Housing crisis threatens us all, economist warns - SanTan Sun News SanTan Sun News

Housing crisis threatens us all, economist warns

February 27th, 2022 development
Housing crisis threatens us all, economist warns
Community
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By Cecilia Chan, Staff Writer

Chandler and the rest of the Phoenix Metro area must build their way out of the current housing deficit or face economic catastrophe down the road, a noted Valley economist is warning local officials.

The housing shortage is just not dire in Arizona but throughout the country, economist Elliott Pollack told Gilbert Town Council as part of a presentation he is giving to a wide group of municipal bodies in the Valley, with Chandler expected to be scheduled soon.

“Affordability is falling but it’s about to plummet,” Pollack said. “There’s virtually no vacancy or available units. Supply has not kept paced with demand and our success as a community in attracting jobs and people has not been matched by a sufficient increase in the housing supply for those new employees and a continued shortage of housing is going to drive up costs and threaten economic development efforts.

“Virtually nobody is going to get a free pass on not having to deal with this.”

Pollack belongs to Home Arizona, a group comprising former politicians and industry insiders that is trying to get the word out on the supply-demand crisis confronting the region.

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

“The first decade of this century, we overbuilt in both single-family homes and apartments,” Pollack said. “The second decade of this century we way underbuilt and we are now at a situation where the vacancy rates for both single-family housing and for apartments are as low as they have ever been.”

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

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

“Phoenix employment is growing rapidly not only as we re-employ people who were laid off during the pandemic but all the economic development agencies in the Valley have done an extremely good job and there are lot of very large manufacturers and home offices and the number of companies relocating here is essentially greater than I’ve ever seen,” Pollack said.

“So, employment growth is going to be high and that’s going to bring a lot of new employees. Population growth will be just under 20 percent but that is close to 90,000 new people a year.”

And, demographically the largest adult cohort worldwide is millennials, 27-32 years old, who are now in their prime home-buying age, Pollack said.

“On top of that there is a lot of other pent-up demand,” Pollack said. “Oddly enough there are more people living with mommy and daddy who are 18-29 – literally more than any other time than 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 basically create their own housing unit. That is even more demand on top of everything else.”

The housing supply can’t keep up with the demand.

“You are down to about a 23-day supply,” Pollack said. “If any of you have friends or kids who are out buying a house, you know what it’s like. That is down from a 70-day supply normally.”

And, if buyers are looking for a house priced $350,000 and lower, there’s only a 10-day supply, according to Pollack.

“In addition, you know most homebuilders, when they build a subdivision have homes that people can move into right away,” he said. “Well, 18 months ago there were 1,600 of those. You are now down to 500 of those, so there is essentially very little supply.”

He said shrinking affordability threatens to price once-secure wage earners priced out of homes and apartments.

“They’ll buy less expensive smaller homes,” Pollack said. “At some point, they will have to stay in rental units and that keeps on going down. And then people on the bottom really have nowhere to go and that’s going to be a big issue.”

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

That assumes average mortgage interest rates won’t rise above 3.5%. Affordability will shrink further still if the rate increases to 4%, Pollack said.

He said based on data crunched out to 2025, less than 30% of people would be able to afford a median-price home.

“That is something that Phoenix has never faced before because it has always been an affordable market relative to our competition,” he said. “Housing prices since 2000 has gone up roughly 188% in Phoenix.”

For those renting, the apartment inventory also is low and becoming less affordable.

“If you want to basically dig your way out of the hole, a shortage, to get vacancy rate in apartments back to the historic norm you need an additional 15,000 apartments on top of what you need for your annual population flows,” Pollack said.

“So, you’ll need probably about 16,000 apartment units for the next five years to get things back to normal.”

Right now, there will probably be about 14,000 new apartment units opening this year, he said.

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

Area rents have shot up 29.5% over last year and single-family resales increased by 28.5%, according to Pollack.

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

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

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

He presented a chart that showed none of those groups of workers could even afford to buy a home in Gilbert in 2020 and those on a nursing or police salary 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.

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

Move forward a year to 2021 and the picture is bleaker: only nurses and police officers able to afford to rent a two-bedroom and all the others priced out of living  in Gilbert.

“Your essential workers along with people coming in earning those salaries in other jobs and private-sector jobs are just going to have difficulties,” he said. “And this is a reality you are going to have to face over the next several years.”

Pollack emphasized that in the current shortage, all types of housing in all price levels and all income levels are needed.

“We are at the bottom of the norm of affordability at the moment,” Pollack said. “We’re about to fall off a cliff in terms of affordability. It becomes very difficult especially as interest rates go up.

“There is not a group that is being spared difficulty right now. Obviously, it hurts worst at the bottom because you have fewer and fewer choices.”

If housing stock remains low, Pollack said municipalities can expect to see families doubling up, millennials and Gen Z generations trying to live with their parents or face homelessness.

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

He reiterated what municipalities such as Gilbert could do to address the problem – build more housing units of all types across all ranges of income.

“Normally you’d need 20,000 to 25,000 for-sale units and about 15,000 rental units, you’d need another 2,000 to 25,000 new home invent ory and you need some replacements,” he said. “But, basically we have to build in total to get out of this thing over the next five years almost 42,000 housing units a year that’s total housing units.”

He said meeting that need is made more difficult with labor shortages and supply chain issues.

“I know the Gilbert team makes every effort as shorthanded as they are to work with our developers and have encouraged higher density in commercial areas,” Mayor Brigette Peterson said. “And we allow for accessory dwelling units and other factors.”

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

“We have seen multifamily developments coming to our community with about 5,000 multifamily units planned that are not yet developed,” she said.

Vice Mayor Aimee Yentes asked how to frame the issue to residents in the community who don’t believe that it’s an issue.

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

Housing developments and especially apartment projects in town often attract opponents who complain about density, traffic and potential impact to their property values.

It’s a difficult situation because those people who are anti growth make a lot of noise, Pollack responded.

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

“They want jobs, they want places for their kids to live and you are not going to get any of that unless you do some things that maybe in a perfect world you would not do but the world is not prefect.

“The reality is not everybody is up here in income and even those people are  going to be living down here because it’s so expensive for a house that they used to afford and if you wait for the trouble
to occur, if you wait for the homelessness, if you wait for companies not locating here because housing was too expensive that time it’s too late. Take a look at California.”

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