Sunday, September 30, 2007

Las Vegas Housing Affordability and the Future

Las Vegas homes have risen dramatically in price over the past few years despite recent modest declines, and many families have been priced out of the market. Worse yet, many were the victims of predatory loans during the subprime bonanza and are struggling to make ends meet. The Las Vegas District Council of the Urban Land Institute has identified Las Vegas home affordability as one of its key target issues. According to the 2005-2009 HUD Consolidated Plan, in Clark County over 122,000 moderate and low-income households are estimated to be paying for housing they cannot really afford.

The National Association of Home Builders issued a report in the third quarter of 2006 indicating that only 14 percent of the homes in Clark County are affordable to households earning the median income (median household income approximately $53,000). Today, the median price of a resale home in Las Vegas is $278,000, more than five times the median income, while the median price of a Las Vegas new home is $326,750, or six times the median income. Traditional lending guidelines suggest buyers should qualify for home loans at about three times their annual incomes.

Two factors, among others, have played a major role in increased costs of housing:

1. There is a limited supply of Las Vegas land available for development in the valley. Rising land development and construction costs also contributed to the incredible increase in the land basis for home builders during 2003-2005.
2. Some of the strongest in-migration in the United States (6,000 - 7,000 per month) has been attracted to Southern Nevada by the robust job growth. This helped spur some of the strongest housing demand in the United States.

An anticipated labor shortage crunch due to hit in mid 2008 is expected to increase migration to the Valley and keep prices relatively strong. Decreases in 2007, while a bit helpful, have not come close to overcoming affordability issues for a majority of residents. This issue has long been crisis in California cities and it remains to be seen what local Las Vegas governments can do about it.