Recent studies have underscored what Arizona homebuyers and renters have known for some time: The state, and particularly Metro Phoenix, has a shortage of attainable and affordable housing. The recent population explosion, combined with rising construction costs, a surge in house flipping and the public’s desire for top-of-the-line amenities and finishes, a phenomenon known as the “HGTV effect,” has resulted in a dearth of homes with price tags that are within reach for the average worker.

Much has been said recently about the need for homes for families at or below the poverty guideline. A report by the National Low Income Housing Coalition found that Arizona has the country’s fourth-worst affordable housing shortage; Phoenix also ranked fourth among major cities. Low-income housing is defined as “housing that is affordable to households earning 30 percent of the area median income (AMI).” The AMI is the income for the median, or middle, household in a region. It is used by the U.S. Department of Housing and Urban Development to determine eligibility for federal housing programs. The AMI for a single person in Maricopa County is $33,000; for a family of four, it’s about $73,000.

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Workforce housing requires earnings of 60 percent to 120 percent of the AMI. Sally Schwenn, market president for Gorman & Company, says, “Workforce is your nurses, your firemen, your teachers, your service providers.” These are typically people who make too much money to receive government-subsidized housing yet are often priced out of the current market. According to HUD’s Fair Market Rents report, the statewide average cost of a two-bedroom apartment is $1,097; prices are much higher in Maricopa County. To afford this level of rent
(30 percent or less of gross income), as well as utilities, a household would need to earn $43,892 annually, or an hourly wage of $21.10. Arizona’s minimum wage is $12 per hour.

Unfortunately, wages have not kept pace with rising rents and home prices. According to Zillow’s latest market report, released in March, metro Phoenix recorded the highest annual growth in home values in 2020 —
17.1 percent over the last year, with the average price being $248,000. “For the workforce, trying to rent a two-bedroom apartment for a few thousand dollars a month or purchase a $300,000 house is a luxury that’s hard to attain,” Schwenn notes.

In July 2020, Phoenix Mayor Kate Gallego announced a plan to address the city’s housing shortage. Known as the Housing Phoenix Plan, its goal is to develop 50,000 affordable, workforce and market-rate housing units by 2030 by prioritizing opportunities for new housing areas, amending current zoning ordinances and redeveloping city-owned land, among other initiatives. 

In Tempe, where demand outstrips inventory and luxury multifamily developments are popping up on just about every corner, Mayor Corey Woods has prioritized the development of attainable housing. In January, the Tempe City Council approved the Home Town for All initiative, which aims to create more affordable and workforce housing opportunities through developing, acquiring and rehabilitating city properties.

For every project built in Tempe, 50 percent of certain permitting fees paid to the city will be directed to the Tempe Coalition for Affordable Housing. The money will be used to buy and renovate properties, or purchase land and request offers from developers to build affordable and workplace units. “We’re also asking for additional voluntary contributions,” Woods notes. “If you’re building a market-rate complex, that amount would be 20 percent of the total permit and developing fees, while a commercial or office structure would be 10 percent. Between the fees and the voluntary contributions, we will raise between $2 million and
$4 million per year.” To kick off expansion plans, the council in April provided a $1.2 million transfer from the municipal general fund to the program.

Woods points to best practices used by other states to counter rising home prices, including tax increment financing, whereby cities divert future property tax revenue increases toward economic development; rent control; and inclusionary zoning. All are prohibited in Arizona. “Another challenge is that we have a lot of older multifamily apartments in our community,” he says. “Some people will say, ‘Well, that’s attainable housing right there.’ But these places don’t have the comforts and amenities that are suitable for 2021. We need to make sure that we have housing in this day and age that people want to live in.”

Real estate developer and manager JES Holdings often collaborates with cities to address workforce housing needs. “Municipalities are often hyper-focused on workforce development, but they have to have the housing available or these large companies aren’t going to relocate,” explains Will Markel, executive vice president for JES Holdings.

“You need a smorgasbord of housing,” he continues. “If a city has private developers who focus only on high-end living, it’s not addressing an important societal issue. It needs to incentivize the development community to build homes of the same quality but target them to people in a different economic stratosphere.”

Markel points to a project his company developed in South Phoenix, in the shadow of South Mountain Park and Preserve. South Summit Estates is a 98-unit 55+ housing development with rents ranging from $450 for a 600-square-foot studio to $800 for a 900-square-foot two-bedroom unit. “Many retirees can’t afford luxury senior living, but they want a Class A-type apartment,” Markel says. The complex was fully rented in three months, and the waiting list is more than 100 people long.

Looking forward, Arizona’s growth shows no signs of slowing down “We realized that we’re going to need more than 11,000 more units of housing in Tempe alone by the year 2040, just to keep pace with demand,” Woods says. Getting municipalities and developers to invest in this drastic need for housing comes down to getting these projects financed. Adds Wood, “Every family should have the opportunity to achieve the American dream.”

Hometown for All drives progress to expand affordable, workforce housing

Hometown for All, the City of Tempe’s affordable and workforce housing initiative, continues to be the driver for expanded housing options in Tempe.

The latest activity includes: the sale of city land that puts $2.6 million toward affordable housing; the purchase of a small lot for homeownership opportunities; and a developer’s pledge to donate funds that will increase affordable housing.

“I’m excited about the progress that we’ve been able to make since introducing Hometown for All in January of this year,” said Tempe Mayor Corey Woods. “We know that this initiative isn’t about one particular project or one particular donation. It’s about a combination of efforts that build on each other, and occur over time, that allow the city to increase the availability of affordable and workforce housing instead of relying on the market.”

Hometown for All provides a dedicated funding stream to accelerate the growth of affordable and workforce housing options in the city and reflects the desire by Woods and the full City Council to ensure that Tempe has a variety of housing types.

For every development project built in Tempe, an amount equivalent to 50% of certain permitting fees paid to the city goes to support the Tempe Coalition for Affordable Housing, a nonprofit corporation affiliated with the City of Tempe Public Housing Authority. This coalition is informally called The Affiliate.

From there, the funds are used to buy and rehabilitate properties, buy land and request competitive offers from developers or nonprofit partners to build affordable or workforce units, and develop city-owned land.

Through the Hometown for All initiative, the city also updated its guidance for voluntary contributions from developers and others to fund affordable housing through The Affiliate. Suggested donation amounts are based on the expected amount of certain developer-paid permitting fees – 20% for residential and 10% for commercial/office projects.

Three recent activities will expand affordable and workforce housing options in Tempe:

• In mid-May, The Affiliate purchased a small vacant lot at 1119 S. Holbrook Lane for $145,000 to be used for permanently affordable homeownership opportunities, such as construction of two townhomes or one single-family home. The Affiliate will be seeking a developer and development plan in the coming months.

• The city is selling 3.5 acres at 945 W. Rio Salado Parkway for a mixed-use housing project by Hardy Rio Development Company. The sale price of $2.6 million will be used by The Affiliate to increase workforce housing. The City Council held the first public hearing on the sale at its May 27 meeting; a second and final hearing will be held June 10.

• The developer of the Rio East project at 98 S. River Drive announced a pledge at the May 27 Council meeting to make a voluntary contribution equivalent to 40% of certain developer-paid permitting fees to support affordable housing efforts.

Home Matters to Arizona announces $750,000 in affordable housing grants

Home Matters to Arizona, which is planning a $100 million fund over two years to finance affordable housing projects in Arizona, announces a second round of grant recipients that will receive a total of $750,000. The fund also announced the third round of grants applications open June 15th.

“Home Matters to Arizona is working to address health outcomes by increasing the availability of affordable homes for families who are severely cost burdened,” said Lorry Bottrill, Chief Executive Officer, Mercy Care and Home Matters Arizona Governance Fund chair. “These deserving award recipients will create intentionally connected communities and foster healthier individuals, families and economies.”

Home Matters Arizona Fund is prioritizing and funding promising projects throughout the state that are positioned to demonstrate measurable and positive outcomes focused on specific populations, geographic areas and the community at-large. The fund addresses Arizona’s rising affordability crisis while paying much-needed attention to the role of housing justice for underrepresented families and communities.

Home Matters Arizona Fund will invest in projects that serve individuals and families with low to moderate income, veterans, seniors, people who are homeless, people with disabilities, individuals involved with the justice system and those eligible for Arizona Health Care Cost Containment System (AHCCCS) support. 

The fund’s second round of award recipients: Catholic Charities Community Services for the 297-unit Mesquite Terrace in Maricopa County; Solterra Senior Living for the 160-unit Bridgewater White Mountains In Navajo County; and Comite De Bien Estar for the 100-unit CBD Valley View Apartments in Yuma County.