How Land Use Institutions Cause Rent Inflation in Metro Phoenix

Article originally posted on AZ Big Media on January 11, 2022

Greater Phoenix, once hailed as a sunny oasis with a low cost of living, is becoming a harder place for many to afford. Rising rents have eroded the take-home pay of many renters. Zillow, an online real estate company, released a market report noting that annual rent has grown 25.6% in Phoenix. A separate Zillow analysis stated that the region will slide from 29th to 38th most affordable metro in the U.S. this year.

This degradation of affordability in the metro area comes at a time of meteoric population growth — Phoenix added 160,000 residents over the past decade and overtook Philadelphia as the nation’s fifth-largest city. Accompanying Greater Phoenix’s population boom is a change in the region’s economy.

Colliers in Arizona’s Q3 2021 industrial market report asserted that, “During the third quarter, the Phoenix industrial market was more active than at any time in its history, posting 7.2 million square feet of positive net absorption, outperforming last quarter which was a previous milestone. This marks the 10th consecutive quarter of more than 1,000,000 square feet of positive net absorption.” The market also hit a record-low vacancy rate.

According to the report, approximately 20 million square feet of industrial space was under construction by the end of third quarter, compared to 9.2 million square feet during the same period in 2020. Furthermore, Colliers in Arizona noted that transportation, warehousing and utilities jobs have increased by 12%, whereas manufacturing jobs increased by 3.3% — a trend that is expected to continue thanks to the addition of 8,000 new jobs from Intel’s expansion, Taiwan Semiconductor Manufacturing Company’s $12 billion chip plant and KORE POWER’s lithium-ion battery facility.

During WESTMARC’s 2021 Economic Development Summit, Christine Mackay, community and economic development director for the City of Phoenix, said, “Arizona is projected to outpace the nation in job creation for the next decade. That’s happening because of how hard our elected officials and educators have worked to change the state’s economy from the pre-Great Recession economy that was built on golf and retirement.”

As Greater Phoenix continues to attract people and businesses, rental affordability will remain an issue, not only for the workers and families moving to the Valley, but the current population too.

The Problem

The laws of supply and demand are at work in the metro Phoenix rental market. An apartment market analysis obtained from the Arizona Multihousing Association (AMA) indicates that the Greater Phoenix region has lagged behind in multifamily development in the last 30 years. The 1980s were a boom time for apartment construction with 105,905 units being built. That was followed by a precipitous decline, with an average of 46,879 units being built each decade since.

“It’s Economics 101,” said Courtney LeVinus, president and CEO of the Arizona Multihousing Association. “When the supply of something is low, but demand is high, the price goes up in response. Rent works exactly like that. When we have a robust supply of rental housing in the Valley, rental costs tend to remain steady. But when we have a shortage of rental units — and thousands of people moving to Greater Phoenix every month — then rent goes up. That should not surprise anyone.”

The effects of this supply crunch are evident in an analysis I conducted using 5-Year American Community Survey data on 60 zip codes in the Greater Phoenix area. This data is backward looking starting from 2019, so recent increases in rent are not captured. Still, I found that the mean rent across the 60 zip codes was $1,171.42, with a standard deviation of $280.84.

One vector of my analysis looked at the percentage of income spent on rent each month, known as gross rent as a percentage of household income (GRAPI). It is noted that this data does not differentiate between someone renting a single-family house and a multifamily unit. Moreover, zip codes are not uniform in land mass, meaning some are more susceptible to outliers in the data than others.

To better understand the financial situation of renters, I used the U.S. Department of Housing and Urban Development’s definition of rental burdened — spending 30% of monthly income on rent, though some researchers are revaluating that measure — as a filter. This query found that 174,707 renters across the 60 zip codes are burdened, constituting 53.1% of the dataset.

The 5-Year American Community Survey data also breaks down GRAPI by age brackets, which shows that being rental burdened is not simply a young person’s problem. In 85308, 43% of burdened renters are between the ages of 35 and 64, with 16% being 65 or older.

“It is estimated that the Phoenix metro must build 150,000 rental units by 2030 to meet demand, according to a study commissioned by the National Multifamily Housing Council (NMHC) and the National Apartment Association,” LeVinus noted. “The bottom line is everyone who comes here needs a place to live. It’s simple supply and demand. Either we can acknowledge reality and work to increase our housing supply, or we are going to face a California-style housing crisis. Not only would that be ugly, but it would harm the economy at a time when we cannot afford such an unmitigated disaster.”

An Easy Fix?

While simply building more apartment units seems like a simple enough solution, developers face headwinds while trying to break ground. The biggest hindrances come from the cities themselves. In 2016, the Obama administration released a white paper titled “Housing Development Toolkit” that illuminated the issue:

“Over the past three decades, local barriers to housing development have intensified, particularly in the high-growth metropolitan areas increasingly fueling the national economy. The accumulation of such barriers — including zoning, other land use regulations, and lengthy development approval processes — has reduced the ability of many housing markets to respond to growing demand.”

The white paper further explains that even if these land-use policies are well-meaning, they create uncertainty for developers that ultimately limits private investment and shrinks the housing supply.

A study released by the NMHC and the National Association of Home Builders titled “Cost of Regulations” found that on average, 32% of multifamily development costs are attributable to the costs associated with complying with local, state, and federal regulations. In a quarter of cases, that number reached as high as 42%.

“Rather than allowing the market to correct itself, local governments keep stepping in to artificially constrict the market by limiting growth in their communities,” Levinus said. “If local government would get out of the way and allow the apartment community to respond to market forces, we could climb out of the hole relatively quickly. Instead, the ‘Not In My Back Yard’ (NIMBY) mentality has taken hold. That’s not going to help rental prices for anyone.”

Paul Johnson, former mayor of the City of Phoenix, argued that the current political environment for building housing is difficult precisely because the economy is doing well and major companies are investing locally.

“I ran for office during boom cycles, and I ran for office during down cycles. It’s always the same. During a down cycle, everybody becomes pro-growth,” he said. “When growth is happening, you start to hear noise from people trying to stop it. They show up at council meetings and there’s a sense that it’s a majority,” adding that NIMBYs represent approximately 5-10% of the population, according to polling Johnson conducted.

For city councils, this vocal minority creates a perilous situation to navigate.

“You’re deciding between people who claim to represent the ‘neighborhood’ and say the other side is a greedy developer who gave you money,” Johnson said. “It’s a hard environment for a young or a new council person to survive in without thinking, ‘Holy smokes, I don’t want to look like I’m corrupt or have sold out.’ That makes it more difficult for these housing projects to get through.”

Taken together, onerous zoning processes and NIMBYism are a powerful force that blocks one release valve for rising rents in Greater Phoenix — building more multifamily units.

What is Zoning?

Zoning acts as a classification system for parcels of land. In metro Phoenix, many residents live in a single-family detached home. Because of the underlying zoning, a homeowner can’t tear down their house and build a duplex or retail front in its place.

How different areas of a municipality are zoned is determined by the city’s general plan, which is a long-term planning document. According to Arizona statute, a general plan must cover land use, transportation and conservation efforts, among other elements.

The City of Scottsdale’s website describes its general plan as, “the primary tool for guiding the future of the city. It contains the community’s goals and policies on character and design, land use, open space and the natural environment, business and economics, neighborhood vitality, transportation and growth. It shapes the physical form of the city, yet it also addresses other aspects, such as community services, protection of desert and mountain lands, and the character of neighborhoods.”

A general plan, as described in Arizona statute, is effective for up to 10 years, though it can be readopted and amended. When it comes time for a new plan or an update, the city’s planning commission releases a draft for residents to review, which includes the opportunity for public hearings. The planning commission votes on the final draft, followed by the city council before finally being put up for vote in a general election.

Once adopted, a zoning ordinance is derived from the general plan that implements its goals through regulations and standards on the individual uses of property.

Zoning’s Troubled Past

Any discussion of zoning and its impacts is incomplete without an accounting of its fraught history.

James Burling detailed in “America’s Sordid History of Exclusionary Zoning” that in the summer of 1910, a black attorney named George W.F. McMechen and his wife moved to a ritzy white neighborhood in Baltimore. Not long after the McMechen’s unpacked their boxes — about six months — the city council adopted the first county’s racial zoning law.

“Under this new law,” Burling wrote, “African Americans were not allowed to move into predominantly white neighborhoods. In a cynical hat-tip to equality, whites similarly could not move into minority neighborhoods. A violation of the new law could result in fines and jail time. The law caught on like wildfire throughout the South and in the border states. Despite attempts by real estate interests to undo the Baltimore law, it remained on the books until 1917.”

Louisville, Kentucky has adopted a similar zoning ordinance claiming that it would, “prevent conflict and ill-feeling between the white and colored races in the city of Louisville, and to preserve the public peace and promote the general welfare, by making reasonable provisions requiring, as far as practicable, the use of separate blocks, for residences, places of abode, and places of assembly by white and colored people respectively.”

The National Association for the Advancement of Colored People (NAACP) in Louisville worked with local white real estate agents to set up a test case that reached the U.S. Supreme Court. The case, Buchanan v. Warley, resulted in the Justices unanimously holding, “that the law was unconstitutional because it deprived private property owners of a valuable property interest — the right to sell to a buyer of one’s choosing,” Burling noted. This decision was only 21 years removed from Plessy v. Ferguson where the Supreme Court upheld the abhorrent notion of “separate but equal.”

With outright racist zoning outlawed in 1917, segregationists adapted their strategies. Ordinances were crafted supposedly meant to stop interracial marriages, but those too were struck down. A comprehensive zoning effort detailing what could be built where was adopted in Euclid, Ohio, a suburb of Cleveland. The law set aside much of the town’s 16 square miles specifically for single-family homes.

“Minimal land was available for either industry or apartments,” according to Burling. “But the law said nothing about race or immigrants; it was purportedly all about maintaining Euclid’s rural character from the nuisance of industry and multi-family housing.”

Ambler Realty Company owned 78 acres in Euclid at the time and was poised to capitalize on industrial growth spilling over from Cleveland. When Euclid set aside most of the land for residential use only, the company sued, and a federal judge struck down the law.

In 1926, the Supreme Court took up the Euclid v. Ambler Realty case. The law was ultimately upheld, with Justice George Sutherland believing that that the town had the right to enact an ordinance to prevent incompatible uses. “A nuisance may be merely a right thing in the wrong place, like a pig in the parlor instead of the barnyard,” Sutherland wrote. “If the validity of the legislative classification for zoning purposes be fairly debatable, the legislative judgment must be allowed to control.”

Burling argued there was little doubt “that Justice Sutherland’s pigs in the parlor were the apartment-dwelling immigrant and minority populations moving into ‘nice’ white neighborhoods. As Sutherland claimed, ‘very often the apartment house is a mere parasite, constructed to take advantage of the open spaces and attractive surroundings created by the residential character of the district…interfering by their height and bulk with the free circulation of air and monopolizing the rays of the sun which otherwise would fall upon the smaller homes.’”

After the Supreme Court’s decision to affirm Euclid’s zoning ordinance, supposedly race-neutral zoning codes were adopted across the country. While these exclusionary ordinances didn’t proudly proclaim the bigotry of its authors, Burling called it a “more subtle bigotry that wore a velvet glove while writing and defending the pages of the nation’s zoning codes. What started in Baltimore, and died in Louisville, was reincarnated in Euclid.”

With de facto racial and economic segregation now law, single-family zoning was used as a tool for excluding the less affluent. The federal government forced banks to redline minority neighborhoods, denying homebuyers mortgage loans unless they moved into the “proper” part of town. As such, inner cities decayed because of the lack of investment.

Most housing assistance programs were targeted for the creation of white-only housing. If a development was financed with federal loan guarantees, race restricted covenants were required. These forbid white homeowners from selling to African Americans and Jews. “The apparent combined purpose of these laws,” Burling wrote, “was to keep what was white white, and what wasn’t yet built, also white.”

A paper by Richard D. Kahlenberg and Kimberly Quick titled “Attacking the Black–White Opportunity Gap That Comes from Residential Segregation” reported that, “in city after city, courts and sheriffs successfully evicted African Americans from homes that they had rightly purchased in order to enforce racially restrictive covenants.” In 1948, these covenants were struck down by the Supreme Court in Shelley v. Kraemer, holding that it was the use of judicial enforcement that violated the Equal Protection Clause of the Fourteenth Amendment.

It wasn’t until the passage of the Fair Housing Act in 1968, shortly after the assassination of Dr. Martin Luther King Jr., that federal protections were enshrined into law making it not only illegal to discriminate due to race, color, national origin, religion, sex, familial status and disability, but also that the government must promote fair housing practices.

The History of Zoning in Phoenix

The City of Phoenix adopted its first zoning ordinance in 1930. York et al. noted in “Zoning and Land Use: A Tale of Incompatibility and Environmental Injustice in Early Phoenix” that Phoenix adopted Euclidian zoning, meaning the city was divided into areas with specific land uses for the purposes of, “beautification, protection of property values, removal of nuisance land uses and encouragement of more efficient industry.”

Phoenix is unique in that it was established as an Anglo settlement and did not displace existing Native American or Latino communities. Despite the early city being built by minority and immigrant labor, “early boosters envisioned Phoenix as an Anglo desert utopia,” according to York et al.

As more minorities settled in Phoenix, residential segregation became the standard. When the Salt River flooded in 1890 and 1891, the white population moved north, away from the flood prone areas in the city’s southern reaches. “Phoenix’s racial divide grew as Anglo neighborhoods expanded north of downtown and a zone of mixed minority housing and industrial land uses developed to the south between central Phoenix and the Salt River,” York et al. wrote.

The north-south divide was initially established when east-west railroad tracks were laid south of downtown in 1886, which became the city’s transcontinental link with the Southern Pacific Railroad in 1926. The railroad was crucial for the growth of Phoenix because it allowed access to markets for farm production and tourism.

Minorities, however, were relegated to this area of South Phoenix by the early 1900s and became, “a region of industrial land uses and minority residences in an environment that was increasingly degraded by a lack of urban infrastructure and proliferation of mixed industrial and warehousing activities,” York et al. argued.

During that same time, the city incorporated a raft of Progressive Era reforms that further entrenched the power of affluent business interests. In 1913, a commission–city manager form of government was adopted with at-large districts that supporters believed would be more efficient.

“Another significant benefit to the new system,” York et al. reported, “was that more people would be elected from the north side of Phoenix (more affluent, more white) and put the government in the ‘right hands,’ thus limiting the political power of the less affluent, less populous (less white) part of the city.”

Furthermore, civic leaders desired city planning to be modeled off the City Beautiful movement, which sought to spur on progress with the beautification of the physical environment. Frederick Law Olmsted, a proponent of the movement, wrote in “City Planning: A Series of Papers Presenting the Essential Elements of a City Plan” that city planning represented a “growing appreciation of a city’s organic unity, of the interdependence of its diverse elements, and of the profound and inexorable manner in which the future of this great organic unit is controlled by the actions and omissions of today.”

The Phoenix Chamber of Commerce thought that the city’s development had to be seen through an industrial lens and advocated for a planning commission that would work alongside a city planner. That expert ended up being Edward F. Bennett, a well-known City Beautiful movement adherent who helped shape a similar effort in Chicago.

The July 3, 1920, edition of the Arizona Republican reported that Bennett would put together a plan that included a highway and general street map, land use, the creation of parks and a zoning map.

The article argued that, “With a city plan, the growth of a city regulated along clearly-drawn lines so that industry, commerce and residence sections develop with greatest benefit to each and without interfering with each other. Without a city plan the growth of a city is left to chance. Industrial, commercial and residential sections may encroach upon one another to the detriment of some one of them, streets provided are not able to care for traffic when districts begin to grow, and confusion is apt to accompany growth.”

Phoenix began to see more homes built in the 1920s and wealthy homeowners embraced zoning to protect their investments, according to Yang et al. “Zoning was used as a means to prevent the spread of ‘blighted districts,’ defined as areas where the encroachment of nuisances and hazards caused residents to lose confidence in the future of their neighborhoods. The most blighted districts were minority areas south of the railroad,” they wrote.

When Phoenix adopted its first zoning ordinance in 1930, the areas deemed to be “on the wrong side of the tracks” were overlooked as single-family residential neighborhoods were given the greatest protections to preserve “the homogeneity of newly constructed white suburbs,” wrote Yang et al.

Furthermore, Yang et al. found that, “Despite an overall decline in residential exposure to environmental hazards following the establishment of zoning in Phoenix, low-income residential areas experienced intense and persistent expansion of nearby nuisances, in spite of the protections promised by Euclidean zoning.”

Zoning Today

Taylor Earl, partner at Earl & Curley, explained that zoning is how the government balances property rights. He specializes in zoning and land use law, and represents commercial, office, single and multifamily, and industrial clients throughout the rezoning process.

“Even the most libertarian folks would say that some type of control makes sense, or else what’s to prevent a smokestack from being placed right next to homes? On the other hand, the most progressive among us would agree you can’t have a dictatorship where there’s no property rights and everything is micromanaged,” he said. “Zoning is the middle ground where we want property rights to prevail, but we also want reasonable expectations.”

As such, it would be unreasonable to say that once a parcel of land is zoned in a particular way it shouldn’t ever be changed. This procedure is known as rezoning, what Earl described as a legislative process that makes its way to the city council for approval since allowing additional uses onto a property can constitute a significant change to its original intended purpose.

“It’s cumbersome because you’re changing the entitlements of a property and the ramifications of that can have real world impacts,” Earl stated. “As we go through the process, what we’re trying to do is establish that this change in the zoning makes sense for not only my property owner, but it’s not going to harm people nearby.”

It is ultimately up to the city council to decide whether a proposed change is acceptable. Part of how they make such decisions come from meetings with the neighborhood and the planning commission, though the particulars vary by jurisdiction. After passing through staff review, which Earl noted was a critical early step, the rezoning journey begins in earnest.

“Phoenix requires you to have a neighborhood meeting, so I’m required to touch base with the neighbors,” Earl said. “A lot of issues can be resolved by just having a conversation with somebody. They might say, ‘I don’t have a problem with your development, but this particular driveway access point is killing me.’ Maybe we don’t absolutely need the driveway, so I can say, ‘We’re willing to shut that driveway off if you’ll support us.’”

After receiving feedback from the neighbors, the first decision-making body is one of Phoenix’s 15 villages. Since they are hyperlocal, the people on the village deciding body, for instance, know how traffic might flow through a particular area and evaluate whether a traffic complaint against a project is valid.

The next layer up is the planning commission, which is one centralized body within the city. The planning commission listens to the viewpoints of the village members, but the former has more experience because the village members come and go. Earl mentioned that being a village member is a thankless, unpaid position that means getting lots of calls from people like him wanting to discuss cases.

After the planning commission listens to the village, they make a recommendation to the city council who then make the final decision whether to approve the rezoning request. “Any city council has a million different things to evaluate from police, fire departments, budgets and parks. Expecting them to be experts on every issue isn’t realistic, so the planning commission acts as a sort of subcommittee,” Earl noted.

According to Earl, many issues with a particular development are resolved early on because he doesn’t want to go into a hearing with opposition. Still, there are times when an individual will press an issue all the way up to the city council hearing. “Sometimes a councilperson will say, ‘Look, this guy made a great point. If you want me to be supportive, you’ve got to bring that building height down.’ I might tell him that we can’t bring the whole building’s height down to 20 feet, but what if we stair stepped it so that everything within 50 feet of his property line is at 20 feet? From there, they can sometimes broker a deal with that individual.”

Ultimately, Earl said that, while inconvenient, each step in the chain has its justification. The process can weed out bad projects, but others can get caught in the buzzsaw of bureaucracy. “You leave out the little guy who would love to go and develop, but he doesn’t have the time or resources to go through a big, long zoning process,” he argued. “People come to us, and I have to tell them, ‘Are you ready for what that’s going to take? Because you’re going to pay me, an architect and an engineer, and you’re going to be at this for several months.’ It can exclude smaller mom-and-pop operations.”

Part of the Plan

The difficulty involved with rezoning begs the question of why multifamily developers choose plots that require rezoning in the first place. According to members of the planning departments of Mesa, Chandler and Scottsdale, the general plans in their cities all have parcels that are specifically zoned for multifamily housing.

Nana Appiah, planning director for the City of Mesa, said, “The general plan is very specific about creating a diversity of housing types, which includes multifamily, single-family and missing middle housing. The plan advises the city to look at all these housing types to create a complete neighborhood and city.”

Appiah contended that there are substantial areas within the city designated for residential development, including multifamily. But developers who wish to diverge from the code laid out in the general plan are subject to the rezoning process. Multiple multifamily projects have successfully been rezoned in recent years, according to Appiah.

“If you come in and are building to the standards, you don’t have to go through the rezoning process,” he said. “We do not intentionally make it difficult for multifamily developers. One of the ways to cut costs of construction is by streamlining the development review process, which is something we continue to do by clearly defining our zoning ordinance and regulations, so developers know what our standards are.”

Similarly, Kevin Mayo, planning administrator for the City of Chandler, said multifamily is a necessary component to the build out of the city. He pointed to the Northern Arizona Avenue corridor, which has seen changes in traffic volumes due to the Loops 101 and 202, where multifamily is crucial to revitalization.

“There are areas that need different land use solutions, and multifamily is a great one in the tool belt to utilize,” Mayo contended. “The general plan is strategic in terms of where to steer that type of development to. It also steers it away from other places, such as Southeast Chandler where the goal is to maintain that more rural agrarian heritage.”

A 2018 slide deck created by Chandler’s planning and zoning department shows the projected housing mix at city build out. West Chandler, which is defined as west of the Loop 101, east of the Interstate 10 and north of the Loop 202, is estimated to have 70% single-family homes and 30% multifamily units. Northeast Chandler, the section of the city east of the Loop 101 and north of the Loop 202, will have a ratio of 58% single-family homes to 42% multifamily units. South Chandler, which is everything south of the Loop 202 and the largest section of the city by land mass, is projected to have only 17% multifamily units.

Mayo argued that South Chandler, especially a 14-square-mile section in the southeast corner of the municipality, has always been held out as a special part of the city. “Chandler was a farming community until Intel got here. The city wanted to maintain some of that heritage, and that’s the Southeast Chandler area. It has a 3.5 unit per acre targeted max density, which makes it tough to mix in any amount of multifamily and still maintain that goal. That area has been held out as something different.”

Even in sections identified for multifamily growth, Mayo admitted that most projects go through the rezoning process. If a developer wants to build apartments up to 18 units per acre, they need a MF-3 zoning designation. “There’s requirements for setbacks in building heights, landscaping and parking that are all rigid in the code,” Mayo said. “The problem is that the sites that are left aren’t clean boxes anymore.”

Chandler acknowledged that some plots need a different zoning criterion due to parcel shape, so it created a planned area development (PAD) zoning designation, which is detailed in the city’s municipal code:

“This zoning designation recognizes that adherence to a rigid set of space, bulk and use specifications contained elsewhere in this Code would preclude the application of the PAD concept. Therefore, where PAD zoning is deemed appropriate or necessary, traditional rigid zoning regulations are replaced by performance considerations to fulfill the objectives of the Chandler General Plan. The PAD zoning designation may be tailored to meet the specific development representations of an applicant, relative to permitted uses, design standards, and other details. Hence one PAD designation may vary considerably from another designation.”

Mayo explained that PAD zoning allows the development standards to be created on a case-by-case basis. “It is a process to go through, but it saves developers in the end by not having to go through variance procedures or potentially manipulate their product type just to fit into a box,” he said. “Almost all of our multifamily cases go through that.”

The City of Scottsdale’s general plan also speaks to the need for a variety of housing types for residents. Tim Curtis, current planning director for the City of Scottsdale, noted that intense zoning districts allow for denser and taller buildings in growth areas, and are where multifamily housing is typically constructed. He argued that if a multifamily developer is happy to build within the height and density parameters of the zoning, the process is simple.

“The low hanging fruit would be the properties that are already general planned and zoned for multifamily development. If they’re not happy with that height or density allowance, then the fruit is a little bit higher up on the tree. If your expectation is just to comply with the zoning, then you’re a happy camper, and you’re not necessarily complaining about how difficult it is to get permits,” he said.

Curtis added that pressure from investors drives most of the frustration on behalf of developers. If a developer needs to build more stories than allowed to generate a certain rate of return, the city is likely to be apprehensive.

“I don’t know if we can solve the problem of investor expectations. The city can’t control the sale price of a piece of property,” Curtis contended. “The formula that developers use to gauge their satisfaction, which is primarily capitalistic, is different from the one that cities are using as they build the community they envisioned.”

Rezoning Roulette

LeVinus isn’t convinced that it’s as straightforward as building within the designated areas in the various general plans across Greater Phoenix. “That sounds logical, but it’s not realistic. If you scan the available land in communities across the state, you find that comparatively little land has been zoned for multifamily developments. That means virtually every new apartment development in Arizona has to go through the rezoning process. Rezoning is not easy. It’s expensive, there are enormous bureaucratic challenges, and it’s a long slog, timewise.”

LeVinus pointed to testimony by James Schloemer, CEO of Continental Properties Company, before the House Committee on Financial Services Subcommittee on Housing and Insurance as an encapsulation of the difficulties from working with municipalities:

“Apartment development is subject to an array of complex project approvals and permitting. While jurisdictional zoning laws often permit single-family development by- right, multifamily projects commonly require unique approvals and/or variances. Moreover, the local approval process is frequently structured to allow for arbitrary interpretation on the part of permitting officials and fairly open-ended community demands, which leads to inconsistent and uncertain results. In particular, the lack of uniform interpretations of jurisdictional requirements, coupled with individualized decision-making by code, planning and other jurisdictional staff, allows for potentially costly delays and unpredictable conclusions.”

The burdensome nature of rezoning kills many projects early in the process, according to LeVinus. “On top of that, there’s an even more concerning dynamic we’re seeing take shape: Local planning and economic development officials picking winners and losers. We are seeing extremely restrictive imaginary lines drawn to designate where certain development can occur.”

The difficulty of developing within the lines has deleterious effects on the affordability of Greater Phoenix. Johnson argued that the state as a whole is in a weaker position to compete against Texas, Utah, Nevada and Colorado because low housing supply and high demand has made Arizona the most expensive of the bunch.

“If you want to begin to change the price of housing, which has an effect on the cost of labor, which influences your ability to get economic development, guess what? You need a bigger supply,” he said. “Cities can’t do much about the current supply chain disruption. But they do constrain supply by saying we’re not going to plan for it, we’re not going to vote for it, we’re not going to permit it or we’re going to make it take so much time that you’ll miss the market window to do it anyway.”

Not in My Backyard

For companies seeking to build multifamily housing in the Greater Phoenix area, multiple hurdles hinder progress. The aforementioned Obama administration white paper identified the following as local policies that constrain housing supply: “Land use restrictions that make developable land much more costly than it is inherently, zoning restrictions, off-street parking requirements, arbitrary or antiquated preservation regulations, residential conversion restrictions, and unnecessarily slow permitting processes.”

At times, the biggest thorn in multifamily developers’ sides are everyday people. While comprises can be found throughout the zoning process, Earl noted that some NIMBYs are bent on stopping development at all costs. “They come with a chip on their shoulder and an unwillingness to find any middle ground. I’ve had cases where they’ve said, ‘I appreciate what you’re saying, but nothing you do is going to make a difference. It doesn’t fundamentally change the fact that we don’t want this zoning district on this piece of property.’”

David Foster and Joseph Warren outlined the motivations behind these viewpoints in a paper titled “The NIMBY Problem.” In it, the authors wrote, “NIMBYism is widely blamed for land use regulations that are empirically linked to high housing prices…In turn, reducing high housing prices in major metropolitan areas in the United States is expected to hold large benefits for equality, social mobility, and aggregate economic growth.”

If NIMBYism makes housing more expensive, which impacts equality, social mobility and economic growth, why would people proudly be against development? Foster and Warren argued animosity stems from the diffuse benefits and concentrated costs.

“Those who experience the costs (local residents) have a say in local decision-making, while those who experience the benefits (future residents or residents of the region as a whole) are excluded from local decision-making. Cities and neighborhoods bearing the concentrated costs of development oppose new housing while free riding on the benefits of development beyond their local area,” they noted.

While the authors agree that some sort of local control is warranted to prevent abuses, Foster and Warren argued that NIMBYs tend to dominate planning hearings, yet the empirical evidence shows that these residents are unrepresentative of the broader population. “If committed project opponents use existing land use institutions to induce broader opposition to new housing in this way, then we should observe developers facing high regulatory costs. Indeed, the costs that developers expend for project approval can be substantial.”

It would be unfair to say that all worries over the construction of multifamily housing are frivolous. But what exactly are the concerns NIMBYs speak about when they show up to zoning hearings? Mayo said the primary problem he hears from residents is traffic and a change to their daily routines.

“Around the Chandler Municipal Airport, thousands of units have been built in the last 36 months and delivered to the market. Those folks are now driving on six lane arterial roads constructed eight years ago. Homeowners south of the airport have been using those roads and have become accustomed to what their normal was. Now you’ve got another 20% traffic volume on the road,” he noted. “Even though we have a traffic impact analysis that shows that the road is currently operating at 40% capacity, it still feels like an entirely different world for the citizens.”

Another major worry residents have centers around how their property value might be affected by a particular development, according to Mayo. “We hear about property values, but that’s hard to quantify, and we obviously haven’t seen that in the current market. I don’t think anything is affecting property values except for pushing them up,” he said.

Appiah added that the property value argument is brought up in Mesa, but people typically back off when given the facts of the matter. A bigger concern is whether a project is compatible with the surrounding neighborhood.

“Neighbors are concerned that if we allow density in an area, schools won’t have enough room to accommodate the new students. When we have a potential development, we send the details to the school district to make sure there’s adequate capacity. That’s why we have a professional staff to give neighbors that kind of information,” he said.

In Scottsdale, Curtis contended that it’s important to remember that people who take the time to come to a zoning hearing are likely not happy about a project.

“We hear variety of things about opposition for all sorts of different projects: Scottsdale is changing too much, it’s not the small town that we want it to be, or we don’t want so many multifamily and tall buildings,” he said. “An educated and engaged public will express their concerns. That is welcome in Scottsdale, because it seems like every time there’s community engagement with opposition or support, the project comes out better one way or the other.”

From her experience, LeVinus explained that nearly every zoning case focuses on height and density. “Developers who want projects to pencil out seek allowances to make a deal work financially. Meanwhile, neighbors argue that more homes mean more traffic, more crime and more blight. We can point to a stack of studies that debunk such myths, because they’re exactly that — myths. Regardless, local officials generally defer to established neighborhoods,” she argued.

LeVinus added that developers are frequently seeing requests that are meant to make a development more palatable for neighbors — such as an art installation, a massive green belt, sustainable elements, more design nuance and treatments. These additions add costs that are ultimately reflected in higher rent.

“You hear all the time that Arizona needs to build more affordable housing. The reality is, we have so many people migrating to this state, we need to build more housing, period. That’s true at every price point, not just at the low end of the scale,” she said. “The thing is, affordable housing is the most difficult type of project to get built. The minute a neighborhood hears that some sort of ‘affordable housing’ is planned, residents get up in arms. They associate these apartment communities with crime, traffic, noise and lower property values. These claims are easily debunked with endless studies but unfortunately, the louder the opposition the more local elected officials and city staff listen to them.”

NIMBYs are getting more creative in their opposition thanks to technology, according to LeVinus. Social media and websites like NextDoor have allowed NIMBYs to organize under a principle of general distaste for development.

Appiah, who wrote his doctoral dissertation on citizen participation, said that the increased participation of residents by connecting through social media is not a bad thing. “What happens in the city is important to everyone that lives outside the immediate vicinity of any one project. A development may have a ripple effect on other places,” he contended. “We encourage our residents in Mesa to participate and get involved in every activity that is going on as part of creating a complete community.”

LeVinus, on the other hand, argued that social media has given NIMBYs new forums to manufacture outrage.

“We have seen an uptick in groups who don’t live anywhere near a proposed development getting active against a multifamily community. In fact, we’ve even seen them get active even when neighbors who live beside a project are either neutral or in support,” she argued. “The more noise that surrounds a project, the more risk averse local officials seem to become. We are also seeing more planning and economic development officials taking a more active role to limit housing developments in various markets, which is unprecedented.”

One example of this dynamic is from the City of Scottsdale. AZ Central reported that Scottsdale Mayor David Ortega is actively looking to restrict development in Old Town by changing parking rules for new projects, updating a development plan for the area and amending zoning ordinances.

Ortega told Arizona Republic reporter Renata Cló, “Crushing tourism, crushing the infrastructure and turning people away because of gridlock, that’s what’s going to happen. It will crush us. And we’ll be looking at each other and say, ‘How can we now have these empty buildings?’” he said. “Because they were built for someone’s speculation, and they destroyed the suburban city we used to have.”

The Future of Greater Phoenix Rent

All indicators point to the Phoenix metro continuing to grow in the coming years. The question is whether the region can sustain the boom into the future.

LeVinus put the challenge in stark terms, “The bottom line is that everyone who comes here needs a place to live. If we have 10 homes available and 12 families who move here and compete for those homes, families are left without a home. It’s simple supply and demand,” she said. “Either we can acknowledge reality and work to increase our housing supply, or we are going to face a California-style housing crisis. Not only would that be ugly, but it would harm the economy at a time when we cannot afford such an unmitigated disaster.”

Johnson agreed that a failure to act could leave current residents in a worse condition. “I represented an inner city. I will make you this promise. If growth stops in an area and change quits happening, the housing stock begins to go downhill,” he argued. “As it goes downhill and people aren’t seeing new investment in it, they move away, and property values drop. There is no study you could show me that would say building an apartment complex in an area diminishes it.”

So, what is to be done? The authors of “The NIMBY Problem” argued that NIMBYism arises, “due to a bargaining failure between developers and local residents. Because the structure of local land-use institutions often provides opportunities for committed project opponents to obstruct development, developers must expend money fighting these opponents.”

Rather than move land-use decisions to the state-level, as some proponents call for, Foster and Warren advocated for reforming local procedures to be more majoritarian, while maintaining project-by-project review.

“Local governments could organize neighborhood residents before the fact, so that developers have a clearly authorized actor with whom to negotiate, and developers can secure approval (or rejection) without the possibility of obstruction or delay by small groups of residents. Such a process preserves veto power by a local majority while reducing regulatory expenses for developers caused by multiple approval stages,” they wrote.

Furthermore, Foster and Warren contended that savings captured from reduced regulatory burdens should instead be used to compensate residents for the local costs of development, which would increase public support. By structuring land use institutions in such a way where residents have the power not only to veto development but approve it, the authors argued that deals can be struck between the two parties. They pointed to California, where some municipalities require housing developments to be approved via referendum. A number of these cities have neighborhood groups that work with the Sierra Club to negotiate with developers to secure public goods, such as open space guarantees, before endorsing a particular project.

“Such agreements generally apply to very large projects, often through ad hoc coalitions of unions, neighborhood groups, and local businesses. By reducing transaction costs through formal bargaining mechanisms, this process may be successful for smaller projects as well,” Foster and Warren argued.

Academic thought experiments are useful for exploring the realm of possibilities, but such changes in Arizona are not likely to happen anytime soon, and certainly not in time to deal with the current state of housing. Earl argued that a shift in ideology towards a stronger reading of property rights — within reason — would be of great benefit.

“I had a case where I said, ‘Look, this is a fair and reasonable use of this property. What we’re proposing isn’t going to harm anybody.’ But the jurisdiction wanted it to go in another direction. That starts to seem like excessive government control of development. There should be a recognition that property rights are constitutionally protected. As for the right of a city to have a perfect mixture of all the stuff they want, right where they want it? I don’t see that as being constitutionally protected.” 

Furthermore, Earl is concerned about a trend where planning commissions refuse to meet with applicants or neighbors.

“They just want to show up and make the decision. While I respect that they are volunteers and this isn’t their full-time job, I do feel like a blanket ban on meetings is unnecessarily strict,” he said. “If I’m asked a technical question in a hearing without fair warning, I probably won’t know the answer. If they tell me a week ahead of time, I can say I will have that answer before the commission. What could be bad about additional information?”

Still, concrete actions need to be taken to address the issue. Earl contended that municipalities have the tools to stimulate investment by streamlining the zoning process.

“The entirety of Downtown Phoenix is zoned under the downtown code. People could opt out, but they got these incredible entitlements. The city has the ability to incentivize development by taking down some of those barriers,” he said. “Can you imagine how much slower it would have been to develop downtown if everybody had to go through a rezoning process to get incredible density and incredible height? Investors would just walk away.”

In 2020, the City of Phoenix released its first-ever plan addressing the housing shortage, with the goal of creating or preserving 50,000 homes by 2030. According to the City of Phoenix’s website, 19,318 units have been created or preserved to date. The Housing Phoenix Plan puts forth a series of policy solutions with short-, medium- and long-term implementation time frames.

One goal is to prioritize new housing in areas of opportunity by creating a scoring matrix for multifamily developments that will make it easier for the city council to make decisions and give priority to projects that are near community resources. The hope is to streamline the zoning process to ease the burden on developers.

Another policy the city is looking at is to amend the current zoning ordinance to allow for more housing options. One such change is to add a provision that would create more incentives for affordable housing construction, including allowances for greater height and density, along with relief from certain development standards. The plan also calls for an amendment to allow for accessory dwelling units (ADUs) in target areas with the potential to expand if the program is sufficiently popular.

“Phoenix is looking at this idea of the accessory dwelling unit. In theory, they could provide an allowance within the zoning ordinance granting you by-right approval so you can have up to two dwelling units right on a piece of property that normally would be allowed to have one,” he noted. “The city can just grant that.”

Earl explained that there are companies that will build and manage an ADU in a resident’s backyard, who then receives part of the rent revenue from the tenant. In California, a series of laws passed in the past few years allow residents to build a small apartment and convert their garages to ADUs on single-family lots. It is estimated that 22,695 ADUs have been added to California’s housing supply since 2018. While not enough to solve the Golden State’s acute housing shortage, it is a start.

Arizona’s neighbor to the west also made a bold move when Gov. Gavin Newsom signed into law a suite of bills in Sept. 2021 that effectively ends single-family zoning in the state. One of the bills, SB 9, is expected to create 700,000 homes, according to the Terner Center. A major reform included in SB 9 is the elimination of local ordinances that require more than one parking space per residential unit. Furthermore, if the project is one-half mile away from public transit or a car share vehicle is within one block, parking requirements must be expunged. While the political realities of the Grand Canyon State likely prohibit the same reforms happening at the state level, if more cities took Phoenix’s lead, serious progress could be made for the rental affordability of the region.

LeVinus concluded, “There are planning departments in Greater Phoenix that totally get it. For example, the City of Phoenix seems to value and understand the need for housing. Clearly, they’re making an effort to keep up with growing demand. Others are restricting supply that is further exacerbating the affordable housing crisis. What stings even more is that this resistance to new development is prevalent in areas where the demand for new rental homes is high — and rising with each passing day. This mentality to limit growth isn’t sustainable — not if we want the Arizona economy to continue to grow and we want to keep rent and the cost of living manageable for all residents no matter what they earn and where they want to live.”

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