Despite housing challenges, Tucson sees economic gains (2024)

Economists are seeing positive trends emerge in Tucson’s economy over the last year, including a solid labor market, declining inflation, personal income gains, and steady water management supporting continued growth.

Despite other positive economic indicators, housing affordability remains a top concern.

The insights were shared Wednesday as part of the University of Arizona Eller College’s Breakfast with the Economists, which breaks down Tucson’s economic forecast.

George Hammond, director and research professor of the Economic and Business Research Center at the UA, said that overall, he sees good growth in many areas of Tucson’s economy.

“The labor market in Tucson is in good shape,” Hammond said. “We’re generating solid job growth that is a bit below the national average, but nonetheless solid job growth.”

Tucson’s job growth declined slightly from 1.6% in 2023 to 1.2% in 2024, but Hammond said that overall, growth is holding relatively steady, with unemployment still relatively low statewide.

“A tight labor market is good news,” Hammond said. “Low unemployment rate means that workers are finding lots of job opportunities out there and they’re generally experiencing relatively strong wage growth.”

One significant area of growth was personal income. The new data, compiled from federal government statistical agencies, estimated Arizona’s per capita personal income at $61,652 in 2023, an increase of 5.6% from 2022.

Hammond said that the competitive labor market is responsible for driving some of that growth, in addition to strong gains in Medicare, Medicaid, Social Security, as well as growth in dividends, interest and rent.

“Rental income is also up significantly,” Hammond said. “And that’s connected to what’s going on in the housing market.”

The housing market remains stressed, Hammond said, with rising home prices and elevated mortgage interest rates negatively impacting affordability.

The median Tucson home price increased 7.3% in the first quarter of 2024, reaching $364,900. Hammond said that the percent of available houses that are affordable on a median family income has fallen nearly 40% since 2019.

“We’ve seen a rough doubling in mortgage interest rates,” Hammond said. “During the pandemic, we saw big declines in the number of people looking to sell their homes. That hasn’t fully rebounded yet, so what we’re seeing is that fewer people are putting their homes on the market because they feel locked in by current interest rates.”

Hammond said that the lack of available houses on the market is partially responsible for driving up home prices, and has created a need for developers to build new homes, resulting in single-family permits roughly doubling across Arizona since 2023.

“State governments and local governments have been gradually working on the need to increase housing supply,” Hammond said. “Hopefully that means we’ll see more completed units coming on the market as we go forward, and that will at least start to stabilize overall house prices.”

Already, Phoenix inflation has decreased significantly. After hitting 13% in the summer of 2022, Hammond said that inflation is now down to 2.6% in 2024.

“What’s driven Phoenix inflation down is the housing component,” Hammond said. “Phoenix shelter inflation was between 19 and 20% in the summer of 2022. The April data, that was down to 3½%.”

Nationally, Hammond said that the Federal Reserve is planning to target inflation to drive it down to the target of 2%.

Despite falling inflation, the pace of retail and remote sales also decelerated in 2024, declining from 3.4% last year to 2.5%.

“It may be that the increased housing costs are contributing to somewhat slower growth in taxable retail sales,” Hammond said. “Combined with the overall bout of inflation that we’ve experienced, with significant increases in the prices across a wide range of goods and services.”

Hammond said that with decreasing inflation, he anticipates sales will recover to 4.2% in 2025.

“I think Tucson is in good shape to continue to grow,” Hammond said.

Sharon Megdal, director of the University of Arizona Water Resources Center, also spoke at Wednesday’s event, discussing the complex relation between Arizona’s economy and water management. Like Hammond, Megdal said that she sees ample opportunity for further growth in Tucson and Arizona.

“We have some challenges, and we have some things that are working well, and in particular the Tucson area is doing quite well in water availability,” Megdal said. “There’s good protections in the active management areas for housing and community development.”

For Megdal, the key to Arizona’s continued growth is appropriate preparation and innovative solutions.

“Businesses and residents want to know they have water supplies for the future,” Megdal said. “The real question is, are we taking the kind of actions that we need to take to be prepared for a future that may have limited or limited surface water supplies?”

“The Tucson region has adapted to changing water conditions through innovation, partnerships and other actions,” Megdal said. “I am very optimistic that we will be in equilibrium with changing circ*mstances over time. Mainly because we have to be.”