The Phoenix Rental Market: Boom or Bust?
Editor’s note – looking for a great real estate lawyer? See our guide here.
A curious dynamic is playing out in Phoenix’s real estate market. Once considered one of the fastest growing housing markets in the country, the Valley’s rental properties were booming, until very recently. As of late, there has been a saturation of single home rental properties, with consequences for both renters and investors.
A Hot Investment
At the height of the recession, investors flocked to the Valley to purchase single homes for use as rental property. Paying with cash, they played a major role in the housing recovery, raising median home prices by 35 percent and cutting the inventory of foreclosures and short sales. Since the recovery, occupancy for single home rentals is up 90 percent throughout the Valley. Fears from the housing crisis have made more people choose to rent than normal, due to concerns of losing money and the impact foreclosures might have on their credit history.
Wanting a share of the pie, Wall Street entered the picture, and fund managers started purchasing homes from investors. An example is Blank Berger, which was created by New York fund managers and real estate investors. In one year, they bought 45 single-family homes in Gilbert, Arizona — a suburb of Phoenix — and they plan to build 185 more homes in the future.
By the end of 2012, nearly 25 percent of all Valley homes had been purchased by investors. This is part of a larger national trend: nationwide, it is estimated that private-equity firms invested $6-8 billion in housing, encompassing between 40,000 and 80,000 properties.
A loss of Appeal
The recovery saw rising home values in Phoenix, outpacing increases in rent. Rental prices have stayed flat, except in apartments. In prime housing markets, such as Phoenix and Atlanta, rentals of single-family homes have risen less than one percent over the past year, due to the saturation of the rental market. Home values in Phoenix and the suburbs around it have risen by more than 20 percent over the past year. The percentage of Phoenix homes purchased by investors fell to 28 percent in late 2013, while returns from rent have dropped from 10 percent to six percent over the past three years. This reality validates critics who believe that private-equity firms were out of their element when they invested in rental property, given their high expectation for investment return as well as their lack of experience in rental properties, along with the logistics of managing all of the properties.
Apartments
Unlike single-family homes, rents for apartments have grown for the fourth consecutive year. Developers are increasing construction, particularly in Scottsdale, which leads the Valley in new units built. Building is most active in the outskirts of the Valley, such as in Ahwatukee. Construction is expected to continue to increase into 2014.
Most Popular Rental Locations
Areas near freeways and shopping malls are popular places to rent in the Valley. Because of Arizona State University, and the school’s sizeable student population, Tempe is a hot spot for renters as well. Downtown central Phoenix is another popular rental location, as is Scottsdale. Because of its affordability, west Phoenix and the Maryvale area have become popular with renters looking for cheaper housing.
Byline
In addition to Real Estate, Jacob Princeton, a freelance author and blogger based in San Diego, CA, writes on Property Law, Commercial Law, Criminal Defense, Personal Injury and other complex legal topics.
