The Real Culprit Behind the Housing Crisis: Why Blaming Cities & Towns Misses the Mark

A significant shift in the economic landscape has altered the homebuilding financial model in Arizona, as rising labor and material costs, alongside intricate financial challenges, have driven up housing prices. This trend is not isolated to Arizona but is being felt across the United States and in other developed nations.

Critically, Arizona’s municipal governments cannot be blamed for this disruption in housing finance. They did not influence the Federal Reserve’s decisions, which have exacerbated inflation or create the so-called “Golden Handcuffs” of low mortgage rates that currently limit home sales.

Statements that point fingers at local governments may stem from a lack of understanding or bias within certain advocacy groups. The true cause of declining housing affordability lies in larger macroeconomic trends, which local entities are actively working to address rather than create.

The housing issue is fundamentally a national and international concern, emphasizing the need for a broader perspective. While Arizona appeared affordable pre-COVID-19, the market dynamics shifted post-2020 due to several compounding factors.

Key contributors to this market shift include:

• The Great Recession of 2008, which led to a sluggish recovery.
• Insufficient housing development to offset past overbuilding.
• Increased corporate buying in the housing market.
• The COVID-19 work-from-home trend, attracting movers to Arizona.
• Higher income levels among transplants from California.
• Supply chain disruptions inflating construction costs.
• Growing labor expenses due to workforce challenges.
• Fluctuating mortgage rates freezing potential buyers in place.

Collectively, these factors have inflated housing costs in Arizona by over 60% and are unrelated to new zoning laws. Developers and local governments need to collaborate effectively to address these challenges, rather than perpetuate misleading narratives.

After the Great Recession, Arizona’s housing market was slow to recover from a boom turned bust. Yet, development is currently on the upswing; Arizona ranks sixth in the nation for new units permitted since January 2020 and has 110,000 units waiting for construction in Maricopa County alone, a number sufficient to meet today’s housing demands.

The rise in costs has roots in inflationary pressures linked to the pandemic. The desire for larger homes coupled with low-interest rates spurred competition, leading to price surges. Government stimulus and changing consumer behaviors fueled further demand for home improvements and renovations, exacerbating existing trends.

Interestingly, California’s relatively high area median income has shifted competitive dynamics for potential homebuyers in Arizona. As residents move from higher-income states, they increase the stakes in a market already strained by scarcity.

Interest rate fluctuations have disrupted the traditional housing ladder. Many homeowners locked into historically low rates cannot justify moving to larger homes, effectively limiting supply for first-time buyers. This situation has worsened with rising corporate investment in single-family homes, challenging affordable housing access.

Corporate entities own a significant share of rental properties, limiting opportunities for first-time buyers. A substantial portion of single-family rentals in Phoenix is controlled by corporate interests, easing their purchasing power over individual homebuyers.

The short-term rental (STR) market has also been affected by corporate ownership. Preemption legislation has allowed corporations to dominate this space, with implications for local housing availability. Presently, around 60,000 units in Arizona serve the STR market, diverting essential housing stock from regular buyers.

Multifamily unit sales are at a historic low as developers favor build-to-rent models, driving up prices for prospective buyers. With Arizona’s limited land availability, efficiency in land use has become imperative, yet there remains a demand for diverse housing options across different lot sizes.

Discussions around the age of first-time homeownership reveal that while prices are rising, the average age of buyers has consistently been over 31 since 1981. This underscores the impact of macroeconomic forces on housing accessibility.

In response to the crisis, Arizona’s communities have proactively embraced various policy measures to enhance housing availability. Local governments have cut lot sizes and expedited approval processes while supporting programs aimed at bolstering affordable housing initiatives.

As the housing landscape continues to evolve, there are eight practical solutions proposed to alleviate the existing challenges:

• Implementing Tax Increment Financing (TIF) for infrastructure developments.
• Freezing local property taxes on infill housing projects for seven years.
• Encouraging a balanced approach among developers, residents, and planners through the League Starter Home bill.
• Restricting corporate mass ownership of homes.
• Removing local constraints on short-term rentals.
• Extending the Low-Income Housing Tax Credit (LIHTC).
• Addressing construction defect liability issues to stimulate multifamily sales.
• Revising state-level zoning provisions to accommodate affordable housing needs.

As Arizona navigates these complex housing challenges, the collaboration between developers, local governments, and communities has never been more vital. With a unified approach, solutions can emerge that will support sustainable, affordable growth in the state’s housing sector.