How long will Phoenix rental demand stay strong?
This is the question asked by Phoenix metro area landlords and potential investors alike. Since the housing crash of 2008, Phoenix rental demand has stayed incredibly high. Phoenix has fared well in its efforts to economically recover and is expected to add an average of 57,000 new jobs per year over the next two years. Last year alone 59,000 people moved to the metro area according to commercial real estate broker Colliers International.
Along with the population growth that accompanies these jobs you have increased rental demand by those who lost their homes in the recession and a construction market that has not kept pace so far with the rental market need. Demand for both apartments and single family home rentals are expected to stay high. Since 2011, nationally apartment units under construction are up over 80% and permits for new rental construction are 16% higher than last year according to the National Association of Home Builders. Phoenix is having similar construction growth with double the units under construction doubling last year and new apartment permits up over 130% in 2014.
What does all this mean? First of all there has been years of unsatisfied demand in the rental market. Because of falling unemployment and continued projected population and job growth for Phoenix, we haven’t seen the end of the hot rental market for landlords and property investors. Moody’s Investors Service expects the unemployment rate for Phoenix to continue dropping perhaps as low as 3.9% by 2018.
Some investors worry that new construction will quickly outpace demand putting a damper on rentals. However an important point for rental property owners to remember is that because of the recession, rents have stayed relatively low keeping renting more attractive for tenants. And as the economy recovers, rents are also expected to rise which is good for those in or thinking of joining the rental business.
One Senior Vice President Cindy Cooke from Colliers remarked that the expected increase in rental supply is more a result of making up for the years of unmet demand rather than a construction boom. The gradual economic recovery should keep the rental market at steady simmer perhaps through 2020 rather than a flash in the pan. This should make landords, investors and property managers alike happy for the foreseeable future.