As Arizona housing prices go up, how can the middle class get into the housing market?

There's an affordable housing crisis in Arizona and much of the country. Rent is too high for many residents to afford. When it comes to buying a home, even the middle class is being priced out of the market.

The median home price in Arizona today is more than $422,000, according to Zillow. That means a 20% down payment on an average-priced home here is more than $84,000. Not a sum many people have sitting around.

There’s an effort in California to address this. And it raises the question: Where’s the housing help for the middle class here? 

Tom Simplot, former Phoenix councilman and former director of the Arizona Department of Housing, joined The Show to talk more about it.

Full conversation

LAUREN GILGER: So a lot of housing reform, it seems, is kind of focused on creating more housing, whether it be kind of changing zoning laws to allow people to build casitas in their backyards. We've seen a lot of incentivizing developers to build low-income housing. A lot of talk about that. A lot of focus on homelessness and affordable housing. 

What about efforts, though, to help the middle class? What do those look like, Tom? 

TOM SIMPLOT: Well, there is an effort in it in California right now. And by the way, for all of their faults, Arizona does quite often look at California for examples of what to do and what not to do. But in this case, there actually is an initiative that's going to be going before the voters this fall, which would provide down payment assistance for the middle class, which really is unique.

Arizona and all the other states and California included have mortgage revenue bond programs for down payment assistance, but they're income limited. What they're saying for this new initiative is it would be not just for first time homebuyers, but for any, any homebuyer and then specifically targeted towards new homes.

GILGER: Yeah.

SIMPLOT: So it's a kind of a twist on what we currently use here in Arizona and elsewhere. But it's, it's increasing that cap. It is providing an opportunity that currently doesn't exist. So it'll be interesting to see how the voters respond and how the program may work.

GILGER: Right. It's an interesting proposal because like you're describing, basically it would allow people in the middle class or like, you know, to look at buying a home, but with an extra loan, like you're going to buy your regular mortgage loan, but then you're also going to get another loan on the down payment because most people can't even afford that, especially in California. 

Do you think there are any pitfalls there? 

SIMPLOT: Oh, absolutely. I think there are always going to be pitfalls. And we have to remember that at the end of the day, the borrower still has to qualify. So what they're going to do, like you just were alluding to, you're going to take a first and a second on that house.

So let's throw out some numbers that they've used in the media already for a $700,000 home. They're saying you could put 3% down payment, which is roughly $26,000 or so, then they would finance in the form of a second mortgage that the balance of that 20% down, which would roughly be $150,000 tacked onto your regular mortgage. So I guess you're looking at probably $4,500 a month in a mortgage payment, more or less, plus HOA fees and taxes.

So, yes, it helps, but I would argue that the fault lies in the fact that they're not building enough homes, nor are we doing so in Arizona. That's when you open up the market. You add supply and the cost goes down.

GILGER: Right. 

SIMPLOT: And so, sadly, folks are looking to create yet new programs, yet more programs to address some very basic, very basic issues, which are, get out of the way of building new homes and the market will start to find an equilibrium in years to come. But we have but we're a long way off.

GILGER: Right. So it's about balancing out that supply and demand. We've seen home prices in the Valley tick down a little bit in the last year or so. 

Is that due to a spur in building housing? Is it due to other issues in the economy right now? 

SIMPLOT: To me, it boils down to interest rates. I think when the interest rates go back down again, we're going to see the market explode. Because there's pent up demand, whether it's, whether it's folks in their 20s living with mom and dad or or just doubling up with roommates. I just think that's going to change moving forward, especially given the economy in the, in Arizona and in the Phoenix metro area, it's inevitable.

And even in Arizona, we have too many restrictions and it boils down to this. And this is nationwide, by the way, we have empowered our neighborhoods, our local leaders to the extent that they can't, that builders cannot get the permits through the process, they can't get the zoning. They can't get the development rights. They can't get the permits.

So it's death by a thousand cuts. And that is what is truly slowing down the new housing market. So on one hand, you have people complaining that they don't want new housing in their area. On the other hand, they're complaining that there isn't enough housing.

GILGER: What does the situation look like now, Tom, for sort of a middle class home buyer in the Valley who's trying to get into the market, whether they're first time or they need to upgrade, need more space.

Like, is it getting too expensive in Arizona – like California – where, you know, they can't even afford it?

SIMPLOT: Absolutely. Absolutely. Just a couple of decades ago, Arizona was, was the champion of the country when it came to housing prices. It was Phoenix and Atlanta. And then, of course, Texas here and there. And, and yet now we find ourselves one of the most expensive housing markets.

And so, yes, where's the squeeze on the middle class, no doubt about it. And unless we're willing to force our local governments to get out of the way and allow the building process to resume at a pace that we need to resume to, then we're going to have this problem for the foreseeable future.

GILGER: There are long-term implications to that too, Tom, just about 30 seconds left here. But I mean, getting people into the housing market, that creates like economic ripple effects for generations. 

SIMPLOT: Yes, yes, absolutely. A healthy economy is an economy that has homeowners building wealth. That is so important, and we do need to return to that.

And since we are running out of time, I want to make sure your listeners know if they're looking for their first home, there are a lot of programs available throughout Arizona for first-time homebuyer down payment assistance: the Pima Industrial Development Authority, the Pima County, the Tucson, Phoenix, Maricopa, the state of Arizona Industrial Development Authority.

They all issue mortgage revenue bonds that form the basis of these first time down payment assistance programs. So I really encourage folks to go online and investigate.