The law of supply and demand is a basic principle of economics, seen in action daily at the grocery store and the gas pump. When demand rises and products grow scarce, prices jump. When supply is high and demand is low, prices fall.

That same principle governs the Valley’s housing market.

On an average day in metro Phoenix, nearly 300 people move in, according to Census statistics. Last fiscal year, Maricopa County added 86,820 residents, making it the fastest-growing county in the nation. Metro Phoenix added more than 106,000 new residents during those 12 months, pushing the Valley population to 5.1 million.

Thousands of new residents require thousands of homes in which to live. Developers have not been able to build new rental housing and single family homes quickly enough to match this surge in humanity. Thus, the price of housing has risen.

In December, the median sales price of a home in metro Phoenix was projected to hit a record $425,000, up 27 percent over the past year. This meteoric growth benefits homeowners by increasing equity, but it’s bad news for millennials and seniors priced out of owning a home.

The population explosion also has sent rent surging upward, along with rising costs for construction materials, insurance, payroll and property taxes. The COVID-19 pandemic and the accompanying 18-month eviction moratorium also drove rent higher, with a majority of single-family rental homeowners reporting they suffered from the inability to collect rent – including 23 percent of property owners who were forced to sell off some or all their properties.

How can we help Valley housing prices stabilize or go down? We must build more housing at all price points, and we must do so quickly and cost-effectively. If we fail to correct this massive shortfall in supply, Arizona’s renters, would-be homeowners, our workforce and economy will pay a heavy price.

Currently, the Phoenix metro has reached the highest rental occupancy percentage ever measured – over 97 percent – according to research from Colliers in Phoenix. Economist Elliott Pollack, speaking at a Greater Phoenix Chamber of Commerce 2022 Economic Outlook event, framed this year as a pivotal moment for the state and its housing industry. He reports the metro area needs to build about 34,000 new housing units annually just to keep up with the population surge. Beyond that, there’s a shortage of 25,000 homes and 15,000 apartments, the economist explained.

“That’s a big hole and it’s going to take years to fill,” Pollack told the Chamber audience.

This shortage of homes makes for a hypercompetitive environment for the few rentals that are available. In 2021, there were 20 applicants competing for each vacant apartment in Phoenix, according to RentCafe’s analysis of the market. If this shortfall in the housing supply remains unaddressed or grows – while demand continues to rise, as expected – more people will be priced out of the market and forced to live with their parents or to leave the state entirely.

The state’s economy is equally in peril if the new employers we count on to create jobs and revenue cannot find homes for their employees. Arizona’s recent location wins comprise an impressive list: from ElectraMeccanica choosing Mesa for its flagship U.S. electric vehicle production plant to mega-companies like DoorDash, Align Technologies and CIS Global moving in. If no cost-suitable housing exists for relocated workers, Arizona will lose one of its most important competitive advantages over rivals like California, Texas, and Nevada. 

Again, the logical solution is to grow the state’s housing supply, building more homes at all price points to accommodate the rise in demand. As obvious as that may be, the reality has been anything but simple. Cities including Gilbert, Scottsdale, Surprise, Goodyear and Buckeye have become increasingly resistant to building new homes and apartment communities, while proclaiming the need for more affordable housing.

In Scottsdale, Mayor David Ortega has been a formidable stumbling block, constantly playing politics in an effort to foil new housing. A registered architect, Ortega seems to have turned his back on even high-quality development. His doom and gloom prediction about new development?

“Crushing tourism, crushing the infrastructure and turning people away because of gridlock, that’s what’s going to happen. It will crush us. And we’ll be looking at each other and say, ‘How can we now have these empty buildings?'” he said. “Because they were built for someone’s speculation and they destroyed the suburban city we used to have.” 

That false assertion may play well with the “not in my backyard” NIMBY crowd, who oppose virtually every new home or apartment community, but it ignores the downstream impact of constantly saying no or demanding costly changes to projects: This resistance forces the price housing higher by stifling the marketplace or raising overhead costs in a business already operating on razor-thin profit margins.

The law of supply and demand isn’t complicated, but, like the law of gravity, it must be heeded. If we don’t build more rental housing and new homes for purchase in the Valley, rental and home prices will continue to rise. This isn’t a case of property owners being greedy. Rather, it’s a law of the universe.

Gravity says what goes up must come down. Supply and demand says a price that goes up will keep going up until there’s enough of the product to go around.

Courtney Gilstrap LeVinus is president and CEO of the Arizona Multihousing Association.