Behind the housing numbers
Despite the nationwide bust, prices in Nevada remain high.
- Friday, September 28, 2007
There is no shortage of bad news about the Nevada housing market. Local and national business pages rarely give us even a day without a reminder that the housing boom has busted. According to the Mortgage Bankers Association, Nevada leads the nation in foreclosures per capita.
Real estate consultant John Burns says home prices in Las Vegas are too high and must drop by about $100,000 before the market will return to normal conditions. And Forbes magazine calls Las Vegas the fifth worst housing market in the country.
What about Nevada’s other major city? Moody's Economy.com projected a year ago that the median price for an existing single-family home in the Reno area would drop 17.2 percent by 2008.
Despite all of this doom and gloom, however, Forbes reports that the median home price in Las Vegas has only dropped 3.6 percent from a year ago — to $307,900. That’s not much of a correction when one considers that only four short years ago, the median home price was an affordable $190,000. And Reno’s median price actually rose in the first quarter of this year — to $315,000.
Nearby Phoenix has a $264,800 median home price and Salt Lake City has a $279,900 median. Why are housing prices stubbornly high in Nevada compared to competing cities in neighboring states?
The uninformed Nevada visitor would say there is vacant land as far as the eye can see, permitting more construction that would increase supply and create the affordable housing John Burns mentions. Not hardly. While real estate developers in Phoenix and Salt Lake City can simply buy out the next farmer to expand in those markets, the federal government owns 86 percent of the land in the Silver State. And the government isn’t eager to give up its land holdings.
In a study just published by the Nevada Policy Research Institute, “The Federal Land Stranglehold — and What Nevada Can Do About It,” Charles F. Barr explains that the Bureau of Land Management’s huge land horde “has triggered massive increases in the price of remaining privately owned land, to the point where the average family can no longer afford the mortgage payments for a median-priced home.”
So instead of being the land of opportunity, Las Vegas and Reno have joined other high-priced cities on either coast as cities where only a small percentage of the population — 14 percent in the case of Las Vegas — can afford a median-priced home.
The high housing cost has made it difficult for school districts to attract teachers. High land prices are also hindering diversification efforts because building rents and prices are unaffordable compared to other southwest cities. And now the state’s primary industry — gaming — will feel the pinch on the Las Vegas Strip as 45,000 new hotel rooms are under construction or in the planning stages. Deutsche Bank Securities reports that the casino industry will need 113,500 more workers to fill the spots created by the new resorts now under construction. Without available affordable housing, the needed acceleration of in-migration will be stunted and 25,000 of these jobs could go unfilled, according to the investment bank report.
But BLM bureaucrats couldn’t care less. Despite the spike in job creation and steady in-migration, the BLM has auctioned off less than 50 acres in Clark County during the last two years. At both ends of the state it’s obvious that the federal government really isn’t interested in putting land in private hands that would allow affordable housing and other needed projects to be developed. Insisting that its land be sold for what some appraiser thinks it is worth, or more, under the guise that the government must maximize its gain on sale, only serves to keep land off the market. Besides, the BLM uses most of the auction proceeds to buy up even more “environmentally sensitive” land in the state.
Unfortunately, bidding for BLM land doesn’t start at zero. Parcels are nominated for auction by the local municipalities after developers express interest in buying the land. Then the process takes 18 months to two years, with an appraisal done to determine the starting point for bidding. Without a change to this cumbersome BLM auction process, the economic vitality of Nevada will be harmed.
The BLM should systematically auction off its land horde, no matter what the market conditions, at bids starting at zero.
As the NPRI report suggests, Nevada’s new political muscle should be used to put idle government land in more productive private hands.
Doug French is executive vice-president of a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.