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Luxury vs. Affordable Multifamily Housing

InBusiness Great Phoenix Benjamin W. Graff

Arizona’s cities should focus on growing both

It may be surprising to hear that a city or community can be opposed to a luxury multifamily development just as strongly as an affordable housing development, but for very different reasons.

As a land use and zoning attorney who represents clients focused on both luxury and affordable multifamily housing, I have seen this scenario in various jurisdictions. While there are numerous legal and political considerations with each product type, Arizona’s cities should focus on embracing both luxury and affordable housing developments. The combination of the two helps stabilize rents, injects a diverse housing supply that meets ever-growing demand, and positions a city to attract economic development opportunities.

Developers obtaining approvals for multifamily developments often encounter the ultimate “Catch 22.” When proposing a luxury development, the city or community may push back and express a desire for affordable housing. But proposing affordable housing brings the opposite demand for luxury units, amenities and higher rental rates. The biggest challenge is communicating why a luxury or affordable multifamily development is the best fit for the proposed location and how offering all types of multifamily developments helps stabilize rental rates and meet a diversity of housing demands.

Many clients ask if a city can require a developer to build affordable or luxury housing, or whether the city can dictate that a proposed rental development must instead consist of for-sale condominiums. The answer to both questions is no, as the Federal Fair Housing Act can be interpreted to prohibit such actions.

But even with the law on their side, developers still need to navigate political and community hurdles. Since Arizona and municipal zoning laws do not distinguish between affordable, market-rate and luxury multifamily developments; it is the underlying zoning district and associated development standards, including density limits, that legally impact what can be developed on the site. In many situations, a developer will need to rezone the property to reach desired density limits, height and development standards. Some cities provide for a planned unit development or planned area development option, which allows the developer to write and design its own zoning district to facilitate a more enhanced and appropriate development.

Interestingly, cities with defined goals and policies for attracting and developing affordable housing are more willing to support luxury developments. If a city is confident in its ability to develop much-needed affordable housing, it can be equally supportive of luxury multifamily developments to support a larger diversity of housing options at varying price points. Phoenix and Tempe are strong examples of cities that are working on policies to attract and develop affordable housing while simultaneously encouraging market-rate and luxury multifamily developments.

Notwithstanding the benefits of attracting both options, some communities continue to push back.

In recent years, we have seen multiple examples where a city’s actions may serve to push all multifamily development beyond its municipal boundaries, opting instead for only single-family home ownership opportunities. This can be a shortsighted tactic that prevents new families and employees from locating in and, eventually, producing tax revenue for the city. Typically, families and employees moving to a new state seek quality rental housing. This allows the renters to start their careers and families, with the goal of buying a home in the future. But if a city does not provide diverse multifamily rental options, they will push such individuals into neighboring jurisdictions, which may ultimately become those families’ permanent home and benefit from the associated tax generation.

What if there is an opportunity for a luxury multifamily developer to contribute to a city’s affordable housing goals? Is this type of contribution legal? The answer is yes, as long as this is not a quid pro quo in return for the approval of the development.

The contribution must be voluntary and in no way tied to a rezoning application or other development approval under the city’s discretion. In Tempe, for example, Mayor Corey Woods and the city council created the Hometown for All initiative in January 2021. Under this initiative, for every luxury or market-rate multifamily development built in Tempe, an amount equivalent to 50% of certain permitting fees paid to the city by the developer goes toward supporting affordable and workforce housing. The developer can also make an additional voluntary contribution to the fund.

As we see the demand for diverse housing options continue to grow, it will be the cities that simultaneously attract and encourage luxury and affordable multifamily developments that will be best prepared for the future.

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