Tucson CitizenTucson Citizen

Robb: Arizona housing – myths and facts

Our supposedly construction-addicted state is faring better than more diversified economies

Thousands of Tucsonans line up at a job fair at Tucson Convention Center in January. Arizona has been hit hard by the burst of the housing bubble, but the state's unemployment rate compares favorably to other states' rates.

Thousands of Tucsonans line up at a job fair at Tucson Convention Center in January. Arizona has been hit hard by the burst of the housing bubble, but the state's unemployment rate compares favorably to other states' rates.

One of the most firmly held beliefs about the Arizona economy is that it is too dependent on housing.

This goes beyond the indisputable point that housing is a big part of the Arizona economy. The assertion, almost universally accepted, is that housing drives the rest of the Arizona economy.

The housing sector in Arizona has certainly been hammered. The Case-Shiller Home Price Index tracks home values in 20 large metro areas. According to the index, home values in the Phoenix area peaked in June 2006. Since then, they have declined by 46 percent.

This is the largest decline of any metro area in the index, and nearly twice as much as the index average of 27 percent.

According to the Arizona State University department of Realty Studies, residential building permits in Arizona have declined 73 percent since the housing peak.

So, Arizona’s housing sector has suffered a sharper decline than probably anyplace else in the country. If the rest of Arizona’s economy is dependent on housing, then why does Arizona have a lower unemployment rate than the rest of the country?

January is the most recent month for which comparative figures are available from the Bureau of Labor Statistics. During January, the country had an unemployment rate of 7.6 percent. Arizona’s rate was 7.0 percent.

The paradox is even starker when looking at major metro areas. The Phoenix area’s jobless rate was 6.7 percent. Only one metro area in the Case-Shiller group had a lower unemployment rate: Washington D.C., which has an economy clearly driven by government. The average unemployment rate for the 20 major metro areas was 8.4 percent.

According to BLS, of the 49 metro areas in the country with a population in excess of 1 million, Phoenix had the seventh-lowest unemployment rate.

Phoenix has done much better than many metro areas alleged to be our economic betters. San Diego, the proclaimed bioscience leader, had an unemployment rate of 8.6 percent. Charlotte, in North Carolina that supposedly does right in education what Arizona does wrong, was at 10.5 percent. Portland, the antithesis of an economy driven by housing, was at 9.8 percent. Seattle, which has the big companies we supposedly can’t attract, was at 7.5 percent.

So, most large metro areas have unemployment rates substantially above the national average while Phoenix, whose housing sector has been hit the hardest, has an unemployment rate substantially below the national average.

What gives?

Arizona has suffered large job losses during the housing decline. Construction employment in Arizona also peaked in June, 2006. Since then, Arizona has lost 88,000 construction jobs, a decline of 36 percent from the peak. Nationally, construction jobs declined by 13 percent.

Construction represented two-thirds of all jobs lost in Arizona. Outside of construction, the job loss in Arizona was less than 2 percent.

It’s rather clear that a lot of Arizona’s residential construction work force was itinerant. And much of it also was illegal.

All of this unveils what should have been obvious all along. Housing does not create its own demand. Something else has to draw people to an area, which in turn creates the demand for housing.

Arizona has a fundamentally solid underlying economy that benefits from, but is not dependent on, housing. And it has a frothy real estate sector that depends on growth generated primarily by other factors.

The real estate sector is oversized. But that is inevitable in a place that is growing faster than other places. That’s not the same as the rest of the economy being dependent on housing.

These days, various advocates of various dubious schemes to “diversify” Arizona’s economy frequently assert that housing is to Phoenix what cars are to Detroit.

If that’s true, why does Detroit have an unemployment rate nearly twice as high as Phoenix’s?


The Associated Press

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

Citizen Online Archive, 2006-2009

This archive contains all the stories that appeared on the Tucson Citizen's website from mid-2006 to June 1, 2009.

In 2010, a power surge fried a server that contained all of videos linked to dozens of stories in this archive. Also, a server that contained all of the databases for dozens of stories was accidentally erased, so all of those links are broken as well. However, all of the text and photos that accompanied some stories have been preserved.

For all of the stories that were archived by the Tucson Citizen newspaper's library in a digital archive between 1993 and 2009, go to Morgue Part 2

Search site | Terms of service