In the last five years, there are two markets that have had unprecedented growth in comparison to the rest of the country. Both have surpassed several cities on the rankings of “Largest U.S. City Population” held by the US Census Bureau and they now rank at the fourth and fifth largest city, respectively. Houston in on track to surpass Chicago as the third largest city in the country, and Phoenix is following right behind it. As the fifth largest city in the country (1), Phoenix boasts many reasons it has grown at such an exceptional rate and why some experts believe it will continue to grow.
Phoenix continues to attract a new work force, which is demonstrated by having the second largest net migration in the United States. People are moving in droves in Phoenix not only for the warm weather but the job growth. Total employment grew by 3.7% from 2017 to the end of 2018, and the city now boast an unemployment rate of 3.7% as of April this year (2). In December of 2018 alone there were 76,900 jobs added to the Mesa MSA (the county that Phoenix sits in). In that job push, 21% of the jobs came from construction (2). Growth in construction jobs is a sign of a city’s growth, but it can be concerning when there is not growth in other industries that provide more stability. In a down market, construction jobs decrease dramatically. However, The job growth found in Phoenix was spread out between many different industries but the largest came from the 22% within the professional services industry (2). Professional services are a strong indicator of the robustness of an economy. These jobs are more likely to be paid higher wages and have a desire to settle down wherever they move, therefor are less likely to leave. In a recent study by CompTIA, the world’s largest tech association, 78% of IT professionals surveyed said the largest factor they would consider leaving their current city is for affordability (3). The dramatic increase in costs throughout other large MSAs has potentially driven job growth in Phoenix.
For being the fifth largest city in the United States, Phoenix is still one of the most affordable for a large MSA. Amongst the 100 most populous cities in the United States, Phoenix ranks 52nd according to an affordability study conducted by RealtyHop in May of this year (5). The study measured the average wage of a worker in that city versus the amount of income it would take to own the average home there. In Los Angeles, it would take 89% of the average worker’s income to buy a home. California cities that rank in the top ten as least affordable include Los Angeles at number one, San Francisco, Oakland, Long Beach, and Irvine – half of the top ten list. Cities known to draw workers from the professional services industry like San Francisco, Los Angeles, and Seattle have increased their cost of living by ridiculous margins. As such, their net migration has dropped dramatically with workers more reluctant to pay for homes in pricey markets. Los Angeles has had a net migration of -381,000 between the years 2012 and 2017 (3). In that same period Phoenix experienced a growth of 221,000.
Workers focused on home ownership and cost of living are running away from cost burden and high taxes of California to places like Phoenix. Arizona is a relatively business friendly state, with an income tax ranging between 2.59% and 4.54% as of 2018 (6). This makes the state rank in the top five lowest income tax rates for states that have them. On average homeowners in Phoenix spend 30.3% of their income on owning a home compared to other comparable cities like Denver, Houston, and Seattle that all land in the 38% range (5). Tax benefits paired with affordability and job opportunities have made Phoenix and market that will seem to grow much more in the future.
If you are interested in seeing our current real estate investment opportunities in Phoenix, please register at kpi1031.com