Real Estate

Millennials Driving Up Apartment Demand in Region

(Source: EastValleyTribune): Wayne Schutsky – Millennials Demand for rental apartment housing is on the rise in the East Valley and the rest of the metro region, buoyed by an increased desire for high-end apartments and the ever-present need for more-affordable options for low-income families.

A study from the Arizona Multihousing Association and the National Apartment Association shows that the Phoenix metro area will need to add over 150,000 apartments by 2030 to meet rising demand.

This trend is largely being driven by millennials and baby boomers, said Courtney Gilstrap LeVinus, AMA interim president and CEO.

“(Younger people) are waiting to have kids and get married and are staying in apartments longer because of the ease of living,” LeVinus said.

On the other end of the spectrum, boomers are coming back to apartments in high numbers in order to avoid some of the costs and responsibilities associated with home ownership.

“(Many baby boomers) want lock-and-leave ability and don’t want the maintenance of a home anymore,” LeVinus said.

The industry will have to bump its output to meet that demand.

The study shows that an average of 3,280 investment-grade apartment units were built annually in the Valley between 2011 and 2016, but the city will need to see 10,736 units built per year to meet the estimated demand for 150,302 apartments cited by AMA.

Early numbers show that production is making strides toward meeting that demand as the Valley is expected to add 7,309 apartments by the end of 2017, according to Yardi Matrix, a commercial real estate research firm.

Those 10,000-plus units produced annually would need to meet demand for housing at all price points, though currently the largest demand is for high-end class A and affordable housing, LeVinus said.

The luxury rental market is thriving in the East Valley now with projects like District Lofts in Gilbert, Alta San Marcos in Chandler, Aviva in Mesa and The Local in Tempe each at different stages of development.

The Mesa City Council also recently approved a non-binding memorandum of understanding with Habitat Metro to develop a mixed-use property that will include 75 luxury apartments in downtown Mesa.

Even older high-end apartment complexes are attracting investors because of the growing market interest.

Despite the boom in class A apartments throughout the Valley, the industry is likely not at risk for a bust.

“I do not think that there is the risk of a bubble in the apartment market,” Mark Stapp, Fred E. Taylor professor of real estate at W.P. Carey School of Business at Arizona State University, said via email. “If anything, this is going to continue to be a tight market both for home sales and for rentals.”

The greater issue facing the Valley is a dearth of affordable housing.

“The issue is affordability and (whether) enough units can be added to the marketplace that are affordable for the Phoenix market,” Stapp said. “We do have an affordability issue that’s likely only going to get worse if we don’t add more units that (the) average person can afford to rent.”

This shortage is likely to continue as affordable options are displaced by higher-yield, high-end products.

“The larger point about Maricopa County that is important to know and understand is that there are not many new (affordable) units at all,” said Erika Poethig, Urban Institute fellow and director of urban policy initiatives. “They are either being upgraded to higher-end units or being demolished and replaced by high-end product.”

Quite simply, there is more money in producing luxury apartments. There is plenty of available capital for developers seeking to meet that demand brought by the boomers and young professionals with high incomes who are increasingly flocking to rentals.

The same is not true for affordable housing.

“It does not pencil out to build rental housing for lower-income Americans, because the developers cannot get the lower-cost capital (to build) housing at the rents that people (with low incomes) can afford,” Poethig said.

Nationwide trends show that growth in available affordable housing is not keeping pace with the number of households that need it, Poethig said.

In Maricopa County, households in need of affordable housing grew from 70,000 to 130,000 between 2000 and 2014. However, during that same period, the market added only 10,000 affordable housing units.

Arizona ranks 25th nationally in rental housing affordability, according to National Low Income Housing Coalition’s “Out of Reach 2017” report. The report determines the hourly wage that a household would have to make to afford a modest rental without spending more than 30 percent of their income on housing.

In Arizona – which the report states has a fair market rent of $913 for a two-bedroom apartment – that wage is $17.56 an hour or $36,525 per year.

Maricopa County is listed among the top 10 large counties with largest affordability gap for extremely low-income renters, according to Urban Institute’s “The Housing Affordability Gap for Extremely Low-Income Renters in 2014” report

released in 2017. 
According to the report, Maricopa

County ranks eighth out of 10 with 22 affordable housing units available per 100 renters. That number has dropped from 27 affordable housing units per 100 renters in 2000.

“We look at units affordable without assistance and units affordable with assistance,” Poethig said. “It looks like the number of households with HUD assistances has grown slightly over those years due to vouchers, but the number of units affordable without assistance has dropped.”

There are efforts being made by public and private entities to address the shortage in affordable housing.

Mesa, Chandler and Tempe each administer a variety of affordable housing programs. Gilbert partners with Affordable Rental Movement of Save the Family to provide affordable housing options to eligible families.

The Housing Authority of Maricopa County owns 500 units in 15 communities throughout Maricopa County through a property management program funded by U.S. Department of Housing and Urban Development. The program has waiting lists for four separate areas and provides housing to qualified families.

HAMC also works with cities and local organizations like Mesa’s A New Leaf to provide housing support for low-income families and the homeless.

Homeless people go through the Maricopa County coordinated entry system, which provides screening to help prevent them from becoming homeless again, said Karen Brown, A New Leaf support services director.

The city of Tempe is actively involved with the coordinated entry system.

“Our goal is to get people into apartments that they can afford long term, but that is becoming more difficult,” Brown said. “We advise that people not use more 30 percent of their income on rent, and in many cases, (rent) is 60 percent now, which is not sustainable.”

A New Leaf offers a range of services that offer stability, financial literacy training, case management, crisis intervention and resource coordination.

In addition to resources to combat homelessness, Brown sees a need for more resources geared toward low-income families.

“It would be great if we could have some set-aside units for people that don’t meet that chronically homeless definition but could still use support,” she said.

A New Leaf also works with the city of Mesa and has 60 project-based vouchers funded by the city.

Brown also noted that the Arizona Department of Housing is working on a program to incentivize apartment management companies to work with existing programs to help low-income people get stable housing.