A second chance at housing deregulation in Arizona
The alternative of targeted government subsidies doesn't have the scale to make a material difference.
The Arizona Legislature appears on the brink of passing a bill meaningfully deregulating the building of new homes. The measure (Senate Bill 1431) passed the Senate and awaits floor action in the House.
Two years ago, the Legislature passed a more far-reaching deregulation bill (House Bill 2570). Gov. Katie Hobbs vetoed it. If this more modest measure reaches her desk and she also vetoes it, the safe and appropriate conclusion would be that Hobbs doesn’t trust relying on market forces to render wider and more satisfactory housing choices.
A distrust of market forces wouldn’t be unusual in a Democratic governor. What is noteworthy is that many of Hobbs’s fellow Democrats in the Legislature are willing to unleash market forces in housing. As was the case two years ago, both support and opposition to SB 1431 is bipartisan. In the Senate, seven Democrats supported the bill and five opposed it. Ten Republicans voted for the bill, while seven voted against it.
Politically, the surprise is that this version has any GOP opposition at all.
The previous version sharply limited the ability of cities to mandate lot sizes, coverage restrictions, and setbacks. That led to an unfounded fear that existing upper middle-class neighborhoods would be invaded with incompatible smaller homes. Other provisions in the bill provided protection against that. But the fear was enough for some Republicans to vote against the measure in defense of the integrity of existing neighborhoods in their districts.
Those provisions have been dropped from SB 1431. Cities retain full authority over where homes can be built, minimum lot sizes, coverage restrictions, and setbacks. The bill only deregulates what gets built within those restrictions. Building codes and safety standards would still apply. But cities couldn’t mandate materials, features, and aesthetics.
As the bill puts it: “A municipality may not interfere with a home buyer’s right to choose the features, amenities, structure, floor plan and interior and exterior design of a home.” What could be more in keeping with Republican principles, to the extent they still exist, than that?
There is another provision in SB 1431 that should appeal to Republicans, particularly of the MAGA brand. Cities would also be prohibited from mandating that a new master-planned development have common features requiring a homeowners’s association to manage and levy assessments to maintain. Overbearing HOA’s have long been a MAGA bugbear.
The cost of housing is a major issue in Arizona. Trying to create a niche category of housing designated as “affordable” and subsidize it, either directly or through zoning set-asides, only nibbles at the margins of the issue. And it ignores the full spectrum of market forces in play.
Only a broad deregulation has the scale to materially change things by expanding the options generally available to homebuyers. And the housing market is a continuum. An expansion in supply at any point on the continuum, not just at whatever is politically denominated “affordable”, shuffles the supply and demand balance throughout the continuum.
Critics of SB 1431, mostly cities wanting to retain their stranglehold on what kind of new homes can be built, have two basic contentions. Shoddy homes will get built. And rather than reduce prices, homebuilders will just pocket higher profits.
This, again, is based on a distrust, and a misunderstanding, of the market.
New homes compete with existing homes up for sale. If new homes offer less value for the same price, they will lose out to resales. And nothing prevents new home developments from continuing to adhere to pre-SB 1431 standards, if that’s what buyers prefer.
The only way new homes taking advantage of SB 1431’s deregulation succeed in the marketplace is if they provide a better value proposition than other options. In other words, if enough prospective buyers prefer them. If buyers don’t prefer them, they won’t get built.
I don’t know whether homebuilders would make more or less profit on a deregulated product, and neither do the critics. However, if homebuilders initially made a higher profit from lower-priced options, that would be a good thing – if the objective is to broadly expand the supply of homes at a lower price point. Higher profits mean more of them get built.
It is highly encouraging that a substantial number of legislative Democrats understand that only broadly unleashing market forces through deregulation has the scale to make a material difference in Arizona’s housing market. It is disappointing that a substantial number of legislative Republicans apparently don’t share that insight or are unwilling to act on it.
And it will be very disappointing if Hobbs, given a second chance, again refuses to allow a market-based approach even the opportunity to make a difference.
Reach Robb at robtrobb@gmail.com.