Southwest cities slowly freeing their housing markets

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The southwest has not been immune to the “housing crisis” frequently talked about in more densely populated coastal states like California.

Rising housing costs, which can put considerable strain on middle-class and lower-income individuals and families, have been aggravated and amplified by government policies constraining the ability of homebuilders to build.

In response to this, some policymakers across the southwest are beginning to take more seriously the need to make it easier to build new housing. But as this two-part series review will show, this is a much more difficult task than it ought to be.

[Part one below takes a look at the housing landscape in the states of Arizona and Colorado. Part two will look to New Mexico and Utah, followed by the review’s conclusion.]

Arizona

Arizona is short more than 270,000 housing units needed to meet current demand, according to the state’s Department of Housing.

Rents have spiked in cities across the state. From 2021 to 2022, rents in Phoenix had surged 46%. In Tucson, rents more than doubled, by 126%.

Arizona lawmakers, to their credit, have not responded to this latter problem by lifting an existing statewide ban on local rent control ordinances (though this has been proposed).

Rent control, as Swedish economist Assar Lindbeck once declared, “appears to be the most efficient technique presently known to destroy a city – except for bombing.”

That’s because it’s a demonstrably counterproductive policy which in the short-run may provide some relief to renters, but in the long-run stifles housing construction and reduces the incentive of landlords to maintain their properties.

Rather than go down that road, then, state lawmakers, led by Sen. Steve Kaiser, R-Phoenix, proposed sweeping legislation to clear government barriers out of the way of much-needed housing construction. Specifically, those barriers put in place by local governments.

Senate Bill 1117, sponsored by Sen. Kaiser, would have required cities with a population above 30,000 to allow the construction of accessory dwelling units, duplexes and triplexes. The bill also would have required, “a municipality, in establishing licensing time frames, to consider the impact on the supply and cost of housing from unnecessary delays in the approval and permitting processes.”

The logic of Kaiser’s proposal is straightforward: Arizona needs more housing to be built, so make it legal for more housing to be built in more parts of the state.

The bill was defeated in March after fierce opposition from the League of Arizona Cities and Towns, which instead proposed more convoluted and counterproductive schemes, including inclusionary zoning mandates (which are also banned in Arizona) and tax-increment financing.

“Zoning is a sacred thing,” Sen. John Kavanagh, R-Fountain Hills, said, perhaps best encapsulating the League’s argument. “Areas are zoned differently because people have different tastes. This bill kneecaps local control.”

However, a glimmer of hope opened up in early June when it was announced that Kaiser struck a limited deal with the League of Arizona Cities and Towns to roll back some restrictions in cities with a population of more than 50,000 people.

Alas, it was too late, and the compromise bill imploded within a matter of days. Kaiser, insisting these legislative setbacks were unrelated to his decision, also announced his resignation.

Arizona, then, is in a state where one of its most prominent champions of zoning reform has exited the statehouse, while the same fundamental problems remain. While denied the ability to exercise harmful policies like rent control or inclusionary zoning, cities in Arizona continue to prohibit and restrict where and what kinds of housing can be built.

While the state has dropped the ball, the city of Phoenix is now in the process of considering changes to its zoning code, including legalizing accessory dwelling units, reducing minimum parking requirements and opening up discussions on duplexes and triplexes.

This would be a welcomed development in Arizona’s largest city, which has a downtown filled with open lots and low-density development.

On the ADU front, specifically, Phoenix would be catching up with the city of Mesa, where ADUs can be constructed by right on single-family zoned properties, and Tucson, which legalized “casitas” in 2021. The latter city imposed a litany of restrictions on ADUs, including capping the percentage of a lot an ADU can take up, as well as height requirements. Fortunately, city officials have taken an interest in reconsidering such restrictions, as well as costly fees imposed on ADUs.

Colorado

The story of Colorado mirrors Arizona, with cities uniting against a push from Gov. Jared Polis to liberalize zoning restrictions as a means of getting the state’s housing costs under control.

By one estimate, housing costs in Colorado have more than doubled over the past decade and supply is failing to meet demand. The Denver metro area, for example, is short 70,000 housing units needed to meet demand.

Like Arizona, Colorado also bans localities from imposing rent-control ordinances, and a recent legislative effort to lift that ban was quickly defeated in the committee process this year, so that’s not a problem.

What is a problem is the restrictive land-use policies of Colorado’s cities. “We have to break down government barriers, expand private property rights and reduce regulations to actually construct more housing to provide housing options at a lower cost so that all Coloradans can thrive,” said Polis in his State of the State address in January.

To put this into action, Polis put forward Senate Bill 213 to permit the construction of ADUs and duplexes “by right” in areas of the state currently zoned for single-family housing only, among other provisions. And while Polis’ proposal found some support, the Colorado Municipal League fought the bill, arguing that local control and zoning is needed to “ensure a high quality of life and sound economic environment for our current and future residents, workers and business owners.”

Such arguments ignore the economic harm of high housing costs, particularly on lower-income families and individuals. Half of Colorado’s renters, for example, are cost-burdened and upwards of 40% of renters say they’re considering leaving the state due to high housing costs. This belies the argument from the Colorado Municipal League that zoning helps “ensure a high quality life and sound economic environment” for Coloradans.

Ultimately, Senate Bill 213 failed to advance, with the Colorado Senate declining to move the bill by a May deadline.

At the city level, progress remains slow.

One relatively bright spot is Denver, for example, which loosened its restrictions on ADU construction.

In June, the City Council approved some updates to Denver’s ADU rules. Specifically, the council removed minimum lot size requirements, made it easier for garages to be converted to ADUs and now allows some construction (subject to setback requirements and height limits) in suburban areas.

Notably, however, the council decided to leave a major impediment to ADU construction in place. Property owners in Denver interested in constructing an ADU must live on the property they want to build the ADU on. “We’ve heard pretty clearly that a lot of neighborhoods aren’t quite ready to remove that owner occupancy requirement that’s in place,” city planner Josh Palmeri told the Denver Post.

In other words, the ability of Denver property owners to build needed housing will remain unnecessarily constrained because city officials fear NIMBY (Not In My Back Yard) backlash.

Part two will examine the housing landscape and policies in New Mexico and Utah, followed by the review’s conclusion.

Sal Rodriguez is opinion editor for the Southern California News Group and a senior fellow with the Pacific Research Institute. He is the author of “Dynamism or Decay? Getting City Hall Out of the Way,” published by the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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