The many reasons why Flagstaff housing costs so much — and what the city is doing about it

Flagstaff, like many cities, has a housing problem. It’s long ranked alongside cities like Sedona for the most expensive places to live in Arizona. And the city faces particular challenges that get in the way of building affordable housing.

That’s where Devonna McLaughlin comes in. McLaughlin is the CEO of Housing Solutions of Northern Arizona. They have been strategizing ways to work around those barriers since 1990. Now, they’re out with a new report that found a 198% increase in the median home sale price since 2011.

McLaughlin joined The Show to tell us more.

Full conversation

LAUREN GILGER: Good morning, Devonna.

DEVONNA MCLAUGHLIN: Good morning. Thank you so much for having me.

LAUREN GILGER: Thanks for coming on. OK, so tell us what you found in this new report about just how unaffordable Flagstaff housing has become. What does a nearly 200% increase in the median home sale price mean for folks?

DEVONNA MCLAUGHLIN: Well, I think the housing needs assessment that we put out really just puts numbers to what folks who live in Flagstaff know in their gut because they’re challenged to find affordable rental units or buy a first home. And so the data comes from publicly sourced areas like fair market rents or area median income increases or sales data from the Association of Realtors, and it just shows that working families in our community struggle with the high housing costs. And that provides an ongoing burden to families to be able to be healthy and secure and safe and stable in their environments here in town.

LAUREN GILGER: So folks living in Flagstaff, what does this mean? They’re spending most of their money, more of their money than they should be on rent, essentially?

DEVONNA MCLAUGHLIN: For a lot of folks, yeah. I mean, if you were lucky enough to buy your first home 10-15 years ago and you had a fixed-rate mortgage, things look pretty good for you, right? Housing costs for your principal and interest are stable, your home has appreciated over time, you’re doing well.

But if you’re entering into the housing market, if you’re a younger buyer or first-time homebuyer, you’re likely challenged to find something in your price range because prices are 1) high, and 2) borrowing costs are high. So when interest rates went up over the last several years, buying power went down, but prices didn’t decrease substantially. And so we’re seeing first-time homebuyers have a pretty significant payment that they’re walking into.

And the same is true for renters, right? It’s not like just buying a house is expensive. Fair market rents have also gone up over the same period, about 70%. So everything’s a little bit more expensive when it comes to housing. And when that’s such a big portion of your monthly budget, when that’s out of whack, it does make it harder for families to budget for other needed expenses.

LAUREN GILGER: Let’s talk about what’s led to this. We are looking at housing prices that have gone up all over the place, including here in the Valley, but these numbers in Flagstaff seem more extreme.

DEVONNA MCLAUGHLIN: Well, I think we’ve always been top of our class in this area in the state. Flagstaff is known for, unfortunately, “poverty with a view,” and it’s a great place to live. So you have external demand. People want to retire here, or they perhaps have a second home here. We have a robust secondary education environment with NAU and CCC, and so students come here to go to school. And so when the supply is limited and the demand is not, then you see pressures on prices.

And I would say our supply is limited. We are an island on a hill. We’re surrounded by state trust land and national forest land, and we can’t sprawl the way Phoenix has done over time, which limits the ability to build.

It’s also volcanic rock, so it’s more expensive to dig your foundation and to get your utilities in the ground. Labor prices are higher up here. So it’s just kind of a perfect storm that we’ve lived with and we’ve known for decades, but these kind of put the numbers to the reality that we all face.

LAUREN GILGER: Right, you’re getting at some of the specific, particular-to-Flagstaff challenges to creating affordable housing solutions, which is what your organization works to do. I want to talk a little bit more about some of those things you just brought up, like the idea that you can’t really build out. You can’t really build up either, right, because of city code?

DEVONNA MCLAUGHLIN: Well, I mean, I think every city has codes that restrict building height, and Flagstaff is no different than that. So the city and City Council are working on trying to update building code and building guidelines to see about creating more density, maybe reducing some parking standards, trying to look at other communities and strategies for how do we get more units in the space that we do have. And I think they’ve made some great progress in having consultants come in and getting buy-in from the builder community or the community in general about how we can implement those development guidelines.

I mean, hands are tied a little bit, too, in regulation for cities and counties. We can’t restrict ... vacation rentals, for example, which takes some of our housing inventory and converts it to a commercial use. We can’t do like a real estate transfer tax. So some of those strategies that work in other states aren’t open to our municipalities.

LAUREN GILGER: Let me ask you more about that because there is also this unique pressure in Flagstaff from outsiders, right? From people from the Valley often coming in with a lot of money, buying vacation homes. That impacts the housing market there, right?

DEVONNA MCLAUGHLIN: It does. I mean, when you look at our residential inventory, how much is available for folks who live and work here? And when you’ve got second homeowners, when you’ve got vacation rentals, the percentage of residential units that someone could go buy or go rent and live here and work here is just reduced. And that’s already reduced because we’re not sprawling out, and we’re not building in the national forest. And so all of that just kind of combines.

LAUREN GILGER: OK, last minute for you. Let’s talk about some solutions on the table. I know Flagstaff recently passed a housing bond that could provide some funding to assist in this. What are the solutions on the table that you think are viable?

DEVONNA MCLAUGHLIN: Yeah, I think that bond was a great first step, and I’m excited to see that financial investment of $20 million start to pay off. Specifically, those dollars went to adaptive reuse strategies. So organizations like ours are converting hotels into residential use to try and build more residential inventory for our workforce.

There’s down payment assistance for first-time homebuyers who can otherwise qualify for a mortgage, have good credit, but can’t get to those purchase prices without some help. That’s been really effective over time, and then the bond added quite a bit of money to that strategy. So I think that’s great.

LAUREN GILGER: OK, lots on the table. Devonna McLaughlin, CEO of Housing Solutions of Northern Arizona, joining us. Devonna, thanks so much for coming on. Appreciate it.

DEVONNA MCLAUGHLIN: Thank you.