Following the onset of the pandemic, Arizona managed to further diversify and expand its economy, cementing its reputation as a top-tier commercial hub — bringing both prosperity and new problems. As residents and businesses poured into the Valley, demand for multifamily housing outstripped supply, leading to higher rents and diminished affordability across the region. Developers responded with a burst of apartment construction that tamped down rents and increased vacancy, leaving some observers concerned about the balance of the Metro Phoenix multifamily market.
“To be candid, I’m not sure if we’re over or underbuilt,” says Justin Steltenpohl, CEO of P.B. Bell. “If I had to choose, I’d say Greater Phoenix is still under. 2022 was the first year we had around 10,000 units built, then that number increased substantially to 28,000 in 2025.”
Even though more multifamily housing has been built recently, Steltenpohl says focusing just on the past few years doesn’t capture the long-term trends. He sees it like this: if 12,000 units were needed annually for a decade and a half, but during 12 of those years only 8,000 were built, there would be an 84,000-unit shortfall.
“The problem is the entire backlog came to market within a few years,” Steltenpohl continues. “It reminds me of ‘Tom and Jerry’ when there’d be kinked garden hose, and a huge bubble would grow until it sprayed water everywhere. Right now, we’re all feeling like a wet cat.”
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Metro Phoenix multifamily data drivers
The factors leading to the surge of Metro Phoenix multifamily construction can be traced back to a combination of economic and demographic drivers. Connor Devereux, director of market analytics for CoStar Group, notes that Maricopa County was the third fastest growing in the nation in 2024, climbing up a spot in the rankings. New residents tend to be renters, adding to overall demand.
“One of the explanations for why folks continue moving to Phoenix is that we’re a relatively affordable market. People leave places like L.A. or the Bay Area and end up saving thousands each month on housing expenses,” Devereux says. “We also draw population from the Midwest, primarily for career reasons.”
Steltenpohl points out that the development of multiple industries in the Valley — such as advanced manufacturing, biotechnology and healthcare — over the past decade has made the market more attractive.
“That brings people here, and they need places to live,” he continues. “It’s impressive that we’ve been able to absorb all the units we have in the past few quarters considering the sheer amount that have come online.”
Prior to the pandemic, the Valley consistently outperformed the U.S. average in terms of job creation. In the half-decade leading to the outbreak of COVID-19, Devereux notes Phoenix recorded approximately 4% annual job growth compared to the nation’s nearly 3%.
“Phoenix also did not lose as many jobs as the U.S. overall, making our pandemic recovery much swifter,” he continues. “But employment growth has slowed considerably during the back half of 2024 and into 2025. That’s worth monitoring to see how it impacts underlying apartment demand.”
The unemployment rate is still lower than the national average, but Devereux describes the Phoenix market as being in a holding pattern where most companies aren’t accelerating the pace of hiring — but not enacting layoffs either.
“There’s this weird paralyzing stalemate, which I think is largely driven by uncertainty around tariffs and the future path of monetary policy. It’s hard for businesses to make long-term hiring decisions when they don’t know what sort of environment they’ll be operating in,” Devereux continues. “Hopefully, once we move past these current challenges, we’ll see employment pick up again as employers have a better understanding of the playing field.”
Another metric influencing multifamily demand is consumer confidence, which is a survey of people’s feelings regarding the direction of the economy. When people feel uneasy about their financial situation, they’re less likely to sign a new lease or move across the country to take a job in Phoenix.
During the first half of 2025, Devereux notes that consumer confidence plummeted, but as tariffs were delayed and the stock market improved, optimism started to build. The big question, Devereux says, is if the recent period of low consumer confidence will translate to less renters overall as it has in the past.
“So far, there has been a disconnect between soft data like consumer confidence versus hard data like inflation,” he continues. “A lot of economists are wondering if this negative soft data reading portends future macroeconomic weakness. If consumer confidence bounces back to 2024 levels, that bodes well for the demand outlook. If it weakens again, we might be in for some softening.”
Correction incoming
As it stands today, renter demand has remained strong in the Phoenix market. Devereux notes that over the last four quarters, almost 18,000 units were absorbed — nearly twice the amount when compared to prepandemic data.
“We’re actually above where we were in 2020 and 2021,” he continues. “The challenge is that demand is being spread out across a greater number of units since construction has also been high. This means individual property owners aren’t feeling the impact as much, especially since many of these renters end up in newly built apartments.”
Jamison Manwaring, co-founder, managing partner and CEO of Neighborhood Ventures, adds that an important milestone was reached early this year when more units were absorbed than delivered.
“That suggests demand is now basically equal to supply,” he continues. “If you look at the next few years, new construction falls off a cliff. It takes anywhere from two to four years to build, so once interest rates come down and projects start again, there will be a period where we’ll have a shortage of units compared to demand.”
One of the factors supporting this demand is that wages have risen faster than rent over the last two years, making housing more affordable. At the same time, single-family homes have become more expensive.
“It used to be much easier for someone to jump from a Class A apartment to owning a house,” Devereux explains. “But home prices have surged 65% from the fourth quarter of 2019 through the first quarter of 2025 and mortgage rates have more than doubled.”
On the other hand, Steltenpohl notes that renter demographics are also shifting. More young people are choosing to live in apartments after seeing how the Great Recession impacted their parents’ finances.
“Most of the people who rent our apartments could afford a home, but they either just don’t want to, or they want to live in area where homeownership would be too expensive,” he continues.
Even though multifamily demand is robust, it hasn’t kept pace with apartment deliveries. The good news, Devereux says, is the spread between these two indicators has narrowed recently, signaling that the market is approaching stability. Still, with upwards of 30,000 excess units to work through, vacancies have risen — leading to lower rents and stiffer competition for tenants.
“Something like 55% of properties are offering some form of discount,” he continues. “New builds in high growth areas are where renters are most likely to find the best deals — six to eight weeks of free rent is pretty standard right now. I expect concessions will remain elevated throughout 2025 and the first half of 2026 as supply side pressure abates.”
Manwaring adds that the influx of new supply has given renters more options, with many opting to move into new builds because those operators need to lease hundreds of units quickly and are offering rich incentives to reach that goal.
“That has kept rents flat, but we do forecast that we’ll get back to a deficit of new construction in the next few years,” he continues. “Right now, we’re still absorbing all the supply that has come to market.”
As that happens, Steltenpohl expects Metro Phoenix multifamily rents to start ticking up and concessions to come down. This correction, he says, has already begun and will allow the Phoenix market to reach relative normalcy within 12 to 18 months.
Looking forward, some unknowns remain regarding whether the Valley is over or underbuilt, but Devereux is sure of one thing:
“Between the Phoenix apartment market’s incredible performance following the pandemic and this slowdown over the last couple of years,” he concludes, “it feels like we’ve been in the front row of a rollercoaster.”
