Report: Housing shortage is causing increase in prices

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(The Center Square) - A new report dispels the notion that short-term rentals are driving up Arizona's housing prices and instead blames a housing shortage.

Glenn Farley, Common Sense Institute’s policy and research director, told The Center Square there is “no evidence in housing price or short-term rental data” to support the claim that short-term rentals are contributing to housing price increases.

A new CSI report released on Thursday finds that the real cause is the housing shortage.

The report said Arizona faces a housing deficit of nearly 53,000 units. Arizona’s housing construction has nearly been cut in half since the Great Recession.

Between 2003 and 2007, Arizona built over 400,000 homes before the Great Recession occurred, which lasted from December 2007 to June 2009, the report said. From 2010 to 2019, the state built about 211,000 units. This represents a 47% decrease.  

The report said the cumulative shortage of housing since the Great Recession exceeds 121,000 homes statewide.

Arizona’s policy response to housing after the Great Recession made it more difficult to “lend money to home buyers” and “made it harder to build new housing,” Farley said.

CSI released a report last year showing that Arizona will continue to face a housing deficit due to the state’s current permitting pace.

According to the report, Arizona has 3.3 million housing units, and only 57,000 of those units are short-term rentals, an estimated 2% of all inventory.  

As short-term rental online marketplaces have increased, the number of vacation homes in Arizona has decreased.

The report noted Arizona has lost 55,000 vacation homes since the rise of short-term rentals in 2010.

Arizona's failure to keep up with housing demand has allowed owners of multiple housing units to bring them to market rather than keeping them as vacation homes, the report said.

Farley noted it is “pure coincidence” that home prices increased while the number of online marketplaces for short-term rentals increased as well.  

“[Short-term rentals] are easy to blame. The problem here is supply and demand. The only long-term solution to this is building more housing,” he said.

From 2015 to 2019, the report noted that Arizona home prices increased by 33% while Airbnb listings increased by 64%. Between 2020 and 2024, home prices went up 61%, and Airbnb listings increased 56%.

Farely said the “vast majority” of Arizona housing units are available to a full-time owner or full-time renter. Only around 100,000 housing units in the state are short-term rentals or vacation homes.

Farley said even if 25,000 to 50,000 of these short-term rentals were made available as full-time housing units to buy or rent, it would likely decrease housing prices, but only temporarily. He said the offset would not last long because of the ongoing housing shortage.

If policymakers regulate short-term rentals or investor-owned properties, it could cause “perverse incentives for the development market,” Farley said.

“It may encourage less investment in the construction and development of housing, which could make the problem worse,” he said.

Looking ahead, Farley said trends suggest Arizona will be back in the 2010-to-2019 range for the number of homes it is on pace to build over the next five to 10 years.