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Rents still rising in metro Phoenix as they drop in pricier U.S. cities

Catherine Reagor Arizona Republic (CNT) City News And Talk #arizona

As apartment rents drop in many big U.S. cities from San Francisco to Chicago and New York, monthly payments keep rising for metro Phoenix tenants.

Valley rents climbed faster during the past year than almost anywhere else in the U.S.

Ten of thousands of new upscale apartments charging well above what the typical resident can pay have been built in the region in the past few years, and construction continues despite the COVID-19-led economic downturn.

And unlike in pricier parts of the country, the number of apartments sitting empty isn’t climbing, even as evictions are rising.

The big question is: Who can afford metro Phoenix’s higher rents?

New residents, particularly in this new work-from-home economy, likely are behind much of the demand for the area’s apartments, apartment experts say.

Population growth

Metro Phoenix led the nation for population growth during the past few years, and despite COVID-19 the area is expected to grow significantly again this year. 

More people are moving away from big cities on the West and East coasts to relatively more affordable areas including Phoenix, particularly as working from home becomes the new norm, according to economists tracking the shift.

And those new residents, who now don’t need to live near their offices, are likely earning salaries based on higher living costs from their former homes.

Many new residents to an area will often rent before buying.

Those new residents won’t show up in population numbers for a few months, but rents and home prices are an early sign they are here, say housing market watchers.

Metro Phoenix’s home prices are soaring as demand for housing, mostly from people who plan to live in them, has shot up during the past few years. The Valley’s median home price is up 18% from a year ago, double the increase 2018-19.

“The surge in metro Phoenix housing-market activity is coming from people (from pricier areas) either buying a home out here or leasing one,” said Thomas Brophy, apartment expert and national director of research for Colliers International of Phoenix. “I know there was some talk that this trend would diminish due to COVID, but it’s not showing up yet in the numbers.”

He said the trend of more work-from-home employees moving to metro Phoenix will likely continue for the next three to five years.

Rising rent conundrum 

Metro Phoenix tied with Sacramento for the second-biggest U.S. rent increase during the past year. California’s Inland Empire, comprised of Riverside and San Bernardino counties, was No. 1.

The Phoenix area ranks No. 1 for rising monthly payments for the most affordable apartments.

The overall median rent payment in the Phoenix area climbed 3.1% during the past year, according to apartment research firm Yardi Matrix.

Rents climbed nearly 4% in Valley “renter by necessity” complexes, which include affordable and workforce-priced apartments.

In San Francisco and New York, rents have dropped about 10% in the past year, according to research firm RealPage. In Austin, Boston, Orlando, Washington, D.C., and Chicago, rents fell between 3% and 5%.

Metro Phoenix’s average rent is about $1,250, lower than most of the U.S. cities where rents declined.

About 95% of all Phoenix-area apartments are leased. That’s the same level from a year ago, even though almost 20,000 new apartments opened up during the past few years.

Most big U.S. cities with rent drops also saw apartment occupancies drop during the past year.

People and businesses have been moving to metro Phoenix for its more affordable housing, fueling the area’s growth for decades.

What’s different now is more new Valley residents could be working from their new homes and making higher incomes based on wages from pricier areas they moved away from. They can afford higher housing costs.

But homebuyers and renters who are working in metro Phoenix and earning the average wage can’t compete.