Northern Nevada housing market: Is relief on the horizon for 2018?
RENO, Nev. — Housing needs in Northern Nevada dominated economic discussions in 2017, as job growth spurred population growth, increasing demand for housing — which increased housing prices because of low inventories.
That discussion is likely to continue this year, even as the pace of residential development slowly increases. But demand continues to outpace supply.
Permits for single-family homes in Washoe County have climbed from 1,226 issued in 2014, to 1,938 in 2016, according to reports from the Reno-Sparks Association of Realtors. The median price of those homes has increased from $262,000 to $355,000 in the same years, pushing more working-class families out of the market.
Apartment rents climbed 6.2 percent from 2016 to 2017, with median rent for a one-bedroom apartment running $860, according to a recent report from Apartment List. However, month-to-month, apartment rates have declined slightly by 0.1 percent.
As such, relief is on the horizon, industry officials told the Northern Nevada Business Weekly.
While numerous housing projects, including single-family homes, townhomes and apartments, are under construction, many more are awaiting approval.
“Those (awaiting approval) are still speculative, just getting going on the entitlement process,” said Aaron West, CEO of Nevada Builders Alliance, adding that it will take two to three years before construction actually begins on proposed projects.
Banking on private investment
Many factors are slowing the process and increasing expenses for developers across Northern Nevada, which in turn increases the cost to consumers.
Trade tariffs on construction materials, such as wood products from Canada and others from China, drive up the cost of materials. A shortage of skilled construction workers drives up payrolls. The decreasing inventory of construction-ready land raises land prices and costs to build infrastructure.
Plus, in the post-recession economy, developers have higher hurdles to jump to secure loans for their projects.
“It’s unlike previous cycles, where developers could see demand, get title on a property and go to a lender,” West said, pointing to the changes by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. “There are no banks I’m seeing that will loan for acquisition of land then lend (again) on the cost to getting it shovel ready.
“Private money is going to make it happen.”
One project awaiting approval with private funds is StoneGate Master Planning Community, a proposed development off U.S. Highway 395 just south of the California border.
The 1,737-acre project would ultimately include 3,755 single-family homes and 1,245 units of multifamily products, including condos and apartments. Besides homes, it would include common areas, parks, trails, open space, a fire station and land set aside for three public schools. On the other side of Highway 395, plans include a retail center.
It won’t happen fast. Build-out is expected to take at least 10 years. The developers purchased the property three years ago and are still going through the approval process with the city of Reno.
The first home is not expected to go on the market until 2020, managing member Michael Barnes said. That’s five years from land acquisition to the first home.
Donald Pattalock, also a managing partner, pointed out that Reno’s Caughlin Ranch was approved in the 1980s, and they’re still building.
“Five thousand units, they don’t show up over night,” he said.
Extending and enlarging utility lines, which are accessible on the fringes of the property, will cost investors $20 million to $25 million. Total infrastructure improvements, including roads and an interchange from the freeway, are estimated at $300 million-plus.
The complete project will cost an estimated $2 billion.
“All the costs are born by developers (not taxpayers),” Barnes said.
Growing ‘to the north’
StoneGate is being funded by family-owned Cambay Group investors, which began 150 years ago in England. Its U.S. base is in Walnut Creek, Calif.
“We’re extremely fortunate to have Cambay as partners,” Pattalock said. “It’s a huge investment with a tremendous amount of risk. We have no entitlement. … We have a lot of sleepless nights.”
Despite the perception that it’s “way up north,” Pattalock said the property is just 13 minutes from downtown on Highway 395. It has easier access than Spanish Springs — another hot area for housing development that relies on surface arteries like Pyramid Highway for access.
“If the city is going to grow, it’s going to be to the north,” Pattalock said. “From 2005 to now, it’s just now becoming practical to develop. It’s the last of the easy dirt.
“Growth drives improvements. The city decides where growth should take place.”
The farther away from the heart of Reno and Sparks, the better land prices are, which allows developers to sell homes at lower prices. StoneGate homes are expected to sell in the mid to high $200,000s — in range of more working-class families.
As such, the real-estate adage, “drive to qualify,” still holds true in the region.
With lower construction costs, developers are looking to areas such as Cold Springs, Fallon, Fernley, Dayton and even Carson City, where several new, more attainable developments are ready to break ground. With USA Parkway now connecting Tahoe Reno Industrial Center and Silver Springs, development is expected to increase in that area.
The demand for housing in the region is creating conditions that also draw the attention of national developers and investors.
“We’re seeing, because of the activity in the market, that we’ve started to show up on the radar for larger developers that haven’t traditionally been in our market,” NBA’s West said. “The big guys, they’re rolling in with lots of private capital.”
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.