In states bedeviled by rising housing costs, elected officials are debating whether it’s better to offer financial incentives to encourage more affordable home development or impose requirements to make it happen.
Utah and Arizona are both interested in ramping up production of starter homes, or houses priced to be affordable to the average first-time homebuyer. In the past two years, Utah opted to give aid to developers and buyers to enable lower-priced construction. Now the state is also considering forcing cities and towns to allow more affordable homes. Meanwhile, Arizona state legislators are torn over how much control over housing they are willing to wrest from local governments.
Across the U.S., escalating home prices and mortgage rates have been especially tough on people looking to buy their first home. The National Association of Realtors reported that first-time buyers were responsible for just 24% of home purchases last year, the lowest ever recorded.
Many states were flush with cash during and right after the pandemic and were eager to offer families or developers monetary incentives to buy or build housing, said Jason Sorens, a senior research fellow for the Massachusetts-based American Institute for Economic Research. But now that states have less money, they’re more likely to consider requiring local governments to reduce their minimum lot sizes or make other changes to cut costs.
“The financing stuff is more politically popular, because you don’t get pushback from municipal associations and homeowner groups that are skeptical of housing,” Sorens said in an interview. “But housing is expensive to build, and you don’t get that many units for a given amount of subsidy, so it barely makes a dent in the shortage. So I think the statewide [requirements have] much bigger potential over the long run to bring homes onto the market.”
Gov. Spencer Cox of Utah called for building 35,000 starter homes in the next five years in his annual state of the state address on Jan. 23. A combination of rapid population growth and slow housing production has caused Utah home prices to soar, according to a 2023 report that said 28,000 new homes are needed annually to meet demand. The median sales price for a single-family home in the metropolitan area of the state capital, Salt Lake City, was $570,500 in the last three months of 2024, according to the National Association of Realtors.
Cox and the legislature agreed on two programs in the past two years that offer incentives to homebuyers and developers. In 2023 the state said it would offer up to $20,000 to people looking to buy their first home, with a cap on the house price tag of $450,000. The assistance could pay for down payments, closing costs or to buy down the interest rate. The state provided enough funds to help at least 2,500 buyers.
Then last year, the state began offering low-interest loans to developers who agreed to charge no more than $450,000 for at least 60% of the new houses they build. Nilson Homes, the first developer to take advantage of the loans, is building 275 homes near Ogden, north of the capital. The houses will be constructed over several years as part of a larger development.
The cap of $450,000 is too high, Mark Shepherd, mayor of Clearfield, Utah, a city of 34,000 south of Salt Lake City, said in an interview. The city saw 4,000 new homes built in the past five years.
“Wonderful idea, but it wasn’t hitting the people it needed to hit,” he said of the homebuyer aid program. “The requirement was that the house be under $450,000. Well, if you’re buying a home for that amount, you’ve already got your down payment, you’re already set to go.”
He said he knows of developers who are trying to bring down prices more by coupling the low-interest loans with other state housing assistance.
More challenges
Another challenge is that state leaders are too focused on encouraging more single-family, detached housing development, when what is needed are more diverse housing types such as duplexes and condos, the nonprofit Utah Foundation said in October in an article on its website.
In the 2025 legislative session, officials are considering whether to require cities and towns to allow accessory dwelling units, which are small homes that occupy the same plot of land as the larger, primary house. Other proposals are to incentivize more owner-occupied condo construction and to fund roads and other infrastructure needed to complete planned residential neighborhoods.
The Phoenix, Arizona area has its own affordability problem, with the median price for a single-family home reaching $476,400 in the last quarter of 2024, according to the NAR. Tucson, a city to the south, is somewhat less pricey at a median price of $389,700. The state had a 270,000-home shortage as of 2022.
The Arizona Starter Homes Act, which state Rep. Leo Biasiucci introduced last month, would require cities and towns with more than 70,000 residents to allow houses on lots as small as 1,500 square feet within new developments of at least five acres. The act also blocks cities from regulating design features like walls and fences.
The League of Arizona Cities and Towns said in a Feb. 3 bulletin that Biasiucci’s bill goes too far in preempting local control and that a 4,000-square-foot minimum size for house lots would be better. The league also proposed requiring developers to provide homes affordable to people who earn no more than 120% of the area median income; that’s $123,350 for a family of four, according to the city of Phoenix.
“While supporters claim zoning regulations prevent the construction of affordable starter homes, this assertion oversimplifies the issue, as municipalities have permitted hundreds of thousands of housing units in recent years,” the league said.
New Hampshire is also considering legislation this year to require cities and towns to permit smaller lots. Senator Keith Murphy proposed that towns be obligated to accept lots of a half-acre where public water and sewer services are available, or 1.5 acres where they aren’t. Murphy said in written comments in support of the bill that requiring larger lots forces developers to build bigger, more costly houses to make a profit.
Arizona’s 2025 legislative session ends on March 7 and Utah’s on April 23, so action on this year’s bills could occur soon. New Hampshire’s session ends on June 30.