A place to live in the Greater Phoenix is getting harder and harder to reach. While homeowners have enjoyed a dramatic increase in the value of their investments, those in the rental market have seen a larger percentage of their wages eaten away by rising rental costs. A market report from online real estate company Zillow found that rents rose 17.7% year-over-year in the Phoenix area in May 2021. Another Zillow study predicts that by By the fourth quarter of this year, typical tenants in Greater Phoenix will become overwhelmed housing, meaning more than 30% of their income will be used to keep a roof over their heads. As a result, the Phoenix metro will change from the 29th to the 38th most affordable metro in the United States.
“This is economy 101: the law of supply and demand,” said Courtney LeVinus, President and CEO of Arizona Multi-Housing Association. “When the supply of something is low but the demand is high, the price goes up accordingly. Rent works the same way. When we have a strong supply of rental housing in the Valley, rental costs tend to remain stable, but when we have a shortage of rental housing – and thousands of people move to Greater Phoenix every month – then the rent goes up. .
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A study commissioned by the National Multifamily Housing Council and the National Apartment Association estimates that the Phoenix metro will need 150,000 additional rental units by 2030 to meet demand. To achieve this goal, the pace of current rental housing construction levels should accelerate.
“In the 1980s, the Greater Phoenix saw the construction of 105,905 multi-family units. Over the next three decades, production plummeted and we averaged 47,000 units per decade after the 1980s, ”notes LeVinus. “We built up a significant supply in the 1980s that made Arizona’s housing stock quite affordable, but now we’re clearly not keeping up with demand. “
In the zone
When a developer is looking to build a new apartment complex, the first step is to find properly zoned land for rental housing. The lots are given zoning designations based on a city’s general plan that is presented and approved by voters. The intention of a general plan is to guide long-term development within the municipality, although changes can be made as needed. Other requirements and limitations may be attached to the property, such as requiring the builder to install a traffic light or capping the maximum height of the structure.
Tim Curtis, director of the City of Scottsdale’s current planning, says projects that fit within current zoning parameters have little difficulty obtaining building permits.
“If you already have the zoning for a multi-family project and are happy as the developer with the allowed building height and density, it’s really easy,” he explains. “The degree of difficulty would probably increase if the project did not correspond to what is already envisaged in the general plan and the zoning.
LeVinus admits that simply growing in spaces designated by a city’s general plan makes sense, but she thinks it’s unrealistic. “If you scan the land available in communities across the state, you see that relatively little land has been zoned for multi-family developments. This means that virtually all new apartment development in Arizona has to go through the rezoning process, ”she notes. “Rezoning is not easy. It’s expensive, there are huge bureaucratic challenges, and it’s a long chore over time.
A developer might want a lot of things dezoned for a variety of reasons. For example, an apartment building may need more units than is allowed for the investment thesis to be completed, otherwise the investor cannot make a profit. Curtis adds that the city does not control the selling price of the property, which affects the feasibility of the project.
“If your expectation is just to comply with zoning, then you’re a happy camper and don’t necessarily complain about how difficult it is to get permits,” he says. “But if your investors are expecting a certain rate of return that requires you to go five stories, the city may be a little worried about that. The formula used by developers to gauge their satisfaction, which is primarily capitalist, is different from the formula used by cities to build the community they envisioned.
LeVinus argues that arbitrary zoning designations that make multi-family construction expensive have exacerbated the current housing crisis. “Rather than allowing the market to correct itself, local governments continue to intervene to artificially restrict the market by limiting growth in their communities,” she says. “If the local government stood aside and allowed the apartment community to respond to market forces, we could get out of the hole pretty quickly. “
Part of the rezoning process involves hearings where residents can share their thoughts on the proposed development in the hopes of convincing city council members to approve, deny or impose conditions on the project. Most of the participants in these hearings do not want apartments to be built because of a perceived threat or a degradation in their way of life. These attitudes are considered feelings that are not in my garden, known as NIMBYism.
Nana Appiah, director of planning at the city of Mesa, believes that her department’s role is to administer the city’s general plan and zoning ordinance, which strongly encourages residents to get involved in the process. . He says a common claim he comes across in zoning hearings, and which is supported across the country, is that multi-family dwellings will reduce property values in the surrounding area.
Quantifying a link between apartment building and falling home prices is murky, according to Kevin Mayo, planning administrator for the city of Chandler. “We haven’t seen this in the current market. I don’t think anything affects our real estate values except to increase them, ”he says.
In Chandler, the main concern for residents is traffic. “Thousands of multi-family units have been built and delivered to the market around Chandler Municipal Airport over the past 36 months,” Mayo notes. “The owners who live south of the airport got used to what their normal commute was. Now there is a 20% increase in traffic volume on the road. Even though the city has a traffic impact assessment that shows the road is currently operating at 40% capacity, it still looks like an entirely different world to citizens. “
Additionally, social media has made it possible for NIMBY groups to organize online and attend zoning hearings for rental housing developments that are not in their neighborhood. LeVinus recalls instances where neighborhood residents were neutral or supported a nearby multi-family project, but outside NIMBY advocates have sparked controversy. “The more noise there is around a project, the more reluctant local officials seem to be at risk,” she says.
Appiah, who wrote his doctoral thesis on citizen participation, believes that people who speak their minds are a positive thing, even if they don’t live nearby. “We encourage our Mesa residents to participate and get involved in all the activities that take place as part of creating a whole community,” he says. “What is built in the city is important to everyone who lives outside the immediate vicinity of the project. “
The outcome of these hearings usually produces a series of demands on the part of city council. “Every project has an element of back and forth to get to the end. What we frequently see now is a set of demands meant to make a development more acceptable to neighbors, such as an art installation, a massive green belt, more durable elements, or more nuances of design and treatments. These additions inevitably add significant costs to a project – costs that ultimately translate into higher rents, ”notes LeVinus. “It’s ironic that the same local officials who ask for such expensive additions are often the same leaders who complain about the lack of affordable housing in their community. “
With recent data from the US Census Bureau identifying Grand Phoenix as the third fastest growing metro in the country, trends indicate a continued flow of people making Grand Canyon state their home. What remains to be seen is whether transplants will continue to arrive if rising housing costs, rental or otherwise, persist.
“The City of Phoenix seems to understand the need for housing and is trying to meet the growing demand. Others are restricting supply, further exacerbating the affordable housing crisis, ”says LeVinus. “What stings even more is that this resistance to new development is prevalent in areas where the demand for rental housing is high and increasing with each passing day. This mindset of limiting growth is not sustainable – not if we want Arizona’s economy to continue to grow and we want rent and the cost of living to remain manageable for all residents, regardless. their income and where they want to live.