Last week (4/26/23) I was privileged to be the keynote speaker at the WeSERV President’s Roundtable and Sales Awards Luncheon. The luncheon honors those very hard working WeSERV REALTOR® members who are top producing REALTORS® in the WeSERV jurisdiction of West Maricopa County, Southeast Maricopa County, Pinal, Cochise and Santa Cruz in Arizona.
Although my event remarks were shortened, below is the full text of my planned remarks. I thank WeSERV for inviting me to speak at this wonderful event.
Remarks to WeSERV President’s Awards Luncheon:
Isn’t it interesting to think about how the events of 1215 A.D. led to you being here today? Do you think anyone at the creation of the Magna Carta could ever have imagined it would lead to private property rights and the right to private contract becoming so important that 561 years later, a new nation would be founded with those principles at its core?
While I don’t think the King or Noblemen of 1215 glimpsed this future – the future of today, I do think our Founders not only glimpsed it, but envisioned it.
I know people living in Arizona in the 1890’s clearly saw today. You can see that in the policies they installed both pre and post statehood: water and housing being two of the issues most discussed.
Remember, this was before CAP or the SRP system. It was before Roosevelt Dam. The Salt River was visible to those living in Phoenix and Tempe and residents watched as the river dried up before their eyes. There were canals throughout the valley, but they weren’t unified or particularly efficient. It was in the 1890’s the SRP system we think of today began to take shape and expanded. Water meant farming, ranching, business, people and electricity.
Water is back in the news and for the same reasons. And just as the people in 1890 had to think of multiple ways to create efficient and affordable water for many uses, and then transport that water, so do we.
There is a lot of rhetoric today about Arizona having no water. Those comments usually can be traced to the politics of water and agencies or organizations seeking grant dollars for their projects. It is also hyperbole. I’m glad to see some of the organizations who were in front of the Arizona has no water parade are revising their messages. Arizona has water, it just might not be in the place people are.
It is the 1890’s all over again, but this time we have a larger, more developed system. We have water storage here in Arizona that didn’t exist in the 1890’s and we have the means to access that water. We have redundancies in Arizona water the residents of 1891 didn’t have. And we have new technology beyond the technology of dam building.
Let’s look at the sources of Arizona water:
- 36% Colorado River (CAP)
- 5% Reclaimed water – and that will continue to increase
- 18% In state Rivers (SRP in the Valley)
- 41% Groundwater
Now let’s look at Sources of Water in Metro Phoenix
Salt River and its tributaries including the Verde, Gila and Agua Fria.
- 29% CAP – Colorado River water
- 34% is Ground water
- 12 % is Well water
We have 10 cities with rights to SRP water:
- Avondale
- Chandler
- Mesa
- Glendale
- Peoria
- Gilbert
- Phoenix
- Scottsdale
- Tempe
- Tolleson
When it comes to water demand, here is our basic breakout:
- 5% Industrial
- 21% Municipal
- 70% Agriculture – but I question this number. Think of all the changes in the past 20 years for water access, conservation and technology in agriculture. Precision Farming reduces water usage by 80%. We have retired some lands because of drought. We now have much less farmland in Metro Phoenix than even 10 years ago and that land has housing and manufacturing on it.
I don’t know the real amount of water agriculture uses in Arizona, but I know it is a lot less than even 10 years ago. Part of the water conversation must include new information based on today’s reality.
It is estimated metro Phoenix uses 33% of the water used in 1957. When it comes to replenishment, this past year has brought both heavy water content snow and lots of water to the Valley, Pinal and the entire state. The Little Colorado is over 1,300% of median rainfall and the snow is just beginning to melt. The Verde sub-basin (Flagstaff and Prescott) is up over 2,240% of median rainfall.
Lake Mead has refilled to the point of being at a Tier 1 shortage level rather than a Tier 2a or Tier 3 shortage. And is within less than 180 ft of full pool.
The Salt River dams are over 200% of median storage and the same is true for the Gila River system.
The message to your clients is, yes, we have water. But buyers and sellers should know their sources of water. Depending on where you live, you may need to create your own water portfolio. For those living in a city, town or other community, clients can speak with the water management department to learn how they run a well-managed water portfolio.
For example, Avondale has 5 sources of water, Goodyear 3 and Phoenix 2. All of these cities have well managed water portfolios.
For those choosing to live in non-municipal areas, they may have well water rights, river water rights, no water rights: and they may need to find a water hauler with more senior water rights for times of severe drought or a well driller to learn more about the hydrology of the land.
For those of you who own, or have clients who own, land in what is now the Douglas AMA, the paperwork required to maintain grandfathered water rights must be submitted by March 1, 2024.
The WeSERV Water Issues Task Force is working on a water worksheet to help your clients walk through the questions they should be asking about water with links to helpful resources. Watch for the worksheet to be released in the next few weeks.
Let’s move on to housing. The economic development directors have been very successful bringing job creating companies to Metro Phoenix and Pinal. With jobs comes people, and with people comes the need for housing. Add to that, children already living here growing up, and you have a large demand with currently diminished supply.
WeSERV released its housing study in February of this year. We estimated the shortage of housing units at between 40,000 and 80,000 units based on Arizona specific data. Other studies have estimated the shortage at between 200,000 and 250,000 units. But their estimates are made based on data of typical household size across the nation, with an emphasis on large urban cities.
In our 2021 survey of cities and towns we found at that time 250,000 entitled units across 7 cities and towns. So, we aren’t looking at a problem with municipal approval processes. I suspect there are a series of issues starting with commodities and supply chains, and including builder’s desire to acquire more land over the past three years. And of course – labor shortages.
In any event, there is a shortage of housing – we can see that. Specifically, there is a shortage of entry level housing for wager earners who occupy the vast number of our jobs.
Some of the data we share with city officials when we update them on their city or town’s real estate market and the overall market, highlights the housing price point they have vs. the housing price point needed for their wage earners.
We have determined wage earners making between $45,000/yr gross and $95,000/year gross are the largest portion of people struggling to find housing. We provide information to the cities on what this means for rental or purchase price points. We provide them with an outline of those salaries as net income and that looks more like $42,000/year to $75,000/yr.
We are essentially looking at rents in the $885/month to $1,760/month range in order to maintain 25% to 30% of net income going toward housing costs. We are looking at purchase product in the $200,000 to $350,000 price point depending on down payment and interest rate.
And then we have a conversation about what those products look like and the wide array or the web of product and financing that, if given a chance, will come together to create a variety of solutions from a variety of individuals. From the homeowner who builds an ADU in their backyard, to an employer who builds housing units for their employees until the market catches up.
We talk about manufactured homes, modular homes, stick built on site homes, 3-D printer homes, and a variety of other materials, floor plans and possibilities the private sector offers.
We talk about the small and medium builders. That is where we see great creativity because they are closest to the renter or buyer.
And we talk about money. Money needed to build a home or project, and, money needed to buy or rent a home.
Small and medium builders can build smaller, more creative solutions like courtyard style, townhouse, small condos or individual homes because they are more likely to have little or no debt financing since their capitol needs come from individual investors who are part of the project. These are individuals who see a need in the community and put their own money on the line to meet that need.
We talk about the money renters and home buyers need. Decision maker people forget that when they started out, they rented very small units – usually with roommates. It is that conversation of memories that brings forth the reality that the entry level product is important and that moving up from a roommate rental to your own studio or 1 – bedroom rental is a huge milestone in terms of money and personal satisfaction. The amount of money needed for rental deposits is an interesting conversation. People forget.
And then there is the conversation about entry level purchase product. Some of it may be as small as 700 or 800 sf. Many Americans started out with a 1 or 2 bedroom bungalow that size.
Some may be able to purchase a home of 1,000 to 1,300 sf with simple interior floor plans and finishes of vinyl floors, laminate counter tops and carports rather than garages.
Some may be true townhouses. Vertical on a small lot with a small backyard and little front yard. In some markets, the small courtyard style purchase or rental units may be a viable product. Courtyard product has been popular for over 100 years.
And we talked about possible changes to city codes.
And then there is the purchase part. Once people understand the basics of property rights and think about the various ways they can apportion those rights as part of the financing mechanism, then real creativity comes into the market.
Imagine someone purchasing a lot, placing a small modular home on it and over time expanding that home easily and affordably as they add additional modules. These homes look just like other stick-built homes, but usually have higher energy efficiencies and require less on site labor.
Imagine a young couple buying a fixer with an investor as partner, sharing the equity. With the young couple providing a little money and a LOT of sweat equity.
Imagine an investor separating the house from the land, selling the buyer the structure while incorporating incentives into the land lease for a 5-10 year land buyout so that eventually, the homeowner will be a fee simple homeowner. Meanwhile, the investor has a stream of income with no maintenance worries.
Imagine a medium sized homebuilder building a subdivision of rent to own homes. Renters could choose to rent forever, rent for a short while, or execute on the option to purchase.
Imagine an investor who agrees to a Contract for Deed until the buyer gets to 50% ownership, and then the deal changes to an owner carry back so the buyer can own the property and the investor has a steady stream of income.
All of these scenarios and many more have been done in real estate for transactions large and small. Tools like:
• Staggered sales
• Owner Carry Backs
• Land Trusts
• Land Lease
• Contract for Deed
• Options
• Property Exchange
• Lease with Option to Purchase
• Lease Purchase Agreements
• Life Estate Sales
• And Equity Sharing
These and other tools help make housing and real estate open to all and that is why the private sector can and should be in the forefront of housing solutions.
I am concerned about proposed legislation that prevents individuals from helping to solve housing concerns through these and other well-worn tools. I have a favor to ask of you.
I would like to know the 1-3 housing solutions you see for the part of Arizona you practice real estate in. These solutions can be from a financial viewpoint or a product viewpoint or both. Email or call me at the WeSERV Peoria office. I would love to know what you think and why.
We understand that while crafting the deal is fun and exciting, its really all about preserving the right to private property and the right to private contract.
Thank you for being a vibrant part of real estate in Arizona. And thank you for preserving these principles for your clients, yourselves and for generations to come.