Council Study Session

MINUTES OF THE GILBERT TOWN COUNCIL, IN SPECIAL MEETING FOR A STUDY SESSION, TUESDAY, FEBRUARY 8, 2022 AT 5:15 P.M., GILBERT PUBLIC SAFETY TRAINING FACILITY, ATLAS AUDITORIUM, 6860 SOUTH POWER ROAD, GILBERT, ARIZONA COUNCIL PRESENT: Mayor Brigette Peterson, Vice Mayor Aimee Yentes, Councilmembers Scott Anderson, Yung Koprowski, Scott September, and Kathy Tilque COUNCIL ABSENT: Councilmember Laurin Hendrix STAFF PRESENT: Town Manager Patrick Banger, Town Clerk Chaveli Herrera, and Town Attorney Chris Payne CALL TO ORDER OF SPECIAL MEETING Mayor Peterson called the meeting to order at 5:16 p.m. AGENDA ITEM 1. Discussion on Balancing Housing with Economist Elliott Pollack. Mr. Pollack provided a presentation on the Current State of the Greater Phoenix Housing Market: A Supply & Demand Analysis. He described the company he represented, Home Arizona, and explained though they were not a political organization, they did not believe House Bill 2674 was an appropriate solution, rather that zoning was best managed at a local level. He provided statistics on building rates by decade from the start of the 21st Century for the United States, including Arizona; where the 2000’s decade saw over-building, the 2010’s decade was under-built, and in the current time, there was a shortage of inventory for single-family and apartment housing. He explained that while population growth had slowed, there was still a disparity in available housing inventory which caused problems and highlighted a need for building for a higher number, as a projected 880,000 new people came to the area within the 2020’s decade. He discussed the rapid employment growth of the Phoenix area and how that would bring more employees, thus more people to the Valley. He reported the projected population growth would be just under 2%, which approximated to 90,000 new residents each year. He went on to explain the age demographics, identifying millennials, aged 27 to 32 years old, as the largest cohort and in their prime home-buying years. He supported those statements with 2021 data that showed home-purchase loan applications per 1,000 persons and demonstrated approximated projections of an increased number of people in their home-buying prime for the year 2026. He added that current millennials fell into the age groups with the biggest increase in the percentage of people purchasing homes in their life, that there were more 18-to-29 year-olds living with their parents since the end of the Great Depression according to U.S. Census Bureau Data, and that the group would eventually move on to create their own housing units adding to the housing demand. Mr. Pollack addressed the issue of housing supply and demonstrated through various data points a very low supply. He provided an example of a particularly drastic decrease in inventory of homes, from 1,631 units to 542 units for an observed 18-month period through December 2021. He explained that, due to smaller supply, demographically people would try to buy what they could afford, smaller and less expensive homes, eventually leading to rental units and the trend would continue until the people at the bottom had nowhere to go. He reported approximately 13,000 apartment units per year were needed to meet current demand, but about 15,000 additional units were needed over a five-year period to return to historic norms; therefore, approximately 16,000 apartment units per year were needed for the next five years to get back to a normal state. He added that about 14,000 units would be delivered in the year, but discussed labor shortages and building timelines as obstacles, and noted the shortage was tied to all types of housing at all price levels and all income levels. He elaborated on factors of affordability, noting a decrease in the number of families in the Phoenix area that could afford a median priced home since 2015, and shared projections of an additional approximate 30% decrease in affordability by 2025 if prices continued to rise and interest rates increased. He supplied additional statistics of affordability by occupation, specifically presenting data of average median incomes of a population subset of essential worker occupations, concluding a substantial decrease in affordable housing in many Valley- wide communities and projection of a continuation of that trend. He elaborated on the effects of affordability deterioration that included: fewer potential homebuyers and lowered median-priced home affordability; more rentals, including rental of single-family units as families double-up; more millennials and centennials living with their parents, as well as parents living with their children as they age; smaller homes and more density; lessened apartment maintenance of Classes C and D; more homelessness; worsening economic development; pressure on wages and city budgets; and slower economy growth and less real income growth. Vice Mayor Yentes joined the meeting at 5:29 p.m. Mr. Pollack concluded the solution to end the housing shortage was to build more housing units of all types and across all ranges of income. He stressed the idea that, at the moment, the Phoenix area was about to fall off the cliff of affordability. He reiterated the net population growth rates per year, that housing demand needs exceeded the number of new units to simply meet new unit needs per year, the only solution was more supply, and there would be significant negative impacts if not addressed. Mayor Peterson stated the information presented was not easy to hear, but talked about the factors in determining affordable housing and what factors were key contributors to the wide- spread issue. Mr. Pollack listed four major contributing factors: lack of labor across the construction industry and others; supply chain issues; staff workload imbalance at municipal levels; and additional costs associated with regulations such as safety regulations. He also addressed some of the negative connotations that surrounded apartment living and denounced those ideologies. He said regular people lived in apartments and it was just a part of the lifecycle, but changes needed to be made as people were being pushed further down the ladder, which would cause increased issues and potentially additional homelessness. Mayor Peterson talked about local government regulations and affordability, stating it was important for cities and towns to analyze their roles and actions to ensure they were achieving their intended results and to work together regionally to share best practices for consistency; however, it appeared that the local requirements had remained relatively consistent over time compared to the other facts discussed. She shared details of the House Bill 2674 and described the State legislative effort brought forth as being disingenuous. She said it was presented as something to help with housing affordability, but felt it did nothing to keep housing prices affordable and would have significant impacts on local governments, neighborhoods and communities, and would remove residents from the review process. She asked Mr. Pollack for his professional opinion on whether he felt the proposed Bill would actually have a significant positive impact on housing affordability. Mr. Pollack responded that as a general statement zoning must stay at the local level and every community had the right to self-determination. He said, after 50 years in the field of economics, he did not like the concept of central planning anywhere which the Bill circumstances mimicked. He added he felt there were better solutions and when the voters understood that if they did not address the housing issue, their community would be far worse off without the support at the local level. Councilmember September asked if the forecasts considered the enormous amount of State land just east of the area in Pinal County that would be developed into housing soon. He asked if there were other opportunities for developers to build now that many people could work from home and companies were going back to work on a hybrid schedule, noting potential development opportunities that were previously considered too remote to build in the past. Mr. Pollack explained that the Phoenix area did have some communities on the outskirts, but generally grew like a balloon and kind of pulsed out, adding State land usually got absorbed when it reached the edge of the bubble. He remarked that the home would become more important and home design would change as more people would work remotely or stay home to provide childcare, which would likely continue to be a major issue. He noted his projections were in the aggregate and not based on individual pieces of land, but he did not think anyone would be exempt from the impacts of the housing issue. He discussed Gilbert briefly, stating smart city councils and good government would make a big difference in what would happen to a community versus another, but no one would get a free pass in not having to deal with the issue. Councilmember Tilque thanked Mr. Pollack for his work and presentation, then commented that the hard part was the next step. She noted the need to look at each community individually, but agreed that remote work flexibility should be considered. She discussed businesses that had large footprints that may look at downsizing and subleasing, though she did not see it happening in Gilbert as much, she suggested considering those buildings for affordable housing in Phoenix. She discussed demographics regarding millennials who may not want to own a home currently, but considered if the Valley put all their time and effort into apartments to fill those needs, would there later be an abundance of apartments. Mr. Pollack stated he did not think so, noting with affordability in Arizona it was usually 64% who own, 36% who rent. He said as affordability became more of an issue, there would be more renters than owners and a hybrid product of build-to-rent would be a step for people. He said that ratio would change as affordability became more of an issue. He said he did not believe affordability would get back to its former state, but it could come back once supply chain issues were resolved and once there was more labor, adding that could require a change in immigration laws. He discussed the need to have open minds to consider different possibilities to see if they would work, but noted the need to build by demand and not build so many that you have a glut. Councilmember Tilque asked about how an organization could control fast versus quality. Mr. Pollack replied you have to have good planning and engineering staff and good standards , not to lessen standards. Councilmember Tilque stated the Town would not do that, or lessen standards. Councilmember Anderson stated he had been a beneficiary of Mr. Pollack’s studies for years and thanked him for the presentation. He stated in the past, usually the solution was “build our way out of it”, but it was more of a challenge now. He stated his question was for the Town Manager and asked if the City of the Future initiative was addressing some of the issues brought forward by Mr. Pollack. Town Manager Banger stated those issues had come up so quickly that the Town had not fully grappled with it, but Mr. Pollack’s information was a great overview and would be considered in making future determinations. Councilmember Anderson stated there were great indicators in the presentation that could be used to develop over time. Vice Mayor Yentes stated she had a more philosophical question, asking how the issue could be framed to residents in the community that did not believe it was an issue that affected them and how would you make them care. She discussed those with the motivation to protect the value of their home and who saw the ability to close growth after they had been able to afford a home as a good thing. Mr. Pollack used a cartoon as an example, stating it was a difficult situation and those who were anti-growth make a lot of noise. He discussed people on the other end who do not make noise or have not made noise yet, but who do not want their city to have reduced levels of real income and want jobs and places for their kids to live. He said you are not going to get any of that unless you do some things that you maybe would not do in a perfect world. He said the world was not perfect and the reality was not everyone was high in income, adding if you wait for the trouble to occur, like homelessness or companies not wanting to locate here because houses were too expensive, it would be too late. He noted California as an example. Mayor Peterson thanked Mr. Pollack for going to different cities and towns and sharing the information. ADJOURN Mayor Peterson adjourned the meeting at 5:53 p.m.  ATTEST: ___________________________ ___________________________________ Brigette Peterson, Mayor Chaveli Herrera, MMC, Town Clerk CERTIFICATION I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the Study Session of the Town Council of the Town of Gilbert held on the 8th day of February, 2022. I further certify that the meeting was duly called and held and that a quorum was present. Dated this __________ day of ______________, 2022. ___________________________________ Chaveli Herrera, MMC, Town Clerk