(The Center Square) — Arizona is on pace to never be able to close its housing deficit, a new report says.
The Common Sense Institute released a report Tuesday stating that the state currently faces a housing deficit of 56,047 units as of the first quarter of fiscal year 2025. It gave Arizona a “D” grade for its housing, down from last year’s “C-.”
Arizona received this worse grade due to permitting issues, said Zach Milne, CSI’s chief economist and the report’s author. Maricopa County, Arizona’s largest county by population and home to Phoenix, also received a “D” from institute.
According to the report, Arizona’s statewide housing deficit has decreased from 68,742 units in 2019. However, due to a lack of permits being issued, the state will never be able to close this gap, CSI said.
Milne told The Center Square that the state is on pace for 47,539 building permits to be issued, which the economist noted is around a 20% decline from 2024.
In this report, Milne stated permits refer to the ones required to construct a single-family unit.
Last year, CSI’s report says the state issued 59,306 building permits. The projected 2025 pace closely resembles that of 2019, when only 46,580 building permits were issued.
Milne said the state’s housing shortage is only going to grow if it continues to see a decrease in permitting.
A CSI report released in May said it takes over 300 days for new housing projects to complete their permitting, development and final inspection process, The Center Square reported.
To close the housing deficit, Arizona would need to build housing for its new population growth and then provide additional housing for its existing population. Milne said.
Arizona has had a “structural deficit in the number of housing units that’s led to pretty persistent and dramatic price increases,” the CSI chief economist said.
The CSI report noted the monthly house payment for an Arizona home in the first quarter of fiscal year 2025 is $2,241, which is up from $1,045 in 2019. Furthermore, the report stated average Arizona home prices are 17% higher than they would have been “if home prices had maintained their steady pre-pandemic trend.”
Milne said the current Arizona home market makes buying a home for first-time home buyers “out of reach.”
The CSI report says that an Arizona household would need to work over 65 hours a week to afford a monthly mortgage payment.
Milne explained Arizona wages have gone up “quite a bit in the last couple of years.” Compared to other states, Arizona is “doing pretty well” in terms of real wage growth, he added.
Despite this, the cost of a traditional mortgage with a 20% down payment has outpaced wage growth. Milne said traditional mortgages have increased due to rising housing values and high interest rates.
As of 2023, the CSI report notes 88% of Arizona’s 90 cities and towns had a housing deficit.
One way to increase housing supply is by adjusting regulations, Milne said. He noted many zoning regulations and restrictions are established at the local level rather than by the state.
Local governments can speed up housing developments by adjusting zoning restrictions and required minimum lot sizes, Milne said.
The economist noted these changes can make housing more affordable and conducive to building new homes.
Milne noted the current housing market has more sellers than buyers, which is different from what has been experienced in previous years. The shift in the housing market has given prospective buyers a “short-term price relief,” he added.
However, the economist said this price relief will not last long because of the “structural housing shortage” that persists.
To illustrate, the CSI report estimates the average home in the Phoenix metro area will decrease by 5% by the end of 2025.
Regardless of these short-term decreases in home prices, the report noted the state’s housing market long-term “remains unfavorable for future buyers.”
