Major Economic Factor Impacting the Apartment Market in Arizona

New Construction in the Valley

Lamont Bawden
ASREB Instructor
lbawden@asreb.com

 

While there are many factors that can influence real estate growth, there is one factor that stands out above the rest, job growth that influences population growth. In this article, we’ll take a look at the status of job and population growth in Arizona and discuss how these factors play a key role in apartment vacancy and rent growth.

Arizona’s job growth and population growth has been on the rise over the past several years – growing at an average rate of 1.6% annually. This is roughly three times the national average pace!Despite the challenges of 2020, according to the U.S. Census Bureau – Population Estimates, Arizona’s population still grew, and it’s expected that it will be at a rate of 1.78%, again well above the national average of .35%.

Just before the pandemic hit, it was reported that Arizona ranked second in the country for job growth, adding over 84,000 jobs between December 2018 and December 2019. While many people experienced job loss in 2020, we also saw the unemployment rate begin to bounce back last year.

According to the JPMorgan Chase Economic Outlook Center at Arizona State University, as of December 2020, Arizona has recovered 66% of jobs that were lost because of the pandemic. Furthermore, Arizona is on track to add 40,000 more jobs in the near future and anticipating making a full recovery to pre-pandemic numbers in 2021.Arizona has seen consistent job creation from companies like Amazon. Since 2010, Amazon has created more than 17,500 Arizona jobs and invested over $11 billion in infrastructure across the state.

So, while Arizona’s economy may have slowed down and hit some speed bumps in 2020, it certainly did not stop. This may come as a shock to some, but for those who have been paying attention to the growth and resiliency of our great state, this is not surprising!

One result of this high job growth is the high absorption level of apartment units in Maricopa County. Yes, we have 20,411 apartment units under construction at the present time but 10,418 apartment units have been absorbed in the past year, per RealData, as a result of the high job grow. This was record absorption last year in the middle of the pandemic. It may appear that we are over building, we are not. It takes two years from the start of construction to fill up a new apartment project, therefore, we are absorbing at the same rate as new construction. We are not over building the apartment inventory.

Why such good job growth? People continue to migrate from high cost of living states like California. Corporate companies, specifically in the tech industry, have picked up on the trend. Arizona is an attractive move for companies because of lower rent and cost of living compared to states like California and Washington.

With these positive ticks on the economic horizon, the outlook for the Arizona apartment industry is a promising one as is the growth in new and used home sales.

For example, According to Norada Real Estate Investments, September 2020 saw a total of 1,807 new homes built – the highest number of newly built homes sold in September since 2007! Even more interesting, while resale homes have increased in price year-over-year at a rate of 19.13%, new home building prices have only risen 5.18% over the past year. With the consistent shortage of new homes on the market, this benefits both apartment occupancies and single family home sales.

In the real estate industry, it’s important to keep a pulse on the economic factors that could influence the market. Overall job and population growth are typically strong indicators of a healthy apartment and real estate market. With 2020 in the rearview mirror, job growth is making the apartment market and other areas of real estate strong in Arizona.