The Three Drivers of Supply and Demand

This is the first and possibly most important indicator of demand and for good reason. If a market or submarket has lots of jobs, people will come to fill those jobs. Very basic stuff. It is a fact that jobs drive residency, so with all things being equal, property that is near to employment is in greater demand. That’s not to say that people won’t drive to live in a highly desirable city or town or that people won’t drive to their job. But just be aware of the market condition.When you’re looking for indicators of supply and demand, look at employment. In the case of Fountain Hills, Arizona, there is little to no employment base at all. Nearly everyone who lives in the town, who is of working age, works elsewhere, like in neighboring Scottsdale. Scottsdale, by contrast, has many employers. Both Fountain Hills and Scottsdale are desirable places to live and both communities are beautiful places with excellent qualities of life. But Scottsdale wins in terms of employment and therefore in terms of demand.High employment can be beneficial for rental property investments, but be sure to look at the whole picture. Even communities with lots of jobs can still be overbuilt, thus throwing off the delicate balance of supply and demand. Scottsdale has been smart to limit the supply of rental properties. That has helped keep the vacancies low and the rents high. Fountain Hills, with its plentiful land by contrast, allowed the construction of too many rental units and therefore vacancies are higher and rents are lower. Fountain Hills could have been a premium rental community even without a strong employment base and once was before a boom in rental properties occurred in the mid- to late 1990s. After all, the town is a tremendous draw for winter visitors and part-time residents, a good market for rental communities.

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