Last week, Governor Katie Hobbs signed HB 2720 and HB 2721 into law. These two bills aim to tackle Arizona’s housing crisis and her signature on these bills is a major step toward easing the housing shortage which has driven up prices throughout the state.
Both bills require cities above 75,000 residents to allow the production of Accessory Dwelling Units (ADUs) and multiplex homes, two modest and naturally affordable housing types that have long been restricted in Arizona.
How we got here
Over the past few legislative sessions, attempts were made to pass legislation to address the state’s massive housing shortage and make it easier to build homes.
This started with comprehensive bills, with many big provisions that would allow new types of housing to be built across the state. While matching the scale of the problem, they failed legislatively, most notably with SB 1117.
However, towards the end of last session, provisions from SB 1117 were split into several different bills. While these also failed to pass, they gained more traction.
This year, legislators introduced several narrowly focused bills. The Starter Homes Act—that would have allowed small-lot homes to be built—was passed by the legislature but vetoed by Governor Hobbs. Another bill that would limit arbitrary design requirements on new homes failed to make it out of the legislature.
Despite these early setbacks, Governor Hobbs signed HB 2720 and HB 2721, legalizing new housing options throughout the state.
The ADU bill (HB 2720) explained
HB 2720 requires large cities to permit Accessory Dwelling Units (ADUs) on any lot or parcel where single-family homes are allowed. It allows one attached ADU (think a converted garage) as well as a detached ADU.
A look at ADU types from the AARP.
Importantly, it has guardrails preventing overly restrictive rules that make ADUs costly or infeasible, such as requiring additional parking or excessive setbacks. This is important as these rules can make it expensive or downright impossible to build casitas, even in places that have technically legalized them.
It also requires owners of ADUs being used as short-term rentals to reside on the property, a compromise with those who wanted stricter controls on short-term rentals but while making it easier to finance an ADU and provides owners with flexibility.
The law also allows a bonus ADU to be built on large lots, provided it will be rented to households making 80% of Area Median Income. This has similarities to the fairly successful San Diego bonus ADU program and could produce deed-restricted affordable in addition to naturally affordable casitas.
Municipalities have until the end of the year to adopt these development regulations or ADUs become allowed on all residential lots.
The Missing Middle bill (HB 2721) explained
HB 2721 legalizes Missing Middle homes in new areas. “Missing Middle” is housing denser than a single-family home but less so than a typical apartment. Here it refers to duplexes, townhomes, triplexes, and fourplexes. Cities are typically very restrictive about allowing these housing types and this bill aims to change that.
While this bill legalizes more types of homes, it is somewhat more limited in scope than the ADU bill: Missing Middle homes can be built on single-family zoned areas within a mile of a city’s central business district (think a downtown area) or on at least 20% of a new development of at least ten acres.
Some examples of Missing Middle housing.
Like the ADU bill, HB 2721 prohibits localities from adding a number of rules that could make missing-middle housing infeasible. Cities are also prohibited from making processes for building Missing Middle homes more restrictive than those for single-family homes.
Cities have until 2026 to adopt these regulations or Missing Middle homes will be allowed on all lots zoned for single-family housing.
Why these bills matter
These bills represent a strong start to the statewide reforms necessary to tackle Arizona’s housing shortage. The state is short an estimated 270,000 homes, yet the state legislature has failed continuously to take action. Until now.
Given the restrictions on where Missing Middle housing can be built, we expect that the ADU bill will be the stronger of the two, producing more units faster. The ADU bill may be one of the best in the nation, putting rules in place that should make it easy to build.
This legislation provides a path to future reforms statewide but also gives cities an opportunity to do more than required by law while updating their regulations. Allowing Missing Middle in all residential areas would be an obvious example.
Much will depend on cities acting in good faith and complying with the intention of the law.
There’s reason to be skeptical. Cities already have the strongest tool to improve housing affordability: allowing more housing to be built where people want to live. There was nothing but political willpower prohibiting them from rolling back their exclusionary zoning codes as housing costs grew.
Even Arizona’s most forward-looking cities have been slow to the draw. Phoenix passed a solid ADU ordinance last year, but it took them nearly three years to do so. Tempe is currently undergoing a rewrite of its 2019 ADU ordinance, but proposed elements of the plan would make it harder to build ADUs than what state law will now call for.
Ambitious cities who want to lead on housing should do more than simply comply with state law, they should try to go above and beyond it. Legalizing more types of housing where people want to live remains the best tool cities have in their toolbox to end the housing shortage, improving affordability and sustainability at the same time.
As it stands, real progress on housing gets done at the state level, and there is much more work to be done. Removing costly parking mandates. Boosting transit-oriented development. Streamlining affordable housing approval. Legalizing starter homes.
As these reforms are passed statewide, the easy and long-overdue reforms will be taken off the table. Local electeds must decide whether they want to be dragged along by state reforms, or whether they will set the terms of the debate by leading the way in boosting housing supply. We sincerely hope it’s the latter.
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