Downtown’s landscape is set to change as developers begin to build toward the sky. A surge of multi-family construction is reshaping the housing market and approximately 2,000 units are set to be added to the skyline by 2020.
It is no secret that downtown Phoenix is growing, and rapidly too. In the past decade alone, it has completely transformed with the addition of the Arizona State University campus and the light rail transit system.
Phoenix is starting to see the restoration of a lively and cultural downtown with a rich history that was lost in the post-World War II era.
Since 2004, companies have poured over $5 billion into redeveloping the metropolitan area. The establishment of ASU’s campus in 2006 however, brought the city to life and the influx of students created the need for more housing and facilities.
High rises in progress like The Stewart and Link PHX will contribute over 500 units to the total 2,000 in the next year, and Link PHX’s 30-story tower will be one of the tallest residential buildings in Phoenix. There are about 900 units already closed or in escrow but the timeline of development is yet to be determined.
Founder of We Heart Houses and real estate investor Michael Del Prete is not surprised by the spur of new residential developments.
“Money is cheap right now,” said Del Prete. “It is easier for developers to get access to cash to build these buildings.”
When the Federal Reserve gives the gift of low-interest rates, investors take advantage. But as they are on the rise, their generosity is fleeting.
These apartments, however, do come with a pretty price tag.
44 Monroe, one of the tallest towers in downtown, markets its one bedrooms anywhere from $1,450 to $2,100 for an incremental difference in square footage—just over or under 1,000 square feet. CityScape Residencies can reach $2200 for a one-bedroom and well over $5,000 for the penthouse suites—two to three bedrooms.
In the heart of Scottsdale, just minutes away from Old Town and walking distance to the Fashion Square, Optima Sonoran Village offers the same building amenities for about the same price range. Residents are close to retail, dining and entertainment but lack the big-city feel. One bedrooms go from $1700 up to $2500 for a prime location.
Elliott Pollack, CEO of Elliott D. Pollack & Co., attributes the growing cost of living in downtown to land and construction prices.
“They’re insane,” said Pollack. “There is a general shortage of labor and it is affecting single-family but it is affecting apartments a lot, so much so that ultimately I think the technology and the way they build apartments is going to change.”
Naturally, a price increase can be accredited to the growth of a city in general—it’s job market, restaurants, entertainment, the atmosphere etc. These additions certainly make the area more attractive and covetable.
Rising land and labor acquisition costs are pushing developers to build toward the sky and create luxury housing at higher prices for higher returns. Pollack states that it is easier to get financing for high-end apartments in certain areas than it is for worker housing.
A 2017 report by Freddie Mac revealed the shortfall of affordable rental housing across the United States. Between 2010 and 2016 there was a 60 percent drop amid first and second financing for affordable rental units to low-income households.
Executive director masters of real estate development at ASU Mark Stapp believes there is a big affordability issue in downtown that will essentially push worker housing and more affordable units to the edge of the city.
“I don’t see the pricing changing a lot,” he said.
Phoenix’s expansion is and continues to be an impressive feat, it is one of the largest in the country. Recovery from the 2007 recession, however, has been slow. Yahoo called downtown the next tech hot-spot as the warehouse district is now home to a start-up tech hub of sorts, but employment rates and real estate pricing still does not meet pre-recession numbers.
Statistics provided by The U.S. Bureau of Economic Analysis show that housing contributes to over 15 percent of the country’s GDP. The housing market plays a huge role in the health of an economy—locally and nationally—as demonstrated by the recession.
“We were known as a metropolitan area that was developed around an idea of constantly building around the periphery, so this expansion of the urban form and the recession occurred and all of that development stopped and the whole building marketplace was so profoundly impacted with the housing crisis so we began to adjust and recover,” said Stapp.
Because there is a constrained supply of units and demand for housing is so high, according to Pollack it is almost statistically impossible to overbuild the apartment market at this time. The market is saturated with one product—housing—but the number is not at all high enough to cause a problem.
Downtown Phoenix needs worker housing at $1.40, $1.50 a foot according to economist Pollack, but given the land cost and the shortage of labor, it is something that is difficult to provide. High prices might cause some discomfort for owners because of vacancies but it is temporary, Pollack trusts this influx of residential units is going to be very good for downtown.
If indeed, there are not enough people that will satisfy rent costs, concessions like six or eight weeks free of rent will be offered to lower the total leasing price. Regardless, at some price the units will be rented—the demand is here.
“Am I shocked? Am I scared? No,” Pollack said, trusting that an overbuild situation in downtown will generally be a good thing. Things of interest will ultimately make downtown and he is optimistic about its future.
“Somebody’s going to live in those units at some price and that means that there’s going to be more vibrancy to downtown because there’s going to be more people,” Pollack said, “you can’t focus on what’s there now, you have to focus on what’s going to be there.”
Contact the reporter at vgraff@asu.edu.
