3 Possible Ways to Improve Affordable Housing

Credit: Arizona Republic

Research from Arizona State University’s Morrison Institute of Public Policy has examined the issue of Arizona affordable housing and possible solutions for the worsening problem.

Most potential policy changes face heavy opposition in addition to the ongoing problems of Not-In-My-Backyard neighborhood resistance and ongoing political repercussions.

An Arizona Department of Housing estimate says the state needs an additional 270,000 living units with rents and mortgage payments lower than the current prices.

A new affordable tax credit is expected to help the situation. Over the next several years, the credit is expected to prompt $160M in new affordable housing development. Other efforts that could help address the problem include the Arizona Housing Fund, which takes donations to fund new developments.

Mark Stapp of ASU’s Master of Real Estate Development Program cautions, however, the private sector cannot bear the burden of creating affordable housing alone.

There are three primary policy means of improving affordability, and all have pros and cons. The first consideration is rent control, in which landlords are limited in the amounts they can charge tenants. On the plus side, Morrison found rent control lets tenants plan for increases in their payments since they know the amounts rents can be raised. On the downside, Arizona law provides barriers to implementing rent control, and rent control policies can lead landlords to sell their properties, which decreases the available rental supply.

A possible solution could be government subsidies, in which a tax credit or other incentive is provided to landlords who do not raise rents. Such programs often encounter stiff opposition from free-market advocates.

A second possible policy consideration is special or inclusionary zoning. Communities in Arizona often encounter resistance when affordable-designated housing developments are proposed. Inclusionary zoning would require permitting construction of affordable housing and has been one of the most successful policies nationwide in creating new affordable supplies.

Arizona, however, prohibits local governments from implementing mandatory inclusionary zoning.

On the plus side, inclusionary zoning’s effectiveness in creating new affordable units is indisputable, based on the results in jurisdictions that have enacted it around the country. The downside is the lower profitability of developing affordable housing can lead to a lower volume of projects created.

One possible solution is providing incentives and offsets, such as height or density allowances, to encourage more uses for a given piece of land.

The third policy possibility examined was regulation of short-term rentals. When properties are listed as short-term rentals, they are obviously not on the market for long-term tenants, which diminishes supply. Arizona law prohibits local governments from banning short-term rentals in residential properties.

One estimated benefit of increasing regulations on short-term rentals, according to Morrison, is that it could lead to more properties converting to long-term uses. The negative, however, is limiting owners’ property rights and inhibiting their ability to profit from their property violates the state’s Private Properties Protection Act.

Morrison claims removing local government’s inability to regulate short-term rentals could improve how problems are addressed and could spur additional taxes to fund affordable housing. (Source)

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