The Covid-19 pandemic has pushed pause on the red-hot real estate market in the greater Phoenix area, causing many to wonder whether we are going to see a replay of the Great Recession when housing markets in some southwestern states crashed in spectacular fashion.
It is rare to meet a native-born Arizonan. Almost everybody seems to have moved here from somewhere else. My neighbors are from Ohio, Texas, Alaska, Canada, Ireland – I could keep listing ever-farther-flung places, but you get the idea.
Even people that we think of as quintessentially Arizonan, like Senator John McCain, are not from here. McCain was born on a US army base in Panama and went to high school in Virginia. He moved to Arizona in 1981 when he married his second wife, daughter of a beer-distribution mogul in Phoenix.
There are some famous, true natives of the Grand Canyon State. Barry Goldwater, the New Deal critic who won the Republican nomination for President in 1964, was born in Phoenix, Arizona Territory, in 1909 (statehood came only in 1912). He is still famous for the beautiful black-and-white photographs he took as a young man, particularly of the Grand Canyon and the Hopi native people in the north of the state. Jeff Flake, former Republican Senator and now prominent critic of President Trump, is from the small town of Snowflake, which got the second half of its name from his great-great-grandfather.
Arizona is changing fast as its population swells with new arrivals. The Fear of another real estate price crash – something like the country’s demographic balancing point – has been moving west since the first US census in 1790, and more recently southwest. Over the last 100 years, it has shifted around 400 miles from Owen County, in central Indiana, to near the town of Plato, in central Missouri.
This important and fascinating movement has resulted from a range of factors too lengthy to list here, but includes federal investment in infrastructure like the Hoover Dam or Arizona’s Salt River Project; the expansion of the mining and fossil fuel industries in the Southwest; and the decline of manufacturing industries in the Midwest.
An ever-increasing number of Americans living in states like Texas, California and Arizona are tilting the country’s demographic balance in our direction. Maricopa County, which encompasses Phoenix and its suburbs, was the fourth largest by population in the US in 2018 and the fastest growing, followed closely by Nevada’s Clark County, which includes the city of Las Vegas.
All those people need somewhere to live, and until very recently demand for housing was driving double-digit annual real estate price growth in Phoenix. Median home prices in the metro area continued to set new records: $290,000 in January and $302,000 in March, according to the Arizona Republic. Although the national housing market had begun to cool, Phoenix defied the trend as the number of home sales continued to climb alongside prices.
In New Zealand, strong appreciation in real estate values has been normal for a long time, and although home ownership is becoming something of a generational divide (does “OK boomer” really just equal “OK landlord”?) rising home values are an important driver of consumer spending and not generally seen as something to worry about.
In the US, on the other hand, and particularly in the Southwest, soaring real estate prices immediately evoke memories of the bubble that burst in 2008 and plunged states like Arizona into a deep crisis. In Phoenix, home values rocketed by 50% in a single year in 2005, only to plummet 53% by 2011. A wave of foreclosures flooded a real estate market that took years to recover. Only Las Vegas, Nevada and Orlando, Florida were hit harder by the housing crash.
Because the Phoenix-area economy was so dependent on real estate and construction, unemployment spiked from 6% to 16% in the hardest-hit areas of the city, and median household incomes declined by up to 19%. The state government, which is forbidden by law from running deficits, was faced with plunging tax revenue and had to slash spending across the board, including on schools and the university system. In 2018, the city was still counting the cost, as many areas had only just struggled back to their pre-crisis income levels.
Today, the economy is more diversified than in 2006 and the state’s finances are healthier, but Arizonans nonetheless view the housing market with a wary eye.
Home sales slowed by 12% in April compared to 2019, and although construction has continued through the Covid-19 lockdown as an essential business it is expected that around 17,000 houses will be built in 2020 instead of the predicted 27,000 – still less than half the 60,000 built in 2005-06. Local realtors report that the few homes that are selling are going for close to-pre-pandemic prices. However, federal support is still flowing to businesses and the newly-unemployed, and many home buyers and sellers are waiting on the sidelines. Although most local experts are cautiously optimistic, it is too early to discern the effects of the pandemic on the real estate market here.
Arizona’s economy is historically based on the “Four Cs”: copper, cattle, citrus and cotton. More recently, tourists, migrants and retirees escaping the midwestern winter have added two more “Cs”: climate and construction. Like New Zealand, Arizona depends on people visiting or moving here to drive our economy. As long as the pandemic keeps outsiders away and locals out of work, the local real estate market will be at risk of depreciation. Economists hope that long-run population growth in the Southwest will cushion Covid-19’s blow to home prices in the short run.
Henry Thomson is originally from Amberley, North Canterbury and is now an Assistant Professor of Political Economy at Arizona State University. His research focuses on the political economy of authoritarian rule and transitions to democracy. You can read more about his research here and follow him on Twitter @HenryRThomson. His earlier letters are here.
41 Comments
Using long-run population growth to ameliorate our economic predicament?!!!
This is a very special kind of stupid, and illustrates how clueless many economists and politicians are to our much larger ecological predicament.
We even have our local twits cheering the fact there are 5 million here in NZ.
When was the last time there were 5 million fossil fuel gobbling rapacious primates on this small land mass in the South Pacific?
"The state government, which is forbidden by law from running deficits..."
OMG! This is the comment which stands out for me.
If only the Ak Council was required to do this! Then they would have been forced to just concentrate on core activities.
No "linear gardens, unnecessary hugely expensive works near the ferry building, Takapuna central open space land sell off, Manukau property development, the completely non commercial rail tunnel, confused light rail projects etc.
In some ways the Wuhan disaster is a good thing in forcing the Council to stick to its knitting to a certain extent but of course the tunnel project disaster rolls on and due to this the Council wants to go even higher with new debt whatever the "agreed" rates increase is.
And as usual it is trying to scare the public into "agreeing" to the 4.5% residential rates increase by threatening to do things things like library closures, public rubbish bin removals, public toilet closures etc.
This is the attitude of the AK super city Council.
If I remember correctly the economy of Phoenix on its own is about the same size as that of New Zealand. Christchurch residents are having the same problems as Auckland of open slather spending of their money on vainglorious projects rather than basic services. Christchurch recruited a new council CEO from Birmingham UK. Perhaps Christchurch and Auckland should enquire of a recruitment agency in Arizona to obtain personnel that know and act on what the people really want.
Councils in NZ need a major overhaul. Many don't even provide some core services these days, such as rubbish collection, water, etc, and it is subcontracted out to private companies. Councils also need to stop dong vanity projects, and also not pay such high amounts to higher staff. They are not private companies which work in a competitive environment. Council money largely comes from ratepayers, and ratepayers don't have any option but to pay that council.
I think a council that never invests in nice stuff like you mentioned is probably more likely to go broke than the one that does. I doubt many people prefer to live in a city that hasn’t been upgraded in decades, and those that do probably don’t have much money behind them.
Tom Roberts offers some light relief in this Poem
https://videos.dailymail.co.uk/video/mol/2020/05/04/91752808379232368/6…
*Roll my damned eyes*.
"In New Zealand, strong appreciation in real estate values has been normal for a long time, and although home ownership is becoming something of a generational divide (does “OK boomer” really just equal “OK landlord”?) rising home values are an important driver of consumer spending and not generally seen as something to worry about." It bloody IS something to worry about for increasing numbers of NZers unable to have more than scant control of where and how they live as they cannot afford ownership.
Then, rolling my eyes again
" Like New Zealand, Arizona depends on people visiting or moving here to drive our economy." Well, you are right, but it's a stupid way to go and has no end, I hope it is over.
Yeah, the 'benevolent' big four banks leaching off the country is a major issue. Given that they also helped drive the credit bubble too, I think they're a massive cause of our current economic woes. Seems like our politicians are beholden to them and turn a blind eye to the issues they've helped to create.
I recall reading a comment on here a while back that multinational corporates collectively extract around $20b a year in profits, this includes the $5b for the banks and $15b in other industries. I'm not sure where to find this information, but if it is correct then looking at RBNZ C32 - Column P for "Existing Lending" if you look at the growth it's $4b - $5b per quarter or $20b per year.
I hope it's over too. The big immigrant number discussion is about to arrive and I hope the powers that be really do listen. We really don't need anymore people here, we have enough now surely. Lets get the economy running along a different path other than the one driven by consumer spending and immigration on the back of ever increasing house prices. This has to end.
Don't count on it. There was a big Liam Dann article in the Herald yesterday promoting getting immigration up ASAP (with quotes from chief spruikers The NZ Initiative). The problems of per capita growth and productivity being stagnant and massive infrastructure deficits were mentioned but glossed over, the path to prosperity is more people, now.
And I see some politicians in Australia are proposing fast-tracking the backlog of partnership visas to get numbers up - all pretense of "skilled" immigration being abandoned.
That's what worries me Doris. I saw the headline of that article and didn't bother reading it. Yeah, lets just get another million people here with lots of money to spend and drive housing unaffordability even higher, what a bloody brilliant idea, that will surely sort our problems in no time. I better stop before my blood boils any higher. Maybe we should let NZ be another Monaco. All the rich and famous can live here and I will happily polish their shoes and clean their mansions.
Up until COVID, I had heard that immigration into NZ was at it highest level ever. What happened to NZ firsts policy of restricting immigration? What population do we want NZ to be, because in areas like Auckland, their population appears to now be too high and they don't have water resources to cope with the increased growth, where the Waikato pipeline was supposed to have been the solution to fix their water problems. But it appears the population has increased too much. Increasing the population has huge costs in additional infrastructure and ongoing extra costs, such as health costs etc
You mean permanent residency dropping from about 50k to 35k but work visas increased. Net figures depend on movements of Kiwis. Covid may see a big return from the Kiwi diaspora.
Change in perment residency was caused by changes to point counts and specifically the salary requirement made by the Nationals just before the last election. The coalition has merely maintained the policy. Both Nationals and Labour ought to be embarassed by our immigration system that dissuades the talented leaving us with the desperate. Labour is slightly less bad because they eventually improved the labour inspectorate.
The only insight this article gives us is fear is a great motivator, and that may be the lesson was well learnt in Arizona.
They are certainly in a better place to weather any housing price falls with Phoenix at a median multiple of 4.2 and Tuson at 4.1, compared to Auckland's 8.6 and Tauranga's 9.2.
House price in NZ particularly in Auckland is in extreme and anything in extreme is bad so will be bad when the bull runs end unless in Auckland, housing market only goes up.
This crisis can be Litmus Test for Auckland housing market. Is Auckland Housing market, a one way street as being precdited/ felt by many defying the economy law that up and down are cycle of economy.
My wife likes to watch American housing programs and some of the prices over there make Auckland look cheap. We seem to only compare ourself to the cheap cities where people don’t really want to live, but there are plenty of very expensive cities in the US as well.
The council debt. This has concerned me since 2008, when someone in govt decided that local council balance sheets were "a little light". Suddenly the local govt funding authority was set up, and it pumped billions, quite literally, billions, in loans right throughout the country. Over a 10 year period it loaned out over $25 BILLION, one quarter of our nation's debt at the time, was quietly swept under the carpet, and all but a few souls noticed, and pretty much no one seemed to care about it.
It was the Rock Star economies backing vocal, and went completely unnoticed. Many local councils went from a few million in debt, to a few $100 million in debt.
And now, what a mess. Money spent largely on consultants and over inflated council buildings, art, etc etc.
In the past, rates were an accepted part of housing costs, soon they will become more and an important part of people's purchasing decisions, after all, when you buy a house, you buy into that council debt. I personally find it reprehensible, and have been outraged about this for sometime.
Btw, councils in Britain are structured differently, they are funded by central govt. Under Tory austerity policies, the funding has been cut year after year.
Putting many councils there in a position where they have been quite literally selling schools playing fields to purchase commercial property in order to get a return, or more correctly, a revenue stream.
The masters of this fake financial system cannot stop now, if they stop pumping, the entire thing collapses, only drawback is, if they keep on pumping, the system collapses. So unfortunately, the solutions will only be found once the old system has been completely laid bare. And who knows when that will be? People with nothing to lose, also have no voice, those with everything to lose speak loudest, until they too lose everything. Those that see it happening can prepare themselves.
Yep I would love that too... seriously two mil. Wide open spaces, masses of empty homes to choose from, population increases in the rest of the world but nz decreasing. However. In the 70s (and 80s?) when the population was declining and the economy crumbling nzers did not feel so proud and were depressed. It was more a case of 'let's get out of here.'
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