Lake Havasu City has been subject to many of the same market pressures that have limited supply and increased demand on a national scale since the start of the pandemic. But Havasu, and Mohave County as a whole, have some unique characteristics that have caused the workforce housing shortage to be felt more acutely, locally.
Mohave County Economic Development Director Tami Ursenbach said home and rental prices are getting more expensive throughout the county – affecting Lake Havasu City, Bullhead City, Kingman, and the unincorporated areas of the county.
“Everyone is in the same boat, but each community has their own dynamics,” Ursenbach said. “Every county that I know of in Arizona, and most states across the nation have the very same problem. We are all struggling – though not as bad as our county.”
Mohave County Community Services Director Michael Smith said the end result has been that housing costs have outpaced the working salaries in communities throughout the county.
Although each community in Mohave County has its own unique challenges, Ursenbach said the housing situation is being affected by people and businesses moving from California and the prevalence of short term rentals in all three cities.
In Lake Havasu City specifically, city officials and people in the real estate industry say the scarcity of land within city limits, and the lack of nearby communities outside of Havasu both work to drive up the cost of housing in town as well.
The current national surge in housing prices has included a trend of migration from densely-packed metro areas into suburban and rural communities.
Tami Ursenbach said that makes Mohave County a natural fit as one of the closest locations to metropolitan Southern California for anyone looking to move out of state. Lake Havasu City and the county have always attracted Californians to the area, but real estate agents and property managers have said many of the houses and lots being purchased locally right now are bought by people from the Sunshine State.
“We are in a prime location with people moving in from California and businesses coming in,” Ursenbach said. “A lot of businesses don’t want to stay in California to do business because it costs them a lot more money – the taxes are higher and the laws are difficult. So it is cheaper for them to come into Arizona. We are right on the border and close enough that they can be here, and be in Orange County or LA within a day, or get to Las Vegas in a couple hours or to Phoenix in three or four hours. So our location is huge for us.”
Although current housing prices are high for Havasu and Mohave County, they are still relatively low compared to prices in Southern California.
“If you are moving from California you have seen crazy ridiculous home price growth if you are retiring and have owned a home there for 30 years,” said Frank Nothaft, the Chief Economist for CoreLogic. “So you can sell your home and take the proceeds from your sale and use part of it to buy a home for cash in Lake Havasu and you don’t even have to think about a mortgage. That is how significantly different the prices are between LA, Orange County and along the coast even up to Portland and Seattle – prices are just a lot lower in Lake Havasu.”
Research Economist Luis Torres with Texas A&M University’s Texas Real Estate Research Center said other areas of the country are also seeing an increase of homebuyers from California, including his home state of Texas. Those trends are good for home values, but create challenges for the local workforce.
“What is happening if you are a local, your income is more limited and that affects your ability to purchase a home. We see this in Texas just like you are in Arizona,” Torres said. “So what happens, unfortunately, is that some households have been priced out. The people who were most affected by the pandemic were households or families that worked in industries where they could not socially distance – most of them were families who work in the leisure and hospitality that were hit the hardest.”
Not everyone coming to Lake Havasu City can afford, or wants to purchase property. Rentals are another common way to house a city’s workforce. But it has gotten difficult to find a place to rent in town during the pandemic as well, and many who already have a rental have seen their monthly rates rise.
“I have had many conversations with individuals that talk about how they are renting and the landlord is increasing their rent,” said Lake Havasu City Manager Jess Knudson. “Rents aren’t going up by $50, they are going up by hundreds of dollars or, in some cases, doubling the rent. How do you go from $750 to $1,500 for the exact same living arrangement that you had previously?”
Patti Mentch, with Integrity Arizona Real Estate Sales said rental rates are completely market driven. She said when she determines what the lease should be at any of the rental properties she manages it starts with the home’s square footage. Then she notes the number of bedrooms, bathrooms and other amenities like more garage space, a pool, or any renovations that have been completed since the home was originally built. Then she checks to see what similar properties in town are worth.
“The goal is to be realistic, fair and equitable,” Mentch said. “The tenant has to qualify and be comfortable with the price range because that is the value of that specific property. All this negotiation is generally reviewed with the owner.”
While some landlords have raised rent to keep pace with the market, others have decided to leave the rental industry altogether – taking advantage of the sky-high home values to cash in on their investment by selling the home at a significantly higher price than they purchased it for.
The total number of long term rental units in Lake Havasu City is difficult to ascertain because there is not a complete database of such properties. But real estate professionals and city officials say that number has declined at least a little bit during the pandemic – even as the need for such rentals remains high.
Gray said it is important to realize that landlords are running a business, whether they have one house or a few dozen that they rent out. He said typically an investor will purchase a property and put 10 to 15 percent down.
“They are renting it for 90 to 100 percent of the mortgage payment on it, but they are still taking a risk. They have to maintain that asset over time,” Gray said. “What they are hoping to do is, over the course of 10 to 15 years, get good renters and do the maintenance and in the end they have an asset that they can sell for more. When a market gets as hot as it is, people take advantage of it. They have been at risk the whole time.”
Gray said it is essentially the same thing as an entrepreneur deciding to sell their company to a larger one, allowing them to cash in on their hard work and investments.
When a long term rental unit is sold the new owner can do whatever they want with the property. The owner could decide that they want to live in the house themselves, they could decide that a short term rental unit is more profitable, or maybe they plan on renovating the house and reselling it at a profit. Even if the new owner is interested in keeping the property as a long term rental, they may want to increase the rate to help recoup their investment.
“If the owner wants to sell the property to glean that equity they have accumulated then they are selling,” Mentch said. “So it’s really the market and the prices that pushes a lot of things in that direction.”
While the number of long term rentals has likely declined, short term rentals in Lake Havasu City have exploded over the last 18 months.
According to AirDNA, Lake Havasu City had 696 active short term rentals in town during the first quarter of 2019, reaching a peak for the year of 970 active rentals during the third quarter. AirDNA reports Havasu started 2020 with 801 active rentals during the first quarter, but the number of short term rentals jumped above 1,000 in the second quarter of 2020 and their prevalence has continued to increase in each quarter since then.
The website states there were 1,418 active short term rentals in Havasu during the second quarter of 2021 – which was an increase of more than 250 rentals from the beginning of the year.
“We love short term rentals and obviously we want tourism to thrive in Lake Havasu City, but the impact of short term rentals on attainable housing is evident,” Knudson said.
Landlocked Lake Havasu
Lake Havasu City is currently landlocked, with state and federal lands surrounding city limits on nearly all sides. Over the years development in Havasu has thrived on infill – building a single residence on a lot within an existing neighborhood.
But over the last 50-plus years as lots continue to be sold and developed, there are fewer and fewer opportunities to purchase an undeveloped lot.
“The available land is scarce, and when that happens prices automatically increase for what is left,” said Richard Gomez, President of the Lake Havasu Association of Realtors.
Partnership for Economic Development CEO James Gray said land prices are one of the first fundamentals of the housing market, and the cost of land in Havasu isn’t cheap.
“It is very hard to find a lot, almost impossible, that would be under $100,000 right now,” Gray said. “You start with that, and let’s assume it is not a flat lot – which is the case for so many of the lots left right now.”
Gray said many of the remaining vacant residential lots have been avoided until now because the layout of those lots make it difficult to build on. Those lots may need thousands of dollars’ worth of grading and groundwork just to be able to construct a house.
Mayor Cal Sheehy noted that there is more opportunity for undeveloped land within the city limits, with the Arizona State Land Department holding multiple large tracts. But purchasing state trust land, which must be sold at an auction and cannot be sold below the assessed value of the property, is generally considered to be an even more expensive option.
No nearby communities
Running out of space within city limits isn’t unique to Lake Havasu City, but it’s made worse in Havasu because of the lack of alternative options for people moving to the area.
Simply put, if someone wants to live in southern Mohave County, Lake Havasu City is the only option. But it isn’t like that everywhere and outlying communities typically create a lower barrier of entry for people moving to the area.
“A lot of places you can start out nearby,” Sheehy said. “Say you wanted to live in Prescott, for example. If you can’t afford Prescott then you can live in Chino and if you can’t afford to live in Chino you can move further out. Because of our state and federal land holdings that surround our area, the nearest place is Havasu Heights which is 20 minutes away, then we are talking Fort Mohave, Kingman, Bullhead, Parker – it is far and there is a lot of nothing between.”