Tucson, Arizona The Tucson metropolitan area’s economy, which was one of the fastest growing in the Nation in 2000, slowed to a standstill in 2001. During the 12-month period ending in June 2002, employment declined by 0.8 percent, or 2,800 jobs. Job losses were focused on high-technology manufacturing, construction, and services sectors linked to air travel and tourism. Major employers such as Raytheon and Bombardier laid off employees in the past 12 months. The unemployment rate rose to 4.7 percent in June from 3.3 percent a year earlier. In the midst of private-sector contraction, government employment has provided some stability to the local economy and housing market. The University of Arizona’s main campus and medical school has a current enrollment of 35,800 students and employs nearly 14,000 faculty and staff with a $536 million payroll. Budget constraints have resulted in the university laying off 100 nonteaching staff; more cuts are expected by next January. However, the university’s role in optics, biotechnology, and other research will continue to expand and attract private employers. The Department of Defense is also a significant factor in the local economy. Approximately 6,000 military and 1,700 civilian employees work at Davis-Monthan AFB. Employment growth is anticipated to resume gradually in the second half of this year. Expansions at Hamilton Aerospace, a new Slim-Fast manufacturing plant, and APAC and AOL call centers are expected to add more than 1,000 jobs this year. Defense contractors will significantly benefit from the large buildup in defense procurement and homeland security. The city of Tucson is preparing to sell parcels in its Rio Nuevo downtown revitalization project encompassing visitor attractions, commercial space, and 1,000 new housing units over a multiyear period. In February HUD selected Tucson as one of eight Empowerment Zones eligible to apply for $17 million in tax credits. These projects and the recovery of national demand for tourism and high-technology manufacturing will support accelerated growth rates resuming in 2003. The relatively strong economy and the popularity of the area for retirement attracted a steady inmigration and population increase during the past decade. The population gains have continued since 2000. As of July 1, 2001, the Census Bureau estimated that the population of the metropolitan area had reached 863,049 persons, a 2.6-percent increase since the 2000 census. Approximately two-thirds of the population change is due to domestic and international in-migration. Nearly 500,000 people live in the city of Tucson, but just over half the growth since 1990 has occurred in adjacent unincorporated fringes and the cities of Marana and Oro Valley. Favorable financial conditions continue to maintain robust home sales in Tucson, although activity has slowed, paralleling the local economy. Sales are still at historic highs, and inventories remain low. Single-family building permit activity averaged 6,715 homes annually from 1998 through 2001. Activity in the first half of 2002 totaled 2,674 homes, a 7-percent decline compared with the same period in 2001. New sales during the first 6 months of 2002 were down only 4 percent from the same period last year. Higher land and production costs have driven up the median price of a new singlefamily home to $155,000 compared with $130,000 for an existing home. The 55-and-over “retiree” market is responsible for approximately 30 percent of new home sales. The market for resales is also very strong; the metropolitan area averaged 13,700 homes annually from 1997 through 2001. In 2001, a record 15,570 existing homes were sold. In the first 6 months of 2002, nearly 8,400 existing homes were sold, up 6 percent over last year and on pace to set another record. Rental conditions have weakened in the past several quarters, affected by the slower economy, the increased supply of new units, and renters shifting to homeownership. The overall apartment vacancy rate has increased slightly to 8.5 percent, and rent increases have declined from 3.4 percent in 2001 to 1.5 percent in 2002, according to a RealData survey of developments of 40 or more units. Concessions have become widespread. Typical is 1 month’s free rent, the highest level in 20 years. With the softening conditions, multifamily building permit activity has slowed significantly in the past 6 months. From 1997 through 2001 permits were issued for approximately 1,175 units annually. In the first half of 2002, permit activity declined to 266 units. Highly competitive conditions are likely to last through this year and improve with the expected resumption of significant job growth next year.

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