The latest episode of the AZ Big Podcast with Michael & Amy has officially dropped. Episode 44’s guest Ed Bull (Burch & Cracchiolo) and Elliott D. Pollack (Elliott D. Pollack & Company) stop by to break down the current housing crisis - and what the future might hold!
LISTEN TO THE PODCAST: https://open.spotify.com/episode/2htn4etL2QW9ZihVS8eDl5?si=Ky0sE77BTlyUXGZTM-0o6g
Listen to more of the AZ Big Podcast here.
Podcast Transcript:
Michael Gossie
Welcome to the AZ Big Podcast sponsored by Burch and Cracchiolo. I'm Michael Gossie, editor-in-chief at AZ Big Media, and I'm joined by my co-host, our publisher, Amy Lindsey. Today, Amy, I feel so excited right now because this is like... if I was hosting an NBA podcast, this would be like having Michael Jordan and LeBron James on the podcast.
Amy Lindsey
They get to decide who's who.
Michael Gossie
Because these guys, if you did an All-Star team of Arizona real estate, these guys would be your number one and two pick. Ed Bull shareholder at Burch and Cracchiolo and Elliot Pollock, CEO of Elliot D Pollock and company. Guys, thank you so much for being here today.
Ed Bull & Elliott D. Pollack
Our pleasure.
Amy Lindsey
Thank you, gentlemen. Thank you, so start off can you tell us? Have you ever seen anything like what's going on in Metro Phoenix housing market like this?
Elliott D. Pollack
No, I never have and I've been doing this for 53 years. The shortage, the run up to where we are now was amazing because it was 10 years in the making, actually 14 years in the making, and then to have the housing market crumble the way it has since the Fed’s started raising interest rates is something that again, I've never seen anywhere. So, it's been shocking on both ends. The only... if there's a good news story out of this, it's not like the demand is going to disappear. It's simply being pushed into the future and you're having people who would have been in housing now living home with mommy and daddy, or doubling up, but probably renting rather than buy.
Michael Gossie
And Ed, we've been running into so many problems with, you know, construction, you know, worker shortages, supply chain issues. Is that a hard time getting the product built enough to meet the demand of the people who are seeking housing in Phoenix?
Ed Bull
It's very challenging. Clients are running into challenges with not only getting the entitlements or the zoning and other approvals in place that they need to proceed with any kind of housing development. But every city is overworked and having a hard time making deadlines, getting plans reviewed and approved and then on top of that, you have challenges with the supply chain and the cost of materials, cost of utilities and so on. So, it's really a perfect storm of trying to get additional housing built and Elliot better than I can emphasize the necessity of get it built.
Michael Gossie
Right.
Elliott D. Pollack
Yeah, and it's really... there are certain things you can control and certain things you can't control, and you can't control labor, although that's basically a federal government issue, most of housing labor. They were very talented guys who came up from south of the border and built homes and basically went back and forth almost as they saw fit until this cycle and now they can't and they can't get visas to get in here. So, we have a genuine shortage of labor and that's across the country. It's not just in Phoenix. You have the supply chain issues that you were talking about and which basically are variable and seem to change daily, but there's still there you have government and utilities that have been were I'll give them. I'll be nice about it and say they were surprised by the surge in demand and were totally unable to keep up with demand and getting stuff entitled and getting stuff through permitted and getting and utilities cases, getting stuff built and they have been like everybody else. Having tough time getting labor to basically resolve that issue and they have been either unwilling or unable to for regulatory reasons to pay enough to get people to move from the private sector to the public sector. And so, the cities are not keeping up -- regulatory issues now account for about 40% of the cost of apartments and the bottom line is that cities can do some things, but they can't do everything and this basically fall off in demand which is going to be very significant and will last until interest rates come back down again and I can't tell you when that's going to be, probably soonest will be ‘24 unless something unusual happens.
Amy Lindsey
Oh, OK.
Elliott D. Pollack
It's going to be a mess, and this is all happening, by the way, in the face of this huge demand, mainly from millennials, the mode, the highest number of millennials, are now about 26 to 32 years old. They're entering first time home buying age and they basically have saved money for the down payment or pocketed the money that that was sent to them by the government during COVID. If they still had jobs to save for a down payment and now, they can't afford the payment because the payment with mortgage rates where they are today is 50% higher than the payment would have been if you bought the same home in November of last year. Think about that.
Michael Gossie
That’s crazy.
Amy Lindsey
I didn't realize it was that drastic of a change.
Elliott D. Pollack
Oh, it's that drastic and the bad news is the fed’s about to raise interest rates someplace between 75 and 100 basis points and will continue to do so as long as bad inflation numbers continue. Now the real rate of inflation right now, somewhere between 5 and 6%. The rest is oil and gas. Oil is self-inflicted by bad government policy and the war in in the Ukraine, but mainly bad government policy and so that's going to go up and down, especially if there's a cold winter and food is again, it's going to be a mess this winter, but if you exclude food and energy, you're talking about a 5 or 6% inflation and that's not going to come down quickly and if that inflation rate gets into wages, it's going to be a mess.
Michael Gossie
Yeah, Yyou know when I talk to economic developers around the valley, one of the calling cards they've always had to attract new business here is our low cost of living, our low cost of housing. Well, that's not the case anymore. So, what's the long term impact of this housing run up that we've had the conversation?
Elliott D. Pollack
Well, it's very significant... I'm sorry, you go ahead.
Ed Bull
The conversations that I've had with economic development directors, and then correspondently with some of the businesses and CEO's and others who are hiring significant numbers of employees to either expand their local business or new businesses considering coming into the valley as you indicated, Michael. A given that we've always had and that our economic development directors have always had is to talk with employers about, we have a lot of housing and it's reasonably priced so that your employees can likely live if they choose to in a nice safe neighborhood in a nice safe home or apartment or whatever it may be within 1/2 an hour of work and that's really important for a lot of these employers. We don't have that tool in our toolkit now and while some of the economic development directors probably will not say it publicly, I know that they are concerned with losing that tool from the toolkit because that now is a reality that there's not only a lack of housing, but in particular there's a lack of whether you call it affordable or workforce or essential worker or whatever name you want to put on it, not every employee is making 75 to $100,000 dollars or more a year. So, not every employer can pay that kind of compensation to their employees. So, there's a real disconnect and at $5 a gallon or wherever fuel is going to settle in at driving in from 50 miles out of town is no longer the right answer.
Michael Gossie
Right. We have a million questions for you guys, but before that I have to say the attorneys at Burch and Cracchiolo have been proving for more than 50 years that a successful business or legal case of any kind starts when you hire the right lawyer, let them prove it to you. Learn more bcattorneys.com. That's bcattorneys.com. So, here's the question of the day. Is there anything that can be done to reverse this or create more affordable housing or workforce housing?
Elliott D. Pollack
Well, the answer is yes, there's a lot that can be done, but like I said before, you can't do everything. Some things are going to take time. You, in terms of supply chain, unless there's another really bad variant things should be opening up and the interesting thing though is the countries that tried to have a zero tolerance for COVID are the ones that are in the worst shape because COVID is going to be around like the common cold forever in some form at this point, and so the places that are doing best are the places that are getting close to herd immunity but places like China, basically are still back at square one. It's going to be a long time till they fully open up.
Labor can only be resolved with better immigration policy and unless things are have changed since yesterday, that's not going to happen and so but what can happen is cities can take a look and start meeting with people who are in the market every day to find out what things are running up costs. What regulations are over the top or necessarily are unneeded? What policies they can change so you can get entitlements through faster and you can catch up and this is true for single family and for apartments. Because remember that people don't disappear. So, if they're not buying single family homes, they're going to be either renting or home with mommy and daddy and given the number of jobs that are available, they're probably going to be renting and just to give you some perspective, by the way, 46% of all people 18 through 29 live home with mommy and daddy. That's the highest since the end of the Great Depression.
Amy Lindsey
I have to say I'm a very happy empty nester. So, the thought of that many kids staying at home, I love my kids living a couple miles away. It is becoming an issue.
Elliott D. Pollack
Well, your kids won't be able to live a couple of miles away because they won't be able to afford it and Ed was being very, very mild in what he was saying. This is in the 53 years I've been a practicing economist. This is the biggest economic development issue that we have as a community ever faced.
Amy Lindsey
Wow.
Michael Gossie
So, I know that you guys are involved with the Arizona Housing Coalition. Can you talk a little bit about that and how you hope that it will help address some of these housing needs.
Ed Bull
The organization that Elliot and I are involved in that and we were founding members of is called Home Arizona and it's a group of some former mayors and Elliott and others of us that are a variety of backgrounds and so on that are involved. In some way shape or form with housing. Part of our goal has been to create the information through Elliott and others so that we're dealing with facts. Some of the things and more that Elliott's been talking about this morning. Because approval of a residential development, be it single family homes, townhouses, condos, apartments, whatever it may be. That typically begins with a zoning case and understandably zoning cases often face opposition from neighbors because every zoning case involves change, and change can always be trouble. It's particularly challenging when you're talking about filling the housing need in a given area with apartments, and that we've been on a track for many years to add more and more amenities, more and more gingerbread to a given apartment design, which translates, of course, into higher and higher, and higher rents. When we're talking $2,000 – 2,500 and more rent for an apartment that's more than most of us paid as a house payment when we were buying our first house and so on.
Michael Gossie
Yeah.
Amy Lindsey
Oh, by far, yes.
Ed Bull
So, when you're talking about scaling that back some to provide attainable housing, workforce housing, or whatever you call it, then you generate a whole new level of concern from neighbors and others about, well, who are these affordable housing residents and are they someone that we want in our neighborhood? So, part of what Home Arizona’s been doing is doing a roadshow with Elliot and others providing information on kind of an educational level to mayors and councils in various places in the valley and to staff members and so on to explain some of the problem that Elliott's talking about, but also some of the answers to some of the concerns, so that if a mayor or council member believes the development is the right thing to do in the right location.
They then have the facts to respond to some of their constituents who are concerned because of the rumor mill that gets churned up on Facebook or nextdoor.com or wherever it is. So, there's an educational element and then there's also a very earnest element of offering to cities to help in any way we can to help simplify and expedite the processes, because time is money in every business, including the housing business. If we could cut some time out of the review processes leading up to permitting, if we could cut some costs out of that, even if it's to move them from government cost to private costs, that seems to be okay with most developers as long as the job is getting done right and more expeditiously than a city can possibly do it.
Michael Gossie
You know, one of the interesting things, and you mentioned this Ed is the education aspect. I think a lot of people when they think about affordable housing or workforce housing. They're not stopping to consider that who that's for our teachers and police officers and firefighters. It's not what we thought of when we were kids, as affordable housing, it’s changed a lot.
Ed Bull
There's a, you know, there's an aspect of affordable housing that was the old Section 8 program that that scares the Dickens out of people, and I don't know that anybody is even doing that now. Be that as it may, there's some developers who are in the housing business that are focused on workforce housing and that's for exactly the people you were talking about. I like to talk with them, you know, essential workers is a phrase that we learned a couple of years ago at the outset of the pandemic. It's the people that you were talking about: the nurses, the teachers, the first responders, the policemen, the firemen, some of the construction workers that are building the things that we need to live in. Some of the folks that are working in stores or working at Amazon or other kinds of places. They're all people with good jobs and are going to work every day and working hard and like the rest of us, their primary goal is to put food on the table and send their kids to school but if they're making, you know, $35,000 a year doing that, they can't qualify to live in many apartments. The new attainable housing is still requiring people to make typically around 40 to 45 thousand in order to qualify to move in. That's not a bad person. That's not a bad neighbor. That's somebody who's working hard every day but doesn't have starch in their shirt collar.
Amy Lindsey
Right.
Elliott D. Pollack
Yeah, and you don't get confused and don't let people confuse you about this. This isn't about just affordable housing or attainable housing. This is everybody. This housing shortage is affecting all housing types at all price levels, and all income levels. This is everybody who's being affected. This is not just poor people. This is everybody. Let me give you an example. In 2015, 70% of the people in Phoenix, families in Phoenix could afford the median priced home. That's great because median simply means 50% above and 50% below. So, when 70% can afford it, that's very affordable. You know what it is now, it's 42% can afford the median priced home. So, everybody else essentially has been pushed down that ladder and they're either settling for a lesser house or they're renting. Those are the only two choices they have, so this isn't just poor people. This is everybody and what Ed is saying is absolutely true. We took a look at 11 different cities in the valley, and could the cops afford a single-family home? No. Could firemen could afford a single-family home? No. Could nurses? Could chefs, could the guy who works at the 7-11? Could the people who make the economy run afford a house? No, not a median priced house anyway and it's just getting worse. A lot of places they can't afford, even a 1 bedroom apartment on their own. They have to either double up or there, as Ed said, driving 50 miles to work, which it's $6 gas, $5 gas doesn't make a lot of sense. So, don't let people just pigeonhole this as an issue just for people who are homeless or something like that. This is affecting everybody. This is affecting your kids ability to live near you. It's affecting the peoples... guys who work, going to work at TSMC. Their ability to find a house they could afford. There are now college professors at ASU who can't afford a single family home. That's ridiculous, and it's just getting more and more absurd and there are things that cities can do about it, and all we're saying is speak to the people in the private sector, have this conversation, see what's going on in the market every day and see what you can do to help the situation out and now in the near term it will look like the shortage is going away because again, there are very few people buying single family homes at the moment and you have a normal number of listings coming on every month but this is just postponing the issue. It's not changing the issue. So, now is the time to deal with it.
Michael Gossie
So, efforts like Home Arizona. Is that gonna offer any relief in the future? Do you see any relief coming?
Elliott D. Pollack
The only release that's going to come, even if housing prices declined 15 or 20% in terms of affordability, will be things that get the cost of homes down, price of homes down. Some of the supply chain issues will ultimately be resolved. Hopefully you get a congress that can basically see what's going on, and that doesn't include the congress we now have and deal with an immigration problem so that we have a policy that allows workers we need in. Millennials are not going to be construction guys, that's pretty clear. The bulk of them are rejecting that as something they want to do. It's going to have to be people from abroad that's... that's a fact of life, like it or not and so those things hopefully will take care of themselves overtime, but you've got to stop adding on regulation after regulation, gold plating things, and act like nobody's paying for it. We're all paying for it if you own a home.
Michael Gossie
Right. Well, we're out of time, but Ed I have to ask you. What's your outlook for housing in Arizona? What can we expect in the next one to five years?
Ed Bull
Challenges. I do believe that organizations like Home Arizona and others are having a meaningful impact on providing the facts versus the rumors that help some of our elected officials and others vote yes or no on a case based more on the facts and less on some of the emotion that gets churned on social media. That's great if it helps get some additional housing approved on the zoning level,. I know that some of the directors at cities are as anxious as we are to try to find a way to streamline their processes because they too are facing challenges with lack of staff and replacing staff and so on and so forth. So, I think many, many people recognize the problem. Dealing with the challenge and helping solving the challenge means that we need to work together on getting it done differently than the way we traditionally have got it done. Traditionally, if two reviews are good, three reviews are probably better. Traditionally, if you know tile countertops are good, granite countertops are better. All of those kinds of things, Elliot and I are old enough to remember back in the day when homes and other buildings were built with... not with tile roofs, but with asphalt shingles or other types of shingles and so on, and different types of siding. I'm not saying we go back to that but we really do need to think about ways that we can make housing available at all price points and for all age groups, I think it's really unfortunate that there's a significant part of our senior population who's tired of pushing the lawnmower all around all weekend. Who would love to downsize, but they really can't afford to sell their million dollar house because they can't find one to move into for less than a million dollars. That's pretty bizarre to me. Yet if I personally don't have a single client who is building what we would call starter homes, not one, and we used to back in the day, but we don't now. We do have a broad spectrum of clients with a variety of price points on apartments and apartment rents, and I think that's great, but this is our problem. The collective we’s problem. It's not just a city problem, it's not just a developer problem, it's not just a home builder problem. It's our problem, because I think it's really unfortunate when grandparents have to drive 2 hours to see their grandkids because they can't afford to live anywhere close to where they grew up. So, the collective we, I believe needs to work together to make the process more available, more efficient, more timely, more cost effective, so we can house people who work hard or have worked hard their whole life and now deserve certainly to continue to have a roof over their head.
Michael Gossie
This has been fascinating, we could talk to you guys all day but thank you for listening to the AZ Big Podcast with Michael and Amy. Once again, thank you to our sponsors, Burch and Cracchiolo and I can't thank you enough, Ed. Bull from Burch and Cracchiolo for being here today and Elliot Pollack from Elliot D. Pollack and companies. Thank you guys so much for sharing your wisdom. I appreciate it.
Ed Bull
Thank you.
Elliott D. Pollack
Thanks for having us. Take care.
Amy Lindsey
Ed, Elliott, thank you guys. Appreciate it.