheters said Wednesday at the Economic Club of Phoenix’s economic panel, which included several experts from ASU’s W.P. Carey School of Business. “We grossly underestimated the number of pandemic-related deaths in Arizona. We had a very high death rate, and deaths effectively cancelled births.”
The majority of the increase in residents was due to net migration, according to McPheters, but Arizona did not receive the 20,000 to 25,000 that the region typically receives from natural increases. In the last two years, 30,189 people have died from Covid-19 in Arizona, which has the country’s second-highest per capita death rate, with 411 deaths per 100,000 people, trailing only Mississippi.
Nearly 110,000 new residents are expected this year and in 2023. “Net migration will continue to be very, very strong,” he predicted.
To keep up with the growing population, the state continues to build more housing and multifamily units, though the pace of construction isn’t keeping up with population growth. Last year, Arizona issued over 46,000 single-family permits, the majority of which were in the Phoenix metro area, which was also the fastest growing area for home prices.
The Phoenix metro area is attempting to keep up with demand.
According to Mark Stapp, the Fred E. Taylor professor of real estate and executive director of the real estate development master’s program, the Phoenix metro area currently has less than one month’s worth of existing home inventory on the market, or approximately 8,500 homes.
“That is a shockingly low figure,” Stapp said. “All of this means that pricing is under significant upward pressure.”
Year over year, home prices in the metro increased by 32%, while wages increased by 6.4%. While home prices have risen, people’s ability to afford mortgage payments has declined, according to Stapp.
“This is causing us to have an affordability problem,” Stapp said. “This 31% of a median income required to pay a monthly principal and interest payment hasn’t been seen since the fourth quarter of 2007.”
According to Stapp, this is the result of 11 years of underbuilding in the Phoenix metro area. According to experts, the last time deliveries exceeded absorption was in 2016.
To meet demand, multifamily housing has grown significantly in recent years. The Phoenix metro area had nearly 17,000 multifamily permits issued in 2021, with 18,000 expected this year, the most permits added to the area since the 1980s.
The build-to-rent sector has also grown in popularity in recent years, particularly in Arizona. Moving forward, Stapp expressed concern about rising interest rates, which are forcing more people into rental housing, as well as affordability.
“This is not only a social and community issue, which I believe is significant,” Stapp said, “but it’s also an economic development issue, and it may have an impact on our ability to continue to attract some of those jobs.”
Downtown Phoenix is currently home to one of the largest homeless encampments in the United States, with over 1,000 people using it on a daily basis, according to Stapp.
“We require regional policy, more tools, and less NIMBYism. The only way to solve this problem is to increase the number of units on the market “He stated.
According to McPheters, Arizona created 104,100 new jobs last year, about 12,000 fewer than the estimated 116,900 for 2021.
“You can blame almost all of that miss on the hospitality and leisure sectors, which were affected by labor shortages and high quit rates, and that sector is only now finally in full recovery, whereas other components of the economy have recovered well,” he added.
According to McPheters, Arizona saw a 4.2% increase in total job growth, which is lower than the national rate of 4.7%.
“This is due to the fact that we recovered months ago. Many other states have yet to catch up and have finally turned the corner. Our expansion is complete… but we still have a solid foundation for the remainder of 2022 and 2023 “He stated.
The Phoenix metro area added 88,400 new jobs last year and is expected to add another 90,600 this year. According to the panel, the state is currently seeing the most job growth in lodging and food service, retail trade, technology, transportation and warehousing, and health care. Arizona also has a record-low unemployment rate of 3.3%.
Despite having the highest rate of consumer price increases, McPheters claims the region has the highest metro area wage increases. Phoenix saw a 6.4% increase over the previous year, compared to a 5% increase in the United States.
“Are they keeping up with the rate of inflation? No,” McPheters said. “Real wages are lower than they would have been if there had been no inflation.”
According to Dennis Hoffman, director of the L. William Seidman Research Institute and Office of the University Economist, increased inflation is a result of the pandemic, the stimulus response, and supply chain disruption. He went on to say that the real concern is the fallout from the federal response to stop inflation.