Arizona moving to address housing shortage
By Bob Christie
Capitol Media Services
PHOENIX -- That run-down strip mall down the street? Imagine new condos or apartments.
The set of empty lots in the middle of an established neighborhood? Think of them filled with as many small homes with no yards as a developer could cram onto the space.
Those and a series of other proposals designed to address Arizona's housing shortage by limiting city zoning rules are making their way through the Legislature this year. And unlike previous years when cities succeeded in holding back efforts to strip them of their power over zoning, planning and even home design standards, many appear to have bipartisan backing -- and could very well make their way to Gov. Katie Hobbs' desk for her to sign or veto.
Many Democrats and Republicans agree they need to do something. They argue the state is short more than 270,000 homes and the shortage has contributed to big increases in home prices and rents.
And while others say those numbers are much lower, there is broad agreement that kickstarting home building, especially lower-level homes that are affordable for average workers, is necessary.
The housing shortage developed in the past several years as a growing population collided with a decade of lower-than-normal new home construction. That came in part because developers were gun-shy after the Great Recession that hit in 2008 led to a mortgage crisis that left metro Phoenix with the nation's highest number of foreclosures.
Adding to that mix was a lack of available land for new homes to be built except in far-out suburbs, investors snapping up homes to turn into long- or short-term rentals, and shortages of workers and materials.
Soaring rents and home prices, on top of interest rate increases, added to the affordability problem.
Enter home builders and apartment developers, who through their lobbying associations tried to push through a massive overhaul last year that stripped cities and towns of much of their zoning power, all in the name of boosting supply. But the group that represents cities and towns, backed by residents of established neighborhoods and others who leaned on their legislators to oppose the measure, succeeded in holding it off.
A compromise hammered out toward the end of the session died as lawmakers weary of the fight decided to put it off until this year.
That set the stage for a new effort, in the form of separate bills that together address all the issues that had been packed into last year’s legislation and other proposals.
Topping the list is a bill backed by Republican House and Senate leaders called the Arizona Starter Home Act.
It would ban cities from requiring costly neighborhood amenities and homeowners' associations that levy fees to maintain them, a bar on city design standards and, most importantly, a prohibition on cities requiring minimum lot sizes or rules setting how close homes could be built to each other, called setbacks. It’s being pushed by homebuilders.
Opponents note nothing in the proposal actually requires any of the resulting new homes to be small and affordable and argue it could change the character of existing neighborhoods.
Another major proposal would give developers the right to convert any commercial property in the state to home or apartment sites. It is being pushed by the state association representing apartment owners and developers.
Other ideas which have picked up some support among Democrats would allow backyard additions known as casitas or "granny flats'' in neighborhoods zoned for single family homes, one that would place limits on requirements for parking spaces, and a proposal allowing duplexes, triplexes and fourplexes in many areas.
Tucson, Phoenix and other cities already have passed new rules allowing casitas in many areas. But the state proposal would override those city rules in favor of the new state regulations.
The housing problem isn't just in metro Phoenix. Tucson, Flagstaff and even Lake Havasu City have shortages of affordable homes and apartments.
At a recent hearing for the main zoning bill, House Majority Leader Leo Biasiucci told lawmakers that the measure remains a work in progress.
"If there are things we need to fix and tweak and get better, that’s how good policy gets through this chamber and signed by the governor,'' Biasiucci told the House Commerce Committee on Jan. 30 before it passed on an 8-1 vote. The Senate version advanced last week on a 5-2 vote.
Biasiucci said he was tired of hearing from business owners who lost workers because they couldn't find a place to live that they could afford.
"So I’m asking you all, please work with me to get this where we need it to get,'' to pass, he added.
At the same hearing, Democrats lined up behind the plan.
"We have to do something,'' Mesa Democrat Lorena Austin said.
"I’m so confident that this is not going to pass as is,'' Austin continued. "Everyone on this committee knows that. There’s going to be conversations and different iterations on this bill. We have to do something and this is something.''
The measures are opposed by some members of both parties, and by many cities, represented by the League of Arizona Cities and Towns.
Nick Ponder, a lobbying for Phoenix and Tucson, told lawmakers they were buying into a myth when home builders told them they didn’t have enough land to build on.
"For two years now, all I’ve heard is we're not building housing and cities are those to blame,” Ponder told the panel, despite him providing data showing that is not the case.
"Currently, just in this county alone, there are 275,000 units in the pipeline; 106,000 of those units already have permits and could be built today.''
Those include nearly 61,000 permitted single-family homes throughout the area, including in Phoenix.
This year's push to overhaul city zoning rules has a different tenor than previous efforts because of what appears to be a broad undercurrent of support from lawmakers.
But opposition remains.
Sen. John Kavanagh, a Fountain Hills Republican who opposed last year's zoning overhaul effort and said it amounted to “kneecapping” cities, said he is less hopeful this year’s proposals can be held back.
"The problem is the Democrats, who traditionally respected local zoning, are now worshipping a new sacred cow called affordable housing,'' said Kavanagh who used to be on the Fountain Hills town council and whose wife was once town mayor. "Even though the housing that comes out of these things is usually not affordable.''
Rep. Analise Ortiz, D-Phoenix, told Capitol Media Services that her caucus held a series of off-session meetings with people interested in the topic, form community leaders to developers and scholars.
"Everyone kind of agreed that we do need a statewide approach to roll back some of the most onerous zoning regulations that are holding up development of not only multifamily housing but also smaller starter homes,'' Ortiz said.
She said the question was how to do that in a bipartisan way that does not completely remove local control and does not abolish single-family zoning..
"I want to be very clear, there is not a single bill this year that aims to get rid of city zoning,'' Ortiz said. "And what we found were several areas of compromise.''
Still, lobbyists for cities pointed at a myriad of issues they have with the major proposals.
For instance, the bill that gives developers the right to convert any commercial-zones property into homes or apartments could force cities to pay landowners if the Legislature later change the law because too much commercial property has been converted or other reasons. That’s because of a 2006 voter-approved law known as Proposition 207 that requires municipalities to compensate landowners if a rezoning affects their property value.
And cities and some lawmakers also oppose many aspects of the starter home bills, HB 2570 and SB 1112. They say many residents of established neighborhoods are worried the character of their community could be changed by cramming in small houses.
"In an Arizona where House Bill 2570 becomes law, neighborhoods would become checkerboards of ranch homes, sleek, contemporary modern structures, red castles and tiny homes,'' Rep. Matt Gress, R-Phoenix, said at the recent hearing where his was the lone 'no' vote. He said limits on HOA-funded amenities and a push to cut developer fees would cause city taxes to skyrocket.
"And the traditional single-family home neighborhood becomes so dense and compact, that neighbors today would no longer recognize their cherished neighborhoods,'' Gress said.
Gress is sponsoring a measure that would require cities to do housing needs assessments and to cut the time it takes to approve zoning change applications to six months.
Packing more homes and apartments into already developed cities is a major part of all the overhauls, and is needed, according to Elliott Pollack, an economist who has studied the region's real estate for decades. But Pollack agrees that shoving small homes into Paradise Valley, for example, isn't the way to go.
"There are some things that government should protect,'' he said. "You certainly have to have cities develop the ambiance that they want.''
But he said cities have to take into account the costs, and they have to take into account that there can be higher density.
"In fact there has to be higher density than prior to the run-up of housing prices,'' he said. "It’s a different world.''
Home prices in metro Phoenix have skyrocketed in the past decades, erasing what was for generations the state’s reputation as an affordable place to live. The median price for a detached single-family home in metro Phoenix sits at $430,000, a 53% rise just since 2020 and double the $213,000 seen in 2015.
But Phoenix is not alone.
Redfin reports that in December Tucson home prices were up 11.2% over just the past year, selling for a median price of $322,500. And that is almost 74% higher than five years ago.
A study Pollack did in 2022 for a group he helped found called Home Arizona determined that Arizona needs about 35,000 new homes and apartments each year just to handle population growth. And to make up for the housing shortage, another 7,000 new homes and apartments are needed in each of the next five years, bringing the total to 42,000 a year.
In 2022, the most recent year completion figures were available from the Maricopa County on its home completions, just over 31,000 were finished, fewer than before the Great Recession.
Regardless of the numbers needed and a boom in new apartment construction in the past several years, Pollack said higher interest rates are likely to continue to slow new apartment construction.
Even if some of the proposals become law, Ortiz agreed that there is no quick fix for the region’s housing shortage.
"I don’t thing anyone is expecting it overnight,'' she said. "That’s why we need multiple options on the table.''
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