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Here’s why building affordable housing in Phoenix is a challenge
Maricopa County continues to be a hotspot for population growth, with the U.S. Census Bureau reporting that the county remained the largest-gaining in the nation in 2022, adding 56,831 residents — an increase of 1.3% since 2021. With so many newcomers to the region — combined with elevated home prices, mortgage rates and rents — does Greater Phoenix have enough affordable housing?
According to Natalia Chavez, development associate for Dominium, the answer is no, even with the recent uptick of apartment construction.
“There are more than 100,000 new residents moving to Arizona each year and a shortfall of 270,000 new homes and apartments that are needed to meet the current demand,” she explains. “About half of [the units needed] are in the Phoenix Metro, so we’re not there despite all the cranes you’re seeing around town.”
When it comes to apartment development, there’s a slew of similar sounding terms to describe units — affordable, attainable, workforce, market rate, missing middle, luxury. Some are simply a different name for the same thing, but only one is defined by the federal government. According to the U.S. Department of Housing and Urban Development (HUD), housing is affordable when the occupant is paying no more than 30% of their gross income for housing costs, including utilities.
“Whether someone makes $30,000 or $300,000 a year, that’s the definition,” Chavez explains. “It’s based off that person’s household income.”
That said, the conversation around affordable housing generally refers to projects utilizing the Federal Low-Income Housing Tax Credit (LIHTC) program, which incentivizes private developers and investors to finance the construction or rehabilitation of rental housing units for low-income households. These tax credits are allocated to qualified affordable housing projects, which must adhere to specific guidelines and rent restrictions.
One of these requirements is that the units must be affordable to people earning 60% of the area median income (AMI) — a figure determined by HUD each year for the entire Phoenix-Scottsdale-Mesa metropolitan statistical area. Any units in the 60%-120% range of AMI, Popovic says, is considered workforce, missing middle or attainable housing targeting residents such as teachers, nurses, police officers and firefighters.
Part of the difficulty of building affordable housing is that the LIHTC program is a limited resource, Popovic explains.
“This year’s round of tax credits went so quickly that lots of good projects weren’t chosen,” he says. “There’s a finite pool [of LIHTC incentives] that the state gets from the federal governments and pushes down to the municipalities.”
Time is money
Cities in Arizona utilize a general plan for land use and transportation planning purposes, which, according to Arizona statute, are effective for up to 10 years and are voted on by residents. 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. In other words, the owner of a single-family home can’t tear down their house and build a restaurant in its place due to the underlying zoning of the land.
“There’s not much land zoned for multifamily in Greater Phoenix,” Chavez explains. “Because of the limited supply of this coveted, zoned land, there’s a higher price for it, and market rate developers are more likely to afford it. Affordable housing developers will then have to rezone a site, and that means you’re opening the door to the public process, which adds a lot of time.”
Changing a parcel’s zoning from what was laid out in a municipality’s general plan is a multistep procedure that culminates in a vote by the city council on whether to approve the change. Not only are affordable housing developers unlikely to outbid market rate developers, Chavez reiterates, but rezoning also means extending the overall project timeline — sometimes by months.
The rezoning process also invites the public to comment on the proposed land use change, and multifamily projects, especially those receiving LIHTC incentives, are often met with various levels of skepticism. Some fear that higher density housing will strain surrounding schools, lower property values and increase traffic and crime. Those with the most extreme views are called NIMBYs — short for "not in my backyard" — and are opposed to many forms of development.
“NIMBYism is a recent trend that comes down to people who are passionate about the community they live in and want to have an impact on what’s coming in there,” Popovic says. “We understand that, and the biggest thing is to be open and available to speak to any community groups to manage expectations and try to compromise.”
Building to success
One solution Chavez offers is that cities should reevaluate their general plans and consider zoning overlays which allow for multifamily housing, which will quicken the pace of affordable units coming to the market by avoiding the cumbersome rezoning process. Another vector of change can be streamlining the plan review process.
“Long review times make it hard for a project to pencil out and actually get executed, whether it’s market rate or affordable,” Chavez says. “Sometimes there are stringent design standards or excessive parking requirements that contribute to the ability to make units affordable. Meeting early on reduces some of the back and forth. If changes are needed, it’s better to know earlier than later. Any changes mean paying your architect and civil engineer, and that adds up.”
She applauds the Arizona Department of Housing (ADOH) for making it easier for affordable housing developers to understand and meet the requirements for the Qualified Allocation Plan (QAP), which the agency’s tax credit application is based off of.
“[ADOH] significantly reduced the number of pages of their QAP and removed some criteria, which made it more feasible for affordable housing developers to meet and therefore get an allocation of federal housing tax credits, which are needed,” she says.
Popovic adds that some of the problems with developing multifamily housing of all types stems from the differences inherent between the public and private sectors.
“We always adjust a lot quicker to market demand in the private sector, and municipalities are typically slow, just because that's the nature of government,” he concludes. “Density has been a bad word for years, but municipalities are seeing now that it’s more efficient — a traditional single-family residence uses a lot more natural resources than multifamily built on the same footprint — and it generates a lot more tax revenue. I think cities are slowly accepting that density is a good thing and the way forward [for Greater Phoenix] as the tapestry of our neighborhoods change.”
Editor's note: This story was part of the NAIOP Arizona supplement in the September issue of AZRE.