Phoenix Expects More Population Growth But Affordability a Concern

By Audrey Jensen | Phoenix Business Journal

An economic forecast for the state and Phoenix metro show 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 top states in the nation for population growth, Lee McPheters, a research professor of economics and director of the JPMorgan Chase Economic Outlook Center at Arizona State University, said the state increased by a total of 98,000 residents last year, which was lower than the anticipated 107,000 new residents.

“Unfortunately there’s somewhat of a somber story behind that,” McPheters said on May 4 during the Economic Club of Phoenix’s economic panel featuring several experts with the W.P. Carey School of Business at ASU. “We completely misestimated the extent of pandemic-related deaths in Arizona. We had a very high death rate, and essentially deaths cancelled the births.”

Most of the increase in residents came from net migration, but McPheters said Arizona did not get the 20,000 to 25,000 the region usually gets from natural increases. In two years, 30,189 people have died from Covid-19 in Arizona, which has the second-highest per capita death rate in the country, with 411 deaths per 100,000 people, second only to Mississippi.

This year and 2023 are expected to see nearly 110,000 new residents each. “Net migration is going to continue to be very, very strong,” Lee McPheters said.

The state continues to add more housing and multifamily to keep up with the growing population, though the pace of construction isn’t keeping up with population growth. Last year, Arizona saw more than 46,000 single family permits, most of which were in the Phoenix metro, which was also the top growth area for home prices.

Mark Stapp, the Fred E. Taylor professor of real estate and executive director of the real estate development master’s program, said the Phoenix metro currently has less than one month of existing home inventory available in the marketplace, or about 8,500 homes.

“That is an incredibly low number,” Stapp said. “All of that means is we’ve got a substantial upward pressure on pricing.”

The metro has seen a 32% increase in home prices year over year in relationship to a 6.4% wage growth. While home prices have been going up, people’s ability to afford mortgage payments have been going down, Mark Stapp said.

“This is leading us to an affordability issue,” Stapp said. “We haven’t seen this 31% of a mean income needed to pay a monthly principal and interest payment this high since the last quarter of 2007.”

Stapp said this is a result of 11 years of under building in the Phoenix metro. The last time deliveries exceeded absorption was in 2016, experts said.

Multifamily housing has also significantly increased in recent years to fill demand. In 2021, the Phoenix metro had nearly 17,000 multifamily permits issued and is expected to reach 18,000 this year, the most permits added to the area since the 1980s.

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