By Catherine Reagor| December 19th, 2021
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Arizona’s need for housing that people can afford is a big and growing problem.

Roadblocks to building include not-in-my-backyard-ism and political backlash. These are shutting the door on new developments, particularly in metro Phoenix, where the affordable housing crunch is the worst.

Other states have policies and laws for rent control, inclusionary zoning and short-term rental regulation to create more affordable housing, but Arizona has laws against those strategies. And most of the policies face stiff opposition.

Arizona State University's Morrison Institute of Public Policy researched the pros and cons for those policies in an effort to help pave the way for more affordable housing. It also offers solutions.

The state needs as many as 270,000 additional homes with rents and prices below what apartments and houses are going for now, according to a recent estimate from the Arizona Department of Housing

Many government and business leaders are aware of the issue. Arizona’s new affordable tax credit, passed by the Legislature earlier this year, will help.

Other efforts, including the Arizona Housing Fund that draws donations from homebuyers, sellers and the real estate industry to fund more developments, will make a dent in that number.

But more strategies to build affordable housing across the state are needed.

“Affordable housing is critical to the health of individuals and thus quality of life. It makes for a sought-after place to live, which is a sought-after place to locate a business,” said Mark Stapp, director of ASU’s Master of Real Estate Development program. “We need this kind of mentality applied at a policy level.”

But Stapp said he doesn’t support “forcing the private sector to carry the burden of creating affordable housing” because that can raise the cost of all housing and mean fewer new developments.

Rent control: pros and cons

This phrase is fighting words for many landlords in Arizona and elsewhere because it limits what they can charge tenants.

About 182 municipalities have rent control regulations, and all of them are in New York, New Jersey, California, Maryland or Washington, D.C., according to Morrison. Oregon passed the first statewide rent-control policy in 2019.

In Arizona, state statutes and the Private Property Rights Protection Act are legal barriers to rent control.

Morrison’s pros to rent control: It gives tenants more stability so they can plan for measured increases in their monthly housing payments. Oregon’s policy allows property owners to increase rents by 7% so they aren’t losing money. Metro Phoenix rents climbed by more than 22% during the past year.

Cons: Rent control policies have led landlords to convert rentals to for-sale homes, and that drives down the supply for tenants. A study of San Francisco’s rent-control policy shows it led to a 15% drop in the supply of rentals and increases in costs for tenants, according to Morrison.

Possible solutions: Governments could subsidize rents, provide a tax credit to offset rents or an incentive program to reduce utilities or property taxes for landlords who don’t hike rents. A program in Minneapolis reduces the tax rate for landlords by 40% for 10 years if rent is kept affordable.

Special zoning: pros and cons

Getting zoning for affordable apartments is a problem in Arizona.

Developer Dominium recently pulled out of a workforce housing project in Buckeye because there was so much opposition. Several other similar projects across the Valley are getting zoning shot down because of NIMBYism.

Inclusionary zoning that requires constructing housing for low- to moderate-income people in development has spurred more affordable housing in other parts of the U.S.

Arizona is one of seven states that prohibit local governments from enacting mandatory inclusionary zoning through state statutes and the Private Property Rights Protection Act. About 1,000 cities, counties and states across the country do have the zoning.

Pros: Inclusionary zoning can lead to a significant increase in the development of affordable housing. In Montgomery County, Maryland, the mandatory policy is credited with adding 14,029 affordable units between 1974 and 2014. The zoning can also lead to increased integration of neighborhoods if affordable housing is built throughout a county or city, rather than segregated to one location.

Cons: Mandatory inclusionary zoning can lead to fewer housing developments because the projects can be less profitable. Also, the zoning can be tough to administer and regulate.

Possible solutions: Provide offsets and incentives, especially with height or density variances, to allow developers more uses for a property. Morrison found studies show if developers are given those incentives, the policy doesn’t work against building more housing.

Regulation of short-term rentals: pros and cons

Listings for Arizona short-term rentals, typically found on Airbnb and Verbo, shot up 706% between June 2015 to June 2021, according to researcher AirDNA.

Based on an average rate of $282 a night, a property owner can collect more than $5,750 a month on the rentals. That profit margin means more homes, apartments and rooms aren’t available to long-term tenants, and a drop in supply means higher rents.

Few states have short-term rental regulations other than applying hotel taxes on the properties. But some cities, including New York City, have regulations to get more information on the rentals, potentially limit the number and charge additional taxes.

Arizona has a law that stops local governments from adopting any additional short-term rental regulations other than prohibiting parties or renting out properties that aren’t zoned for residential.

Pros: More regulations on short-term rentals could lead to more of the properties becoming long-term rentals. San Francisco only permits a property owner to operate a short-term rental if the home is the owner’s primary residence for at least 275 nights a year.

Cons: More regulation of short-term rentals may limit property owners’ rights and violate Arizona’s Private Properties Protection Act. Also, it could hurt property owners’ ability to make money.

Possible solutions: If Arizona got rid of its short-term rental restrictions for local governments, cities and counties could add rules that could address problems including a minimum distance between short-term rentals, enforcement of license requirements and revoking licenses for repeated violations. Also, short-term rentals could be taxed to provide more funding for affordable housing.

"I can’t predict whether these policy options will gain traction here," said Alison Cook-Davis, associate director of research at Morrison. "There’s no question that we need more affordable housing in Arizona and that an ample supply of housing that people can afford without over-burdening their pocketbooks has significant social and economic benefits."

She said the big question is "whether we as a state are going to make more tools available for developers and communities to work together to expand the supply of housing people can actually afford."

Arizona’s new low-income housing tax credit could spur $160 million in affordable housing development during the next few years. That helps but isn’t enough to create all the housing needed.

The average metro Phoenix apartment unit is now selling for $294,000, according to brokerage and research firm Colliers International. Based on that cost, as well as rising land and construction costs, the $160 million will fund the development of fewer than 1,000 apartments.

Reach the reporter at [email protected] or 602-444-8040. Follow her on Twitter @catherinereagor.

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