Housing crisis

The housing crisis threatens us all, warns an economist

By Cecilia Chan, Personal editor

Chandler and the rest of the Phoenix metro area must extricate themselves from the current housing deficit or face economic disaster down the road, a leading Valley economist warns.

The housing shortage just isn’t bad in Arizona, but it’s across the country, economist Elliott Pollack told Gilbert City Council as part of a presentation he gives to a broad group of agencies. municipalities of the valley, Chandler to be scheduled soon.

“Affordability is down, but it’s about to go down,” Pollack said. “There are virtually no vacancies or units available. Supply has not kept pace with demand and our success as a community in attracting jobs and people has not been matched by a sufficient increase in housing supply for these new employees and a Continued housing shortages will drive up costs and threaten economic development efforts.

“Hardly anyone is going to get a free pass so they don’t have to deal with this.”

Pollack belongs to Home Arizona, a group of former politicians and industry insiders trying to spread the word about the supply and demand crisis facing the region.

The group analyzed housing in 11 municipalities in the Valley – including Mesa, Gilbert, Chandler and Scottsdale – and came up with a series of alarming statistics.

“The first decade of this century we built both single-family homes and apartments,” Pollack said. “The second decade of this century we were underbuilt and now we’re in a situation where single-family and apartment vacancy rates are as low as they’ve ever been.”

In the first decade, the Greater Phoenix area saw 487,000 new homes while that number fell to 240,000 units in the second decade of this century.

At the same time, 880,000 new residents will settle here this decade.

“Employment in Phoenix is ​​growing rapidly not only because we are re-employing people who have been laid off during the pandemic, but all the economic development agencies in the valley have done a very good job and there are a lot of very large manufacturers and offices home based and the number of businesses moving here is essentially more than I’ve ever seen,” Pollack said.

“So job growth is going to be high and that’s going to attract a lot of new employees. Population growth will be just under 20%, but this represents nearly 90,000 new people per year.

And, demographically, the largest cohort of adults in the world are millennials, ages 27 to 32, who are now within their home-buying age, Pollack said.

“On top of that, there are a lot of other pent-up requests,” Pollack said. “Curiously, there are more people living with mum and dad who are between the ages of 18 and 29 – literally more than at any time since the end of the Great Depression in 1940.

“Sooner or later their parents are going to kick them out of the house and they are going to have to create their own accommodation. That’s even more demand on top of everything else.

Housing supply cannot keep up with demand.

“You’re about 23 days supply,” Pollack said. “If any of you have friends or kids buying a house, you know what it’s like. This is down from a 70 day supply normally.

And, if buyers are looking for a home priced at or below $350,000, there’s only a 10-day supply, according to Pollack.

“Also, you know that most home builders, when they build a subdivision, have homes that people can move into immediately,” he said. “Well, 18 months ago there were 1,600. Now you’re at 500, so there’s basically very little supply.

He said declining affordability threatened to drive down the price of homes and apartments for once-secure earners.

“They’ll buy smaller, cheaper houses,” Pollack said. “At some point they will have to stay in rental accommodation and that keeps decreasing. And then the people down there really have nowhere to go and it’s going to be a big problem.

He pointed out that in 2015, 73% of Phoenix-area families could afford a median-priced home. Today, this accessibility has fallen to 51% and “it will be somewhere at 45% by the end of this year”.

This assumes that average mortgage interest rates will not exceed 3.5%. Affordability will decline further if the rate increases to 4%, Pollack said.

He said that based on data collected through 2025, less than 30% of people would be able to afford a home at the median price.

“It’s something Phoenix has never encountered before because it’s always been an affordable market compared to our competitors,” he said. “Housing prices since 2000 have risen about 188% in Phoenix.”

For tenants, apartment inventory is also low and becoming less affordable.

“If you basically want to work your way out of the hole, a shortage, to get the apartment vacancy rate back to the historic norm, you need 15,000 more apartments on top of what you need for your streams. annual population,” Pollack said.

“So you’ll probably need around 16,000 apartments over the next five years to get things back to normal.”

Currently, there will likely be around 14,000 new apartments opening this year, he said.

“There’s more than that in the pipeline, but we don’t have the manpower to build them,” he added. “So we are behind the eight ball. We are not getting to where we need to be.

Rents in the area jumped 29.5% from a year ago and single-family resales rose 28.5%, according to Pollack.

A person will need to earn $72,680 a year to afford an apartment rental at the median price by the end of 2025, Pollack predicted.

“If you keep getting these rapid rate increases because of the imbalance between supply and demand, you’re going to need $90,000,” he said. “It’s going to be a real problem.

And that begs the question of where the people needed to run a community will live — nurses, cops, firefighters, teachers, chefs, the guy who works for Circle K, according to Pollack.

He presented a graph which showed that none of these groups of workers could even afford to buy a house in Gilbert in 2020 and that those who received a salary as a nurse or a policeman could only afford to rent a two-bedroom apartment in town while firefighters, high school teachers and chefs can only afford a one-bedroom apartment.

Others, such as middle and elementary school teachers, construction workers, and retail workers, could afford neither in Gilbert.

Fast forward a year to 2021 and the picture is bleaker: only nurses and police can afford to rent a two-bedroom apartment and everyone else is overpriced. to Gilbert.

“Your essential workers with people earning those salaries in other jobs and in the private sector are just going to struggle,” he said. “And that’s a reality you’re going to have to deal with over the next few years.”

Pollack pointed out that in the current shortage, all types of housing at all price points and at all income levels are needed.

“We’re at the bottom of the affordability standard right now,” Pollack said. “We are on the verge of falling off a cliff in terms of affordability. It becomes very difficult especially as interest rates rise.

“There is not a group that is spared at the moment. Obviously it hurts more deep down because you have less and less choice.

If the housing stock remains low, Pollack said municipalities can expect to see families doubling as millennials and Gen Zers trying to live with their parents or coping with homelessness.

“And that’s a very bad image of economic development because affordable housing is one of the things that’s always done
us a draw,” Pollack said. “There’s going to be upward pressure on city wages and budgets and slower growth in the economy as a whole – which means less
real income growth and that is what bothers me the most.

He reiterated what municipalities like Gilbert could do to solve the problem — build more housing units of all types across all income brackets.

“Normally you would need 20,000 to 25,000 units for sale and about 15,000 rental units, you would need another inventory of 2,000 to 25,000 new homes and you need some replacements,” said he declared. “But basically we need to build in total to get out of this over the next five years, almost 42,000 homes a year, that’s the total number of homes.”

He said meeting this need is made more difficult by labor shortages and supply chain issues.

“I know the Gilbert team is doing everything possible to work with our developers and has encouraged greater density in commercial areas,” said Mayor Brigette Peterson. “And we allow secondary suites and other factors.”

She added that a few years ago the City created a new zoning category called High Multifamily to allow for additional height and density for multifamily projects.

“We have seen multi-family developments coming to our community with approximately 5,000 multi-family units planned that are yet to be developed,” she said.

Deputy Mayor Aimee Yentes asked how to present the issue to residents of the community who don’t believe it’s a problem.

“How would you explain it in a way that makes them want to care and I say it that way because the flip side is that people have a motivation to protect their home values,” said Yentes said. “And so they kind of see the ability to shut down as…a good thing.”

Housing estates and especially city apartment projects often attract naysayers who complain about density, traffic and the potential impact on their land values.

It’s a tough situation because people who are against growth are making a lot of noise, Pollack replied.

“The question is, are there people on the other end who aren’t making noise who are now going to start making noise to help you understand that most people don’t want their town to have reduced real income levels,” he said.

“They want jobs, they want places to live for their kids and you’re not going to get any of that unless you do things that you might not do in a perfect world, but the world isn’t perfect.

“The reality is not that everyone has an income here and even these people are are going to live here because it’s so expensive for a house they used to pay for and if you expect trouble
happen, if you’re waiting for homelessness, if you’re waiting for businesses not to come here because housing was too expensive then, it’s too late. Take a look at California.