Tim Steller's column: Conspiracies small and large drive up Arizona housing costs

Given recent news, you’d be excused for concluding that conspiracies are what caused our housing affordability crisis.

You would be right, but maybe not in the way you’re thinking.

That’s because the conspiracies that we’ve learned about the last few weeks appear real, but they likely only have had a relatively small overall impact on housing prices.

There’s the one conspiracy related to homebuying that is so embedded in our real-estate culture that we’ve just accepted it all these years. Here I’m referring to the 6% commission for buyer’s and seller’s agents on every home sold that has predominated in the industry for decades. Many of us paid it without thinking, because that’s just the way buying a house worked.

Now, thanks to a lawsuit settlement, it’s going away.

Then there’s the conspiracy related to the rents for apartments. Arizona Attorney General Kris Mayes’ office filed suit against an apartment service company called RealPage and a series of apartment owners in Phoenix and Tucson, alleging they colluded and fixed prices at higher than market levels.

The lawsuit makes a compelling argument, which has also been made in news stories and other lawsuits around the country.

But then there’s the conspiracy that is so engrained in our cultures and ordinances that we are only beginning to notice it. It’s the conspiracy of the haves versus the have-nots.

And when Democratic Gov. Katie Hobbs had a chance to side with the have-nots last week, she sided instead with the haves.

“Price fixing”

The allegations of a rental-market conspiracy make for compelling and dismaying reading in a city where rents have gone up almost 40% since 2020.

They center on a company, called RealPage, hired by firms that own apartment-complexes to help them maximize their revenue.

It burst into public knowledge in October 2022, when the online news outlet ProPublica published an investigation into RealPage. The story quoted a RealPage executive bragging that his company “is driving” double-digit rent increases around the country.

If true, how do they do it? The attorney general’s lawsuit puts it this way:

“RealPage collects and shares pricing and occupancy information for many multifamily apartments in the Phoenix and Tucson metropolitan areas. It feeds this data into a common algorithm and then tells the participating landlords what prices to charge based on all this data. And so, competitors have stopped using independent judgment to set prices and started working together.”

In fact, participants are told to use RealPage’s prices or risk being thrown out of the system altogether.

“This is price fixing, and it is illegal,” the AG’s lawsuit says.

It adds that more than 70% of apartment units in the Phoenix area and more than 50% in the Tucson area set their rates using RealPage.

And they operate all over the country: A consolidated lawsuit by renters against RealPage is playing out in Tennessee.

Home prices driven up

While the alleged price-raising conspiracy in the rental market looks newfangled, the one in the homebuying market is comparatively ancient.

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For decades, the national standard established by the National Association of Realtors has been that both the buyer’s agent and the seller’s agent get 3% of the value of the sold home as a commission, paid out as an add-on to the price of the home.

In November, a jury in Missouri found the association, plus Keller Williams and Homeservices of America, liable for $1.8 billion in damages for artificially inflating commissions.

The association enforced these commissions in part by limiting access to their multiple listing services, the central databases around the country for most home sales. Home sellers needed to disclose the commissions they would pay to the buyer’s agent in order to be able to list the homes, which incentivized some buyers’ agents to prioritize homes with higher commissions.

Now, it’s my experience that real-estate agents are sometimes flexible with their commissions. But the effort to enforce 6% commissions undoubtedly made this flexibility less common than it otherwise would be and drove up the price of home sales, at least the commissions.

Thanks to a settlement arrived at on Monday, a shakeout will happen and perhaps lower the cost of a home by a bit — some forecast a decrease of 25%-50% in the commissions. But that doesn’t lower the underlying cost of a home.

“Disparaging” renters

This brings me to the conspiracy that we all participate in without even thinking about it — the haves vs. the have-nots.

Many factors have driven up the cost of homes, but one of the most fundamental is simple lack of supply. In Arizona, the shortfall is about 270,000 units, according to an ASU report published in January.

And in urban areas, one of the key factors limiting supply is zoning that restricts much of the cities’ residential areas to single-family homes, the ASU report says.

Even President Joe Biden’s White House said so in the Economic Report of the President sent to Congress on Thursday: “Research consistently finds that increasingly stringent zoning restrictions lead to lower housing construction and a lower price elasticity of the housing supply.”

How does that work? Apartments, townhomes or even small single-family homes on little lots never get built because they are not allowed. Or, they are proposed but require a rezoning, which brings out home-owning opponents who convince the officials to turn them down.

In January, for example, opponents of two new apartment developments at East Tangerine Road and North Rancho Vistoso Boulevard filled the Oro Valley Town Council meeting to oppose the 207 apartments. Oro Valley’s planning and zoning commission had approved the plan, but after the residents’ outcry, the town council voted 7-0 to reject it.

During the session, Mayor Joe Winfield even felt it necessary to warn commenters not to “disparage” renters: “I imagine all of us in this room have rented at one time or another, including myself. Let’s be good to each other and not disparage, whether we own a home or don’t own a home.”

Still, he voted against the rezoning.

“Desperately need an apartment”

Cities aren’t completely unaware of this problem. Tucson has approved changes to zoning in recent years that would allow what Zoning Administrator Elisa Hamblin calls “gentle density.” There was the citywide approval of casitas, or “accessory dwelling units,” and some small shifts in parking requirements to allow for more townhouse-type development.

Still, the haves-vs.-have-nots dynamic is one of the reasons some Democratic legislators joined Republicans in supporting HB 2570, a bill called the Arizona Starter Homes Act, which limits cities’ ability to stop new housing.

“We typically do not hear from the working person who is living in their car,” Rep. Analise Ortiz, a Democrat, told me. “We don’t hear from the single mother who is facing eviction and needing to couch surf. They’re not showing up to the city council and saying ‘I desperately need an apartment. Please approve this low-income housing project.’ “

The bill prohibited minimum sizes for new single-family homes and forced cities to accept lot sizes as small as 1,500 square feet for single-family home developments greater than five acres. It also prohibited local requirements that new homes have certain design features or be part of a homeowner association.

A bipartisan majority of both chambers passed it, but the League of Arizona Cities and Towns opposed the bill, and on Monday Hobbs vetoed it.

In her veto message, Hobbs said the bill “lacks the nuance necessary for statewide reform.’’ But so far she has refused to provide the nuance that she would accept.

And so even a relatively modest proposal to take power from the haves has so far failed. It’s this conspiracy — really, better termed a “system” — that will need to change if we’re going to make housing affordable again.