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May 3, 2022 1:30 PM EDT

For 33 months now, Phoenix, Arizona, has led the nation in home price increases. In the last year alone, the cost of the median house in the area has risen by a third. Over the course of two years, it’s up 57%, yanking rental prices with it. Unfortunately for locals, wages in the area have not been on the same high-speed elevator, growing only 5.3% in 2021. According to a study done by Arizona economist Elliott Pollack, the median home price in the area has risen 216% since 2000, while the median salary has only risen 48%. Pollack estimates that by 2025, only a third of the area’s population will be able to afford to buy a home.

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At first blush, the demand for homes in Phoenix seems hard to explain. It’s uncomfortably hot for several months a year. Its food culture remains uncelebrated. It does not have sexy employers like Amazon or Nike, nor is it a hub for such high-paying industries as finance or tech. As a mid-century city, it’s not a place rich in historic buildings or revered cultural institutions. The defining characteristic of life in Phoenix for many years—apart from the dry heat—has been its affordability.

Clearly, some of the same forces are at play there as everywhere: millennials, the largest generation alive right now, have reached the age where they’d like to buy a home. They’re competing with retirees that the so-called Valley of the Sun has long attracted. Local builders are experiencing the same supply chain snarls that have slowed the pace of new home construction everywhere. And the pandemic has amplified it all, with remote workers looking for somewhere to live that that is affordable and spacious.

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But there are some forces that are unique to Phoenix. TIME talked to locals to examine why they think the city named after a bird thats spontaneously combusts has gotten so expensive—and how it feels to be so near the blaze.

The Realtor

A healthy housing market, experts say, is one in which there are enough homes for sale that if no new ones came on the market, it would take four to six months for the supply to run out. Phoenix has enough for less than one month. You’d think people who sold homes for a living would be having a heyday. You’d be wrong. “It is not fun. I do not like this market as a realtor,” says Nicole Lorig, who has been a licensed realtor in the area for five years. The rising prices have attracted a surge in interest from institutional investors that has seen local first home buyers getting outbid by all cash offers with incentives for the sellers—like being able to stay in the house a few more months for free—that an individual buyer can’t match.

“As a buyer’s agent, it’s hard to compete with the cash buyer,” Lorig says. “It’s definitely more feasible if you’re a listing agent because you’re just waiting for all the offers, but there’s a lot of phone calls to answer. So it’s been difficult for everybody.”

Lorig also works in rentals, and that market has been even more of a slog. “You just hear the stories of many people trying to find a rental because of a $600 to $800 increase or because their landlord decided that they wanted to sell,” she says. “So they have to find something new and they’re finding that the deposits alone for rentals is just outrageous.”

She took on an elderly couple whose rental home had been sold. They qualified for a lot of homebuyer assistance but they’re in wheelchairs and need a place close to their medical appointments. Even after a local TV show picked up their story and they started a GoFundMe, they could not get enough money together to buy a home. Finally, they negotiated with their new landlords for a smaller rent increase in return for some other concessions. For a while. “This is going to buy us some time to find a new home for them that they won’t have to move from again,” says Lorig.

The Buyer

Dirk Larson moved from the Pacific Northwest almost eight years ago with his wife and two children. They decided to hold off buying a place to make sure the move was permanent. Now the home they’ve been renting is being sold for more than double what the owners paid seven years ago, and the family has been looking for a place to buy for six months. They have made several same-day offers that were over asking price and were still tens of thousands of dollars short. Larson is extremely frustrated. “People are paying so much more than these houses are worth,” he says. “For somebody like us, wanting to buy a home and or have a little American dream— it’s made it impossible.”

The Larsons are not first time homebuyers. They sold their old home to move to the southwest, seeking sun and a little more room to breathe. They were not alone. The Phoenix metropolitan area has been one of the fastest growing regions of the U.S. for several years, growing about 20% in a decade. But recently that growth has been sharper; in 2020, 291 people moved to Maricopa County per day, according to some estimates. One of the reasons they moved there—so they could have a yard and some space in a city where more than two thirds of homes are single family dwellings—is also one of the reasons it’s suffering such a housing shortage.

In the same decade as its population has blossomed, the number of residential units grew by only 11%. So families like the Larsons, who say they will pretty much move anywhere in a 25 mile area up and down the Phoenix Valley, are facing a shortage of options. “I’ve got a good solid quality job and I’m feeding my family and I’m making good money and we put roots down here,” says Larson. “I don’t want to be forced out. There’s a lot of people who feel they are being forced out.”


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The Business Professor

You can trace Phoenix’s current situation all the way back to the Great Recession, according Mark Stapp, a professor in real estate at Arizona State University’s business school. A lot of investors lost a lot of money in Phoenix during the 2008 crash, and although Arizona is a non-judicial foreclosure state—which means landlords don’t have to go to court to evict non-paying renters—so the region recovered quite fast, investors, lenders and builders were spooked and the money stayed away. “We spent five years under-building,” he says.

At the same time, the crash inspired the city to make a concerted effort to diversify its economy and it had some success. Taiwan Semiconductor Manufacturing Company is building an enormous factory there. According to a report from the Greater Phoenix Chamber Foundation, the number of transportation jobs has grown 88% in the last 10 years, and the number of technical and scientific jobs by almost 50%.

“There’s a an incredible amount of industrial and advanced manufacturing, distribution, warehousing space, that’s being built in Metro Phoenix—more than any time in its history,” says Stapp. That infrastructure comes with jobs, but it sucks resources. “All of those things consume concrete, steel and other materials that are shared by home building—both apartment and single family—so there’s a competition for those scarce resources.”

When the pandemic hit, says Stapp, supply slowed down even more. “All you had to do was pump the brakes [on construction] for six or eight months and it caused a couple of years of setbacks,” he says. “It’s like traffic on the freeway. All of a sudden it starts to back up because one person hit the brakes. So that exacerbated matters.” The work-from-home measures of the pandemic also brought new workers to Phoenix, looking for larger environs and lower costs. “We used to have this correlation between employment population and housing,” says Stapp. “Work-from-anywhere now caused that to be decoupled.” Since a lot of those people were coming from California, where prices have also boomed, they had more cash to spend on housing.

The Industry Analyst

For Tina Tamboer, who analyzes real estate data for investors for the Cromford Report, this real estate market is nothing new. “We’ve seen many perfect storms,” she says. “This actually isn’t that unusual for us. Maybe not the prices being as high, but we’ve been through bidding wars very similar to these back in 2012.” While she sees “all kinds of players in our marketplace right now,” Tamboer says there are three main types of investor who are driving demand in Phoenix and jostling out the locals by offering higher prices, incentives for sellers and all cash deals.

There are the so-called I-Buyers—businesses like Offerpad or Opendoor that buy homes without the seller having to go to any of the trouble of showings or listings, and then resell them. There are both private equity and public funds, such as Invitation Homes, that buy homes and rent them out, and there are those buying homes for tourists. “That’s your Airbnb and your VRBO type investor,” says Tamboer. “Those homes actually are pulled completely out of supply, not available for anyone to live in, only available for tourists. That causes everything else to go up in the surrounding areas as well.”

One local realtor, Rob Olson, says he can’t see how local buyers can compete. “Of the last two homes I’ve sold, one was to a hedge fund and one was to a big rental company,” he says. “They came in with cash. When you’re paying cash, you have to offer a proof of funds—I’m getting proof of funds with $20 million dollars in that fund.”

Tamboer is not crazy about the Wall Street types. “Personally, I don’t care for corporate ownership of housing. I don’t care for Wall Street hedge funds owning residential homes. What would happen if they bought up all of our inventory?” she says. Moreover, she worries that bankers don’t have enough skin in the game. “Whenever Wall Street investment gets involved into housing, things get riskier,” she says, “because Wall Street doesn’t spend their own money.”

The Researcher

While the normal push and pull of supply and demand and the amplification effects of the pandemic is affecting many places, Phoenix’s single-family-home obsession is exacerbating its situation, says Alison Cook Davis, the Associate Director for Research at the Morrison Institute for Public Policy. “It takes a lot longer to build one home at a time,” she says. She estimates that Phoenix needs about 250,000 new residences to solve the housing crisis. “To do that, we would really need to shift our concentration into higher density housing, that would allow us to create more units in a smaller amount of time.”

Phoenix has exclusionary zoning laws that make it harder for developers to build multifamily homes, as do many areas. But, says Cook-Davis, who co-authored the Institute’s recently released report on what was holding back affordable homebuilding in the state, that’s not the only barrier. “The Private Property Rights Protection Act, which seems to be somewhat unique to Arizona, is a voter-passed initiative that basically says that municipalities are unable to make any changes to land use policy that would adversely impact property valuation,” she says.

The act, which was passed in 2006, has hamstrung local governments that want to alter their zoning regulations to encourage density. “It’s a law that is very well known to developers, in that they have to get the buy-in of a community before they make any changes, especially to things like density,” says Cook Davis.

A decade and a half later, that legislation may be contributing to a crimped supply of housing in the historically more affordable city that has effects well beyond its original intentions. Cook-Davis, who is also researching the rental market, says renters have been reporting not just increasingly strict financial conditions for a lease, but also hurdles that go well beyond money. “The rental market is so tight, landlords, can be so picky,” she says. “Some individuals even talked about feeling like they were getting asked really personal questions and things that just wouldn’t ever have been on an application before.”

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