Housing Demand Forecast for the Flagstaff, Arizona Housing Market Area
HUD’s Comprehensive Housing Market Analyses provide information on changes in local economies, housing markets, and populations and provide 3-year forecasts for demand in the area. This article will be part of a series that sheds light on the content of these analyses.
The Flagstaff, Arizona housing market area (HMA) has been experiencing economic growth since 2010, following 3 years of decline. A recent Comprehensive Housing Market Analysis of Flagstaff examined the growth, highlighting increases in tourism and enrollment at Northern Arizona University.
The Flagstaff HMA is in north central Arizona and is the county seat of Coconino County. As of November 2016, the HMA has an estimated population of 141,400, which has been growing by an average of 1,050 people per year since 2010. Tourism is a significant part of the local economy; Grand Canyon National Park, located within the HMA, attracts 5 million visitors per year.
Flagstaff’s economy has been growing since 2010. From 2011 through 2015, nonfarm payrolls in the Flagstaff HMA grew by 1.4 percent annually, a rate slower than the national average of 1.7 percent. During the 12 months ending October 2016, nonfarm payrolls in the HMA increased by 1.1 percent to 66,100 jobs, which is the highest level on record for the area.
The government sector is the largest employment sector in the HMA, and Northern Arizona University, which is the largest employer in the area, accounts for 15 percent of all government-sector employment. A 2015 report by the university’s Rural Policy Institute estimates that the school has an annual economic impact of $1 billion. Enrollment at the university has grown over the past decade in part because of its participation in the Western Undergraduate Exchange Program, which reduces tuition costs for out-of-state students.
The leisure and hospitality sector is the second-largest sector of the area’s economy. The HMA is a popular tourist destination because of its proximity to Grand Canyon National Park and parts of Sedona. The Arizona Office of Tourism estimates that tourists spent roughly $1.2 billion in 2015. Employment in the leisure and hospitality sector is seasonal with peak employment during the summer months, but employment has been increasing since 2011 and is expected to continue increasing because of improving economic conditions and the popularity of Grand Canyon National Park as a tourist destination.
Since 2010, the HMA’s population has increased by roughly 0.8 percent, or 1,050 per year. During the same period, the number of households in the HMA has increased by 510 annually, totaling roughly 50,050. The area’s homeownership rate is estimated at 58.8 percent, which is lower than the national homeownership rate of about 64 percent and has been declining since 2010. The Flagstaff, Arizona Comprehensive Housing Market Analysis attributes the HMA’s low homeownership rate to several factors, including stricter lending practices, a preference among residents for renting, and high home prices relative to incomes. High home sales prices relative to incomes make purchasing a home difficult for first-time homebuyers in the area. The high sales prices are due in part to high rates of second homeownership because of the area’s proximity to Grand Canyon National Park and Sedona.
The rental market in the Flagstaff area is balanced with a vacancy rate of 6 percent. Multifamily units with five or more units accounted for more than one-third of the rental market. Most multifamily building construction occurred in the city of Flagstaff, and demand from Northern Arizona University students is a primary driver of apartment construction. Roughly 60 percent of students live off campus, and student renters occupy an estimated 4,350 units, or 21 percent of the HMA’s rental market.
The Flagstaff HMA is forecasted to continue growing over the next 3 years due to moderate population growth and enrollment growth at Northern Arizona University. Nonfarm payrolls are forecasted to grow by 1.5 percent, or 1,000 jobs, annually. The hospitality and leisure sector should continue to grow as improving economic conditions in the United States leave Americans with more disposable income to spend on travel.
Demand for new homes is forecasted at 1,075 sales over the next 3 years. Some of this demand will be met through the 170 units currently under construction and a portion of the 14,000 vacant units that may reenter the market during the forecasted period. An estimated 350 multifamily units are currently under construction in the area with an expected demand for 1,100 more rental units over the next 3 years. Demand for rental units should continue to be strong to meet the needs of Northern Arizona University student renters.
The Flagstaff Comprehensive Housing Market Analysis provides further detailed information on factors affecting the local housing market and economy.