Nevada continues to be one of the fastest growing states in the nation. The downside to population growth is the inability of the multifamily commercial real estate market to keep up with demand for space, leading to rising rents and increased values for buildable land.
“From a housing perspective, apartments, condos and housing, right now there is a significant shortage of affordable housing,” said Mike Kazmierski, president and CEO of The Economic Development Authority of Western Nevada (EDAWN).
“There is no slowing down the demand, just natural growth (births over deaths) account for much of the future demand,” he said. “As long as demand exceeds supply – housing prices will go up, causing a shortage of affordable housing.”
Kazmierski said Reno and Sparks need 6,000 new housing units each year. For example, the region built less than 4,900 last year putting pressure on housing prices and rents on multifamily units.
“That’s 60,000 units that are needed over the next 10 years. We need to build two Carson City’s worth of housing,” Kazmierski said.
“It is clearly impacting our ability to attract companies to the region,” he said. “We lost eight to 10 deals over the last six months, in large part, because of housing costs.”
Kazmierski said low wage workers in retail and the gaming industries are most affected by the increase in rents.
“The challenges with lower paid workers being able to afford to live here, is forcing some to move away,” he said.
Kazmierski noted that housekeepers at casinos are now starting at $20 an hour, “something we’ve never seen before in the region.”
The average sale price of a home in Reno and Sparks is $545,000, while the average price in Las Vegas is $435,000. Those are prices keeping a lot of people out of the real estate market.
“You can’t afford that unless you already have a home or are a high wage earner,” Kazmierski said. “That’s not affordable and it’s going to get worse as the Federal Reserve raises interest rates.”
The higher home prices are causing more people to rent instead of buy.
“Rents are not going down until we address the supply problem,” he said. “Additionally, we have a 2 percent vacancy rate, which means even if you have adequate income to pay for the higher rents, good luck finding something.”
Susy Vasquez, executive director of the Nevada State Apartment Association (NVSAA), said the spread between average monthly rents in Las Vegas and Reno is usually $250 to $300.
“Today that split is only $50,” Vasquez said.
The NVSAA reports asking rents in the Reno-Sparks area average $1,490 per month, while the average monthly rent in Las Vegas was $1,440.
She also credited the narrowing of rent prices between Reno and Las Vegas to a lack of supply and inflation.
In terms of inflation, Vasquez said there were 83 industries that help operate and maintain our multifamily units in the state. For example, she said, the price of a barrel of crude oil impacts the cost of paint and flooring that are used in apartments.
“The price of oil is something we watch very closely,” Vasquez said.
Curt Allsop, executive director with Newmark in Las Vegas, said, “From an income point of view, if you are looking to invest in the Las Vegas market, it is going to be strong for another three to five years.”
From the other view, Allsop said we are still not creating enough multifamily units. On average, between 3,500 to 3,800 units are built annually in Clark County.
“We have 50,000 people moving here a year,” Allsop said. “We estimate that the demand is for over 5,000 units. The horizon is super bright and land values have reflected that by going up almost 100 percent in the last couple of years.”
Despite rent increases, high land values and a lack of multifamily units Allsop and Angela Bates, managing director with Newmark, agree that the region is not close to pricing potential residents and locals out of the market.
“For years we have been tracking the amount of income that has been spent on rent and I would say four years ago at some of the newer Class A properties it was really maxing out at 22 percent of their income going towards rents,” Bates said.
As it sits today, Bates said, the region has increased to 27 percent of income going towards rent.
“We are still more affordable than any of our surrounding markets, especially markets where we are seeing an influx of residents – California, Utah and Arizona,” Bates said. “So, in many cases you can come here and spend less on rent and get greater square footage and amenities than you could in Los Angeles.”
Vasquez said her agency is forecasting rent growth of 7 percent for 2022 in Nevada, barring any huge influx of new residents in Las Vegas. She noted that the forecast is less than the double-digit growth rates of 11 percent or 22 percent the state has experienced over the last two years.
Short Supply a Solvable Problem
Kazmierski said the lack of housing is a solvable problem if we all get behind it and work to solve it. He said there are several developers with plans to build multifamily housing, but they still need approval.
According to the recently released Workforce Needs Housing Assessment Report by the University of Nevada, Reno Center For Strategic Studies, the region needs 500 new units every month.
“We are currently building far less than that,” Kazmierski said. “Demand exceeding supply will continue.”
He said there was a project in Reno with 500 new units. The catch is, Kazmierski said, it will only meet one month of demand and took three years to complete.
The supply of apartments in northern Nevada is increasing, with 3,182 units under construction in the Reno-Sparks market, a 7.8 percent increase in the overall apartment inventory.
Even with so many new apartments being built, Vasquez said, net absorption remains high, totaling 1,200 units over the last year. She said most of the activity involves high-end properties, which accounted for about 1,100 of the units being absorbed.
When asked if there was land available outside of Reno and Sparks to build more multifamily units to meet the demand, Kazmieski said 85 percent of the land in Nevada was owned by the federal government.
Of the 15 percent remaining, most is already taken or not buildable. He noted that a recent lands availability study reports that there are very few parcels over 20 acres available and buildable.
“They are building in Fernley, which is over 30 miles away,” he said. “But after that there is nothing closer to Reno. There is very little in Carson City, and Douglas County isn’t building anything which is driving their prices higher.”
“The problem we have, Lake Tahoe had 10 years ago. There is nowhere to drive to. That’s the difference between Nevada and California,” Kazmierski said.
In southern Nevada, Allsop said there is no consideration of building multifamily units in Pahrump because it is still too far out from Las Vegas, while Boulder City has a fair amount of land “but they have a very strict ordinance that won’t allow adequate development to meet demand.”
“You can develop in Boulder City but the units you can develop is so limited that it really is not realistic,” he said, “That’s to their credit. Home values are high, and people want to live there but there really isn’t a development play in Boulder City.”
Bates added that there are multifamily units in Laughlin, but it has been a long time since any new projects were developed. The job opportunities have been focused on the local gaming industry, with few residents commuting daily to jobs in Las Vegas.
Vasquez said available land to build multifamily units is an issue and will continue to be an issue.
Nevada’s Modest Success Going Vertical
In terms of developing more mixeduse development to solve the need for multifamily units, she said people in Nevada are not accustomed to it.
“We’ve had such an influx from the East Coast, where they are used to living in a high-rise with shops on the ground level,” Vasquez said. “A lot of people migrate to Nevada looking for single-family housing.”
“We’ve tried it with some success with The Gramercy in Las Vegas and Harrah’s in Reno. But there is a learning curve when they want to develop that kind of building,” she added.
The Ogden, Soho Lofts and Newport Lofts are also examples of mixed-use development that have enjoyed modest success in downtown Las Vegas.
In downtown Reno, CAI Investments acquired Harrah’s for $50 million from VICI Properties and Caesars Entertainment and is developing Reno City Center.
Once the project is completed, the remodeled building will feature about 530 market-rate apartments, 150,000 square feet of office space and 78,500 square feet of retail. Rents for the apartments will range from $1,300 to $2,500.
“With the coronavirus, some of the interest in density by officials in Las Vegas, Clark County and Henderson tapered off and the suburban areas picked up,” Allsop said.
“The jurisdictions still pushed mixeduse, but it has gone from a vertical component to more of a horizontal component where you are going to build 12 acres of multifamily and carve out three acres for a Starbucks, bank, and a pharmacy,” Allsop said.
“It’s happening, but on a very limited basis,” he added. “Where mixed-use is working is in a super urban, super dense area, including San Francisco and New York.”
Housing not Impacting Technology Industries
Despite the lack of multifamily developments and rising rents, in northern Nevada, Kazmieski said those issues haven’t slowed down the high wage industries, such as technology and advanced manufacturing, from moving into the region.
“Most of these companies get 90 percent of their employees locally while only bringing 10 percent to Nevada,” he said. “That is good for our economy and our community as employees can be upskilled to fill these higher wage jobs.”
“We have transformed the economy in the north; however, we have been slow to meet the region’s need for affordable housing. This is our top concern, and we need to get everyone from the governor on down, on board to solve it,” he added.
Governor Steve Sisolak has set aside $500 million in federal funding to create some 1,700 affordable housing units in Nevada.
Of the $500 million, $300 million will go toward affordable multifamily housing, $130 million will go toward preserving affordable housing, $30 million will increase homeownership opportunities and $40 million will go toward land acquisition for future housing developments.
Vasquez said to get multifamily housing units built takes government being focused on these projects, which is a huge issue with many projects left on the board.
“If we can make it easier to build, the money will come,” Vasquez said. “For example, why does it take Marriott nine months to build while it takes us twoand-a-half years to get shovels into the ground.”
“We need a solid permitting process to get these projects off the ground,” she said.
Allsop added that you can’t buy a piece of dirt and achieve any revenue from it for at least three years
Meanwhile, both Clark and Washoe counties have also moved forward with plans to convert weekly-stay hotels into multifamily units to address the housing shortage. Bates said these properties address the need for workforce housing.
Other solutions to tackle the state’s need for multifamily units starts with a different unit mix. Allsop said in the past the average square footage of a unit was 800 square feet for a one-bedroom apartment, two bedrooms at 1,000 square feet and three bedrooms averaged 1,200 square feet.
“That’s all shifted downward, and studio’s have been introduced,” said Allsop, adding that they rent on average for $1,200 a month. He noted that as a smaller product is being introduced, other parts of the region, including North Las Vegas, which may have been overlooked in the past are getting developed.
Nevada’s Constricted Real Estate Market
“We are growing into the space we have,” Allsop said. “I preach to buyers all the time, and it’s a crucial issue, we are in a constricted market surrounded by an official boundary called the Bureau of Land Management Disposal Boundary. You can’t touch dirt on the other side of that boundary.”
Allsop said you contrast that with Sacramento that has an endless supply of land where developers can negotiate with one owner and if they don’t like the price, they go to another half mile and negotiate with another owner.
When asked if there was enough vacant or infill land to meet the demand for multifamily units, Bates said developers who have been “holding on to dirt they bought many years ago and now they are in full force developing every parcel they have and making the effort to acquire more dirt.”
