Despite COVID-impacted increase in demand, area housing permits ‘way behind where we should be’

RENO, Nev. — In May, in the midst of the coronavirus pandemic shutting down the U.S. economy, a surprising thing happened in the homebuilding sector.

Sales of new-build single-family homes — after being down 17% in April — jumped nearly 13% compared to May of last year, according to the U.S. Census Bureau. A month later, in June, the trend continued, with new-home sales rising nearly 13.8%.

All told, it was the strongest sales pace for May and June in America since the epic housing crash more than a decade ago.

What’s more, after housing starts and building permits lagged behind in May, June saw the construction of U.S. homes jump 17.3% and applications for building permits uptick 2.1%, per the U.S. Department of Commerce, as more and more states reopened.

In Northern Nevada, one of the fastest-growing corners of the country, new-build home sales in Washoe County for Q1 spiked 27.7% year-over-year — the highest increase since 2007, according to data released recently by Brian Bonnenfant, project manager at the University of Nevada, Reno Center for Regional Studies.

In Q2, sales of newly built, single-family homes were up only 1.5% as the COVID crisis impacted builders and buyers, said Bonnenfant, noting Washoe had a 15% dip in such sales in May.

Aaron West, CEO of the Nevada Builders Alliance, pointed to the state and region’s high unemployment rates as a contributor to May’s sales drop in new-build homes.

“Banks started reevaluating all of the pre-qualifications, which was based on the fact that a person was employed,” West told the NNBW in a mid-July interview. “Guess what? Now they might not be. So, that really became a challenge for the ones you had in contract — keeping them in contract and getting them across the finish line.”

In June, however, sales of new-build homes in Washoe County bounced back with a 15% increase, Bonnenfant said.

“June new home sales is a positive snap-back to Q1 activity,” Bonnenfant said. “New home sales in the Reno-Sparks market are on a tear, which began in January before the coronavirus impacted the world.”

THE WORK-FROM-HOME FACTOR

When looking at reasons behind the rise in new-build home activity, he pointed to myriad factors playing into the region’s favor.

“The usual suspects are lower housing costs versus many California markets, the demographic bubble of Baby Boomers that are free to relocate, and the ridiculously low interest rates,” said Bonnenfant, adding that the national media attention Reno receives as a top destination to live, work and play doesn’t hurt, either.

Another driver in the demand for new homes: the work-from-home movement, which has propelled in-migration from all corners of the country. This is especially true in high-density regions like the Bay Area, where COVID cases are increasingly prevalent, West said.

“I can’t tell you the number of Realtor friends I have who talk to me all the time about how another Apple employee, a Google employee, a Facebook employee out of the Bay Area that now gets to work remotely and is buying here,” the Nevada Builders Alliance leader said.

And it’s not just the Millennials and Gen Xers in the tech industry, either.

“If the Baby Boomers in California were on the fence, I think COVID was that extra push to get out of California for space and tax impacts on their retirement,” Bonnenfant said. “The silver lining is that this could boost our in-migration of households, which does portend well for single-family builders.”

SHORT ON SUPPLY

However, while the demand for new homes in the region is growing, the supply has not been keeping up — and the pandemic hasn’t helped.

Bonnenfant pointed to the fact that after the coronavirus hit the Silver State, new single-family developers pressed pause for a couple months to see how the crisis impacted demand. As a result, the pandemic slowed an already lagging number of new housing permits in Washoe County to a crawl.

“We’re way behind where we should be,” Bonnenfant said.

Through June, there were only 1,071 new housing permits in Washoe County, he said, before adding: “We should be at about 2,000 right now — at least.”

Washoe County had only 427 new housing permits in Q2, a near-62% drop compared to 2019. After April and May produced just 218 combined, permitting ticked back up in June (209) as homebuilders try to meet the improving demand, Bonnenfant said.

But it’s still not enough, officials warn.

“This is an ongoing problem,” Mike Kazmierski, CEO of the Economic Development Authority of Western Nevada, told the NNBW. “We’ve had this problem getting worse for at least the last five years. We have a community that is slow to respond when it comes to housing. If you don’t provide enough supply and the demand keeps going up, the price goes up.”

In June, median home prices across Reno-Sparks increased to $407,000, up from the $399,900 mark reported in May (and close to the record $415,000 median price reported in March), according to the most recent data available, as of July 27, from the Reno-Sparks Association of Realtors.

New listings to the market in June also rose by nearly 8% from May.

“Until we start to address the supply side of this equation, were going to continue to have problems from an affordability perspective,” Kazmierski said. “It’s probably the most significant thing we need to address as a community because the growth is not going to stop.”

ENOUGH WORKFORCE?

As more and more new homes are scooped up in Northern Nevada, there is a growing need to find skilled workers to build them.

Homebuilders in the region, however, were already producing well below demand levels — not even taking into account the COVID-19 pandemic — as builders still haven’t fully recovered from the 2007 housing crash caused by the subprime mortgage crisis that triggered the Great Recession.

Not helping matters, by 2026, an estimated 29% of the current American construction workforce will retire, according to the National Center for Construction Education & Research. And the impacts of COVID may accelerate the trend.

“Over 50% of our workforce is over the age of 55,” West said. “At some point they’re going to want out. And then what does that look like?”

This, West said, is why he is involved in workforce development across the state. He just hopes the programs and internship opportunities, derailed by the pandemic, will have an opportunity to get back on track.

“We’re all scratching our heads trying to figure it out,” he said. “We had these great plans in place to get kids into internships and job shadowing and work-experiencing programs. And with COVID, it’s shut all that down. I’m really concerned about what opportunities are going to be missed as a result of this.”