Episode 76: The Politics of ‘Affordable Housing’ Aren’t Fixing Anything

Michael Schaus: Well, that’s your problem right there is. We want legislators to create smart and well thought out policy. And that’s just that’s not always their forte.

This is Free to Offend. I’m your host, Michael Schaus. Housing is just an issue that’s never apparently going to go away in Nevada. Yeah, we are still struggling with some affordable housing issues, especially when you look up north with all the economic development and all the just huge growth within the last 10 years. Yeah, housing affordability is a big problem. And that is why I’m very happy to invite to Greg Peek from ERGS Property, a third-generation family-owned real estate development company, to the show.

His company specializes in multifamily homes. But this is one of those areas that so often when we’re talking about housing, you’re talking to politicians or economists and getting a kind of point of view from somebody who is in the trenches, so to speak, I think would be extraordinarily helpful, especially as the legislature starts to take on some of these issues, and local governments also start to take on some of these issues like we’ve seen in, for example, North Las Vegas.

So, Greg, thank you so much for joining the program.

Greg Peek: Thanks for asking.

Michael Schaus: So, as we look at affordable housing, especially in the state of Nevada, there’s a lot of places that we can start. Of course, Nevada Policy Research Institute has talked about the federal lands issue quite a bit. You can always talk about local regulations and zoning, and on and on and on. The list goes on. There are plenty of headwinds, in other words, when it comes to making housing more affordable.

From your perspective, especially somebody that has worked with multifamily housing, when you look at the state of Nevada, what is the biggest thing that jumps out at you? What is the number one thing that you say, “Oh, there might be multiple facets to the affordable housing issue in the data. But this is the one that I think really, we need to focus on first, or maybe just the most?’

Greg Peek: That’s a pretty loaded question. You know, the one thing that jumps out at me is that there’s not a silver bullet solution. That’s the bottom line. It’s a very complex problem. You can start at the top with the culture that has demonized home builders, and developers and landlords, who the vast majority of landlords are mom and pop shops. You know, they may or may have a second or third home. They may have invested in a four-plex or a duplex or an eight-plex. And that’s sort of their nest egg gets all the sudden they’ve been demonized. And I can go into detail about why that just doesn’t work. And unfortunately, we seem to be shifting the burden of responsibility to landlords for tenants’ bad decisions.

What is a silver bullet solution? Well, I would say that the principle behind any solution is this. We have demand in the state, huge demand. And our supply of housing is far below demand. And as basic economics tells us, supply and demand need to be in equilibrium, and we are far out of equilibrium.

So, we have a huge demand and low supply. So, we as a state can either increase our supply of housing to meet the demand, or we can decrease the demand to come down to our supply. And I don’t know about you, but I don’t know a whole lot of people who want to decrease demand.

There are some people, the “not in my backyard folks,” who would just like to slam the door shut on their communities that have nothing changed. Fortunately, there’s very few communities in the country that can do that. And the only communities that can do that are very, very wealthy communities. And they don’t serve the very people that I think that most of us want to serve, and that is workforce housing.

So, our guiding principle, my guiding principle, is that we need to increase supply to meet demand. And we can talk about land supply, we can talk about government regulation, whether it’s federal, state or local, that has constricted supply, reduced supply. We can talk about macroeconomics, where people have lost jobs. We can talk about any number of factors.

There are many headwinds affecting the home construction industry, whether it’s single-family homes or multifamily homes. But there’s no silver bullet solution at this point in time.

Michael Schaus: Well, I definitely want to talk more about the supply and demand. But we’ll do that in a minute. Because first you touched on something that I think it’s important for us to discuss and that is the culture. There is definitely a culture right now That is in fact demonizing landlords or property owners or even developers or what have you.

And I actually noticed that it got, well, I shouldn’t say this, I think it got significantly worse during COVID, as everybody was, you know, told that they weren’t allowed to go work or anything, then all of a sudden lawmakers jump in and say, Well, hang on, we just made it illegal for you to earn money. Now, we’re going to make it illegal for your landlord or your property development company to kick you out of your house if you’re not paying rent.

And there’s kind of been a growth in the entitlement mentality within certain cultural aspects. What was the effect of COVID? Did it make that culture worse? Or am I just noticing it more?

Greg Peek: Maybe a little bit of both. Let’s be honest, there are good landlords, and there’s bad landlords, there’s good tenants, and there’s bad tenants. And the vast majority of landlords want to do the right thing. I mean, our company makes money when we have long term tenants. We have long term tenants when we do the right thing.

And for tenants, you have good tenants that want to keep a nice place, they want to live in a nice community. They want to pay their bills and be good, responsible citizens. But you do have a handful of people that, frankly, just want to take advantage of the situation.

And, you know, I think that most people, and I’m certainly one of them, I always want to give somebody a hand up. You know, if somebody needs help, and they want to help themselves, I’m here to give you a hand up. And that’s our philosophy with our company. But if you just want to hand out, you know, we’re probably not the place for you.

And when the illegal and unconstitutional, eviction moratorium was imposed, we had some people literally saying to our staff, “I’m not going to pay. You can’t make me pay, and you can’t evict me.” And you know what? They were right. And they left us owing 10s of 1000s of dollars, money that we’ll never see.

Fortunately, we’re lucky and grateful that we can absorb that. That’s not going to turn this upside down. But think about the mom and pop who can’t evict somebody. And they’re owed 10s of 1000s of dollars. And these people, the mom and pop, rely on that rental income to pay their mortgage. That can bankrupt them. That can turn their world upside down. And that’s just something that I don’t think is fair.

And I don’t think that it was well thought out by the people who imposed the moratorium. It was very, very unfair.

Michael Schaus: And one of the negative impacts of that is it does reduce the diversity of landlords. I mean, as you point out the little mom and pop, who might only have one or two tenants that they rely on, if one of those tenants stops paying that could be crushing. They can no longer afford that.

So, you know, really only the larger corporations can withstand that cost. And what you’re seeing is a lot of people, a lot of the smaller folks are saying this isn’t worth it, the risk is too much. And so, what you’re getting is more and more of the larger corporations and fewer of those individual landlords.

Greg Peek: That is a national trend that you’re seeing, mom and pops leaving the rental pool. They sell that eight-plex or they sell their extra home or a couple extra homes. And what that ends up doing is reducing the overall supply of housing, the overall supply of rental housing. And so all of a sudden, then it becomes a for sale single family property rather than a rental property.

So yeah, it has a detrimental effect. And it takes a lot of people out of the industry. Getting back to reducing supply, rather than increasing supply, regulation reducing supply. That’s exactly right.

Michael Schaus: And it’s interesting to me, because almost all the solutions that we ever hear from the media are especially from lawmakers, it’s always focused on things like rent control, or an eviction moratorium or subsidies to build more affordable housing or something. It’s almost always focused exclusively on the tenant, on the person who needs to rent a home.

You know, one of the interesting back and forth that I had, and this was years ago, but obviously rubbed me the wrong way because I always refer to this example. I was on a radio show with Rory Reed. And he said, “Look, a lot of people need affordable housing, and none is out there available for them. So therefore, that shows that the market has failed.”

And my response was, “What market? We don’t have a free market in housing.” You know, I mean he’s right that there is absolutely a demand for more affordable housing out there. The problem isn’t that people aren’t willing to supply that demand. You know, we I mean folks like yourself would be more than happy to supply that demand.

However, we start to run into things like we have nowhere to build, or the zoning regulations don’t allow us to create multifamily homes or just the cost of construction alone. I mean, I forget exactly what the dollar amount is, but up in Reno, you’re talking about 10s of 1000s of dollars before you’re even able to pour a foundation. That really eats into the ability to create an affordable house when you’re paying 40 $50,000 and just fees and fines and permits before you’re even allowed to start building.

So, it seems to me that we don’t have enough focus on actually increasing supply. We always seem to focus on like I said, things like rent control and eviction moratorium. So, my question for you is, looking at this current legislative session, is there anything there that you actually do feel optimistic about any reforms that are being discussed? That you think might start to kind of approach things in the right way.

Greg Peek: Well, the governor is supporting a bill that is going to establish another funding stream to build affordable housing, workforce housing. That’s used that’s generally defined as 80 to 120% of AMI. That’s fair, I like it. You know, anything that’s going to increase the supply is helpful.

The governor has also been talking about and directing staff to urge local governments, whether county or city, to reduce their regulation as well, whether that’s actually required in law. I haven’t seen that yet.

My guess is we’re going to have a fairly status quo legislature. I will tell you that there are a couple of bills that are out there, that are really going to have a negative impact, again, on rental housing.

One and I just don’t understand this, it’s a second go around. There is an effort out there by Senator Dina Neal out of Las Vegas to prohibit landlords, and this is primarily Mom and Pop landlords, from doing criminal background checks on tenants. I don’t know how you do that.

Up here in the city of Reno, we have what’s called the crime free multifamily community program. We are required to be a part of this program to do criminal background checks. And any sort of public assistance program, whether it’s section 42, section 8, Housing Authority, even down to their governmental programs, they require criminal background checks.

And look, we do criminal background checks. And if somebody has something that’s 20 years old, so be it. You make those judgments, and you allow the landlord to make that yes, subjective judgment as to whether that person is going to be a good member of your community. You need to have that knowledge.

But the Senator’s bill would not even allow landlords to have the knowledge, to seek that knowledge. To me, it’s just an idea that’s just unworkable.

And it did pass in the 2021 legislature, and it went to Governor Sisolak’s desk. And Governor Sisolak, actually one of the couple of things that I supported him on, he actually vetoed the bill. And so why is being brought back again this year? I don’t understand.

Senator Neal did carve out exceptions for government housing. But why is she giving an exception to government housing, recognizing that they can do criminal background checks, but mom and pops can’t? I don’t get it. So that’s one piece of legislation.

And then there’s another more sweeping bill, SB 78. And I’m not really sure. I haven’t really figured out what the agenda is there. They’re putting in things like capping cleaning fees, having a nonrefundable cleaning fee, which I don’t understand, because a lot of tenants, they clean their apartments, and they want every penny back and that’s totally fair. So, a nonrefundable cleaning fee would actually penalize good tenants.

They’re putting in things like a grace period to pay your rent. I don’t have a grace period to pay my mortgage, why would a tenant expect a grace period? And there’s just other real weird tinkerings that just don’t really make sense, nor do they enhance the value of a community.

Any landlord is going to want to create a good community where people want to live and be good, productive citizens and good, productive people, good tenants. And if they can’t be that, then you know we’re not for them. And that’s pretty much the cultural issues that we’re fighting.

If Senator Neal has her way, I can’t learn whether somebody has had a weapons charge, has been convicted of drug dealing or prostitution or property crimes or, you know, other nuisance violations like graffiti or, or loud music, you know. Those are all things that have a negative impact on a community and can make a community a very bad place to live. Yet that’s okay with her.

Michael Schaus: See, and some of those things, a lot of people don’t think about it. But a lot of those types of things or those types of mandates from the government, those contribute to the affordability challenges that we’re facing in the market.

I mean, if you are a landlord, it’s easier to keep your costs down when you rent to good tenants. So, you want to be encouraged to find good tenants. I mean, it’s far easier to keep your costs down, if there are not a whole lot of property crimes or you know, any other sort of crime, honestly, in your particular units.

And this shows part of the cultural problem that we were talking about. For example, I know this is an extreme example, but if you go onto Twitter, and you look at the Young Socialists of America, or something, you know. They’re talking about how everybody should have a right to live without paying rent to anybody. And I mean, there’s a total disillusion of private property rights, particularly for landlords or anybody that is going to be renting out some living accommodations to somebody else.

Now, obviously, the Young Socialists of America don’t make up the majority of the voting public and thank God for that. But there is clearly an extreme cultural movement out there. And it seems like increasingly, the culture is shifting towards toward that side of things, maybe not going that far, but certainly toward that side of things.

My question to you is, how do you turn that around? Do you think it’s going to turn around? Are you optimistic? Are you pessimistic? Do you think it’s just going to have to get worse before it gets better?

You know, I think about San Francisco, for example, and some people are actually talking about some sensible reforms out there right now, because it’s gotten so bad, quite frankly, there’s nothing left for them to try, other than the stuff that they’ve been rejecting for, you know, 30 plus years.

So, I mean, where do you think it is right now? Do you think it’s going to turn around? Or do you think it’s going to get worse in the short term?

Greg Peek: Well, I think it’s only going to get worse. Maybe, I don’t know, you see, in many of the cultural things, the pendulum starting to shift a little bit, and maybe it will.

Let’s take rent control. You know that rent control is a thing that’s sort of been sweeping across the country, various localities. There’s a rent control proposal out in North Las Vegas, for instance.

That does nothing but dry up any new housing. No developers going to go in there and build a new complex where there’s rent control. It was funny to me that in some localities, they actually exempt new construction for 10 years, five years or 15 years. And that, to me, is a recognition that rent control doesn’t really work. So why you would exempt one, not the other, I don’t understand. But at the end of the day, somebody’s not paying fair market value.

And so, culturally, I like to talk about it. Okay, should we start putting price controls at the grocery store, and Safeway or Rallies or King Soopers, or whatever you guys have down there in Las Vegas? But controls on how much we spend for, I don’t know, a six pack of Coke, a pound of hamburger, a bushel of apples, you know? Why not there?

Why not started putting price controls on vehicles, you know? How much should we pay for that Honda Accord? You know, is there going to be a cap on that? So, you know, if you start applying that price control cap to other industries, most people start seeing that it doesn’t really work pretty quickly.

As you say, there’s always going to be the extreme and say, “Oh, well, housing is a right. You know, it’s a God given right. You know, and that’s why it’s different.” Well, is food any different? So, I don’t know.

To me again, I go back to the very basic principle of supply and demand. Nobody learns who Adam Smith is in schools anymore. But if we increase supply, we’re going to meet demand. And therefore, all prices will come down. I don’t understand why we elect people that don’t understand that principle.

Michael Schaus: Well, first of all, please stop giving all these people ideas. That’s the next thing we’re actually going to see is they are actually going to put some sort of price control on eggs or something.

One of the things, we’ve already kind of touched on is the fact that growing supply needs to be the primary focus here. And one of the things that I argue quite often, and people don’t intrinsically think this way, but any supply increase is good.

And this is what people don’t understand. Even more mansions would help with the affordability of smaller homes or apartments. Because as you increase supply, at any level, really, you create more options for people to move into that. And then the smaller pieces or you know, apartments or whatever become available for people with less means.

So, any increase in supply would be good. However, politicians don’t think that way. Or they certainly don’t want to think that way. They certainly don’t want virtue signal that way. And so, what they’ll do instead is they’ll say, “Hey, look, fine. We’ll allow you to build more high-quality apartment homes or something. However, we’re going to mandate that a percentage of the units in that particular building need to be “affordable” or “Okay, fine. I’ll greenlight your project for a new housing development. However, a certain portion of those homes need to be “affordable housing.”

I assume that you’re probably against that type of regulatory approach to increasing the supply. But I want to know, you know, why? What’s the argument against that? What’s the argument against saying, look, let’s increase supply. But let’s guarantee at the same time that we go ahead and increase affordable supply as well.

Greg Peek: What you’re talking about is inclusionary zoning. And just like rent control, inclusionary zoning has never worked anywhere, anyplace, anytime. They have a couple of studies that they claim shows that it works, but those studies have so many holes in them, they’re just not realistic.

Inclusionary zoning fails because of nimbyism. At the end of the day, people want to talk about affordable housing. But the people that want to talk about it and certainly the legislators, they’re not going to go live there. They want to live in their little gated communities that they paid for. They don’t want to live in affordable housing.

Just this past couple of days ago, California’s Governor Newsom went on a tirade about California Environmental Quality Act, and about how it and that whole policy is holding hostage, the ability to build housing. And he’s 100%. Right. And so, you ask about the culture and whether it’s shifting. I am shocked. The governor Newsom went on that tirade. But he’s 100% right.

It wasn’t too long ago that the San Francisco Chronicle carried an article about the frustrations that many on the San Francisco City Council have because they can’t attract housing anymore because of their own regulations. And that’s right. And these regulations, you know, I call it death by 1000 cuts.

Every single regulation in and of itself, it feels good. It sounds good. It serves a purpose. It has a constituency. But when you aggregate these one offs together, it’s death by 1000 cuts and you have completely strangled the industry. And that is exactly what has happened to housing, not just in San Francisco or California, but here in Reno, and down in Las Vegas. Certainly, its death by 1000 cuts and we need a complete revamp.

And a cultural shift about whether we want to have housing in nimbyism is a part of it. You know, how many are you going to go put in in a section eight apartment complex in Summerlin? Are you going to go put one section 42 complex up in? What is it the hills of Henderson? Was that called Centennial over there? You know, are you going to do that? Absolutely you’re not.

But I guarantee you there’s a healthy number of people in Summerlin in Centennial that talk a lot about affordable housing, you know. So, you’re right, we need to increase the supply at every level. At the basic 20% AMI all the way to big giant houses that all the Raiders play at players can afford.

Michael Schaus: So, when you start getting leaders in San Francisco and people like Gavin Newsom saying sensible things, you know, he again, that gives me a little bit of optimism because it tells me that hey, maybe things are bad enough that the culturally it can start to move in the right direction right now.

Kind of moving topics, what do you see for Nevada in kind of the near term? When we’re talking about growing pains, I think about up north. You know, we just gave a huge handout to Tesla again, so I’m sure that you’re going to see more growth there. Everybody’s talking about potentially more economic growth in the South. We’ve been struggling here in Nevada. What do you think the markets going to look like? Are we getting a bit of a reprieve, or are you going to see those growing pains continue, you know, headwinds facing the market regardless of what happens up in the legislative session?

Greg Peek: The short answer is yes, I expect the demand to continue. We have a unique situation in that we’re up here in Reno, at least, you know, I’m attracted right now, because I’m a four seasons guy. I love winter sports. I love being outside. I love summer sports. I love being outside. And Reno, at the end of the day, in spite of the 60 days of snow we’ve had, is a great place to live. And, you know, it’s been discovered, but doubly so by Californians. And as Californians continue to, you know, leave that state. Reno’s pretty good stop form, and so as Las Vegas, and so I expect that demand to continue, quite honestly.

The risks that we that we face, though, is becoming more like California, continuing down this road of just ridiculous legislation, ridiculous statutes, ridiculous regulation, that continues to put a stranglehold on our ability to bring supply to market. And they’re going to start skipping us. And they’re going to go to Idaho, which we’re already seeing, they’re going to go to Utah, which we’re already seeing, but we still remain relatively speaking, pretty good stop. So, I expect that demand to continue.

Michael Schaus: Yeah, California is literally running out of U haul trucks, because so many people are trying to move out of the states and in Nevada is a beautiful place. There’s a reason why so many of us live here and love it here. It’s unsurprising that other people would also like it. So, I expect that the population is going to grow, especially as you point out from California.

I come from Colorado, I saw this happen in Colorado where you had people moving there in droves, because it was such a beautiful place. And it was relatively affordable compared to places like California. And we have to be ready for it. We have to be putting forward common-sense reforms that directly attack the supply challenges that we currently have when it comes to housing.

Greg Peek: One of the constraints that we have as being a public land state, you know. We’re at 84% federally owned or federally managed depending on how you want to say it. And it’s weird to say but in Reno and Las Vegas, we are running out of land because of federal ownership.

And there’s a couple of bills out there. And you know, Senator Masto and Senator Rosen, and the entire delegation had the Southern Nevada Lands Bill. And you know, it was bipartisan. All the Republicans forces with the rest of the Democratic delegation to put forth the Southern Nevada Lands Bill. Unfortunately, it didn’t go anywhere.

But that lands bill would bring the stakeholders holders together, protect what should arguably be protected and make available for development, what can and should be developed, whether it’s industrial development, commercial or residential, and have those discussions and grow smartly.

You know, I realize that some of the crazies try to paint us as, “oh, we just want to, you know, put a parking lot down on everything.” That is not the case. I enjoy the outdoors. Most of my friends and all the people I run with, we are outdoors people. We’re not going to willy nilly go and destroy the environment as they claim. But we do need to have growth to satisfy this. And housing is front and center as to why we need to have development, smart, well thought out development that serves a purpose. And unfortunately, there are some crazies that aren’t letting us have that.

Michael Schaus: Well, that’s the problem, right? We want legislators to create smart and well thought out policy and that’s just that’s not always their forte.

Greg, I really appreciate you taking the time to talk to us about all this. I know that it’s a complex issue. There is no real silver bullet to it. But it’s something that comes up consistently. And I’m worried because as you point out, the cultural trends are not pointing us toward the types of solutions that actually have an opportunity to make a difference.

So, I really appreciate you coming on the show and taking the time to talk with us.

Greg Peek: I appreciate it, Michael. Have a great day.

Michael Schaus: Again, Greg Peek with ERGS Property. You know what, go to Nevadapolicy.org/podcast. Not only can you sign up to make sure that you receive these podcasts in your inbox whenever they become available, but you can also reach out to us and let us know if there are any guests or any topics that you think we ought to cover on the show again. Thank you so much for listening today. This has been Free to Offend.