Three years ago, one Reno couple decided it was time to grab their personal slice of the American Dream.
As first-time homebuyers, Bob Whitefield admits that he and wife Weston Spann had a romanticized view of the process when they decided to take the plunge into Reno’s real estate market.
“We always wanted to live in a house in Old Southwest Reno when my wife moved back to town after graduating from law school,” Whitefield said. “It was that whole white picket fence sort of ideal.”
After throwing their hats into the real estate market, the couple motivated themselves further by marathoning episodes of “Property Brothers.” As they watched the Scott twins turn fixer-uppers into dream homes, Whitefield and Spann pictured themselves settling in a corner of Reno’s iconic neighborhood. Both imagined a yard shaded by decades-old trees. They thought about renovation projects to transform the house into one they could truly call their own.
“We thought we could look at any house and have our pick of the litter,” Whitefield said.
And look, the couple did. Again and again. And then some more.
Whitefield and Spann found themselves getting emotionally attached to house after house, only to lose it to another buyer. Their initial excitement gradually turned into quiet despair. Brick by brick, their American Dream was crumbling against the cold, harsh reality of Reno’s housing market.
“There were houses that would go on the market in the morning and we thought we would be the first to look and, lo and behold, it was just on the market for show and had already gone to an investor,” Whitefield said. “Our agent showed us so many houses — we looked at over 50.”
It took about half a year for the couple to finally buy their house, which, as luck would have it, had a white picket fence. Although it was a happy occasion, there was one feeling that trumped all others once the papers were signed and the purchase was official.
“Relief,” Whitefield said. “We were just glad it was done.”
After the purchase, Whitefield and Spann did not even want to think about buying a house again. But with their home gaining significant equity in recent years, their 90-pound golden retriever Ruby digging holes in their small yard, and thoughts of starting a family filling their minds, the couple started entertaining the prospects of moving to a bigger house. Fast forward to the present and both are ready to jump into Reno’s real estate waters once more.
If they thought buying their house three years ago was tough, however, today’s market is proving to be even more of a challenge.
Their biggest obstacle is one many Reno homebuyers face today, affecting everything from rising home prices to skyrocketing rents.
“There’s less inventory,” Whitefield said. “It’s definitely more of a seller’s market.”
The Reno area is in the midst of a housing crunch.
Whether it be new homes, existing houses or even apartment units, finding a place to live in the Biggest Little City can be a tough gamble with unfavorable odds.
“It’s painful out there,” says Nancy Fennell, president of Reno-based Dickson Realty. “This is something I worry about every day.”
Available listings, for example, are down 13.3 percent year-over-year, Fennell said. New listings entering the market, meanwhile, are down 17 percent from March of last year, according to the Reno/Sparks Association of Realtors. The competition is so stiff in the existing home market that Fennell recently saw one buyer pay $75,000 above a house’s list price.
Chalk it up to simple economics.
At its most basic level, Reno’s tight housing situation boils down to the age-old tug of war between supply and demand. So far, demand is winning, and it’s winning big. As the first quarter of 2017 came to a close, the Reno-Sparks market for existing single-family homes found itself behind the proverbial eight-ball as it entered its traditional busy season.
“The active inventory in the Reno market is about half of what it should be,” said John Graham, president of the Reno/Sparks Association of Realtors. “Buyers have a lot less choice.”
Supply of existing homes in Reno-Sparks is down to 1.7 months, according to Graham. The National Association of Realtors considers a balanced market to have a six-month supply based on the rate of sales activity.
Supply gets even worse when looking at the lower end of the market, where demand is strongest. The market for homes priced between $600,000 to $900,000, for example, is at 5.2 months, Fennell said. Supply drops to less than two months in the $300,000 to $600,000 range, where inventory is down to just 56 days. For existing homes priced $300,000 and below, supply gets even tighter at just 24 days — just a little over three weeks.
The feeding frenzy at the lower end of existing homes is especially bad news for first-time homebuyers, who make up a key chunk of the entry-level market.
“That market is on fire,” Graham said. “That’s the one that’s just killing it.”
Part of the reason can be traced back to the housing crash, which led to a glut of bargain-price distressed homes. A disproportionate number of those homes ended up in the hands of investors instead of new homeowners due to various factors. Higher unemployment and more underwater mortgages, for example, meant there were fewer prospective buyers of homes due to lower incomes, job concerns and lack of equity.
Even as the economy started to recover in 2013, a previous investigation by the Reno Gazette-Journal found that questionable short sale practices allowed select investors to snap up properties way below market value. This was done through prearranged deals that prevented regular home buyers from bidding on the property in the open market.
“Our affordable inventory got snatched up by investors a couple of years ago,” Graham said. “They’re seeing great returns on those properties now.”
On a clear spring day in late March, construction workers use yellow paint to color the drab gray exterior of a new house at Lennar’s Sage Meadow and Dry Creek development in Damonte Ranch.
The Great Recession and the housing bubble’s collapse brought new home construction to a near standstill in Northern Nevada. Today, new lots that were left to languish during the downturn are humming with activity once more.
Although Graham deals primarily in existing homes, he considers new houses an important part of solving Reno’s housing shortage. The increased construction activity is good news, Graham said. There’s just one problem.
“The home builders are starting to build more but it’s nowhere near enough to keep up with demand,” Graham said.
After seeing fellow homebuilders lose their business during the downturn, many developers spent the last few years being gun-shy on new developments. Last year, however, was a turning point.
More than 2,000 permits were pulled for new single-family homes in 2017, according to the Builders Association of Northern Nevada. About 1,200 permits were also pulled for multifamily or apartment projects.
The activity is a huge improvement from the recession years, said Don Tatro, BANN executive director. In 2010, only 471 single-family and 134 multifamily permits were pulled for new developments, Tatro said.
Tatro, however, echoed Graham’s concerns.
“There’s obviously significantly more activity than the recession,” Tatro said. “But it’s still well short of the boom years.”
More than 5,300 single-family and 1,172 multifamily permits were pulled in the greater Reno-Sparks area in 2005. Although the market 10 years ago was overheated, last year’s numbers still pale to the kind of activity that’s traditionally seen in the area, according to Tatro.
In 1985, for example, the area saw 4,000 permits pulled for new single-family homes. BANN did not track multifamily permits back then.
Tatro points to several challenges when explaining why new home building is unable to keep up with demand. One is manpower.
Back in June 2006, construction was one of the leading employers in Nevada, hitting a peak of about 148,300 workers. By May 2012, the sector shed 99,100 jobs, falling by nearly 67 percent to just 49,200 workers.
Since hitting its lowest point about four years ago, construction has started to bounce back. Activity especially started to pick up in December 2014, with the sector posting the state’s highest percentage growth in jobs each month since then. By March, construction employment in the state reached 80,800. The number, however, still falls short of the total number of construction jobs lost during the recession.
Getting all those workers back continues to be difficult. One reason is that many transitioned to other fields during the recession. There’s also a lot of competition for workers from areas that are experiencing a construction boom, including San Francisco, Los Angeles, Seattle, Chicago and New York City. Los Angeles, for example, is seeing its busiest construction since the 1920s, according to real estate research company CoStar.
“So you’ve got a labor shortage,” Tatro said. “There’s also a myriad of things that are working against the supply.”
Labor is just one piece of the new housing puzzle, Tatro said.
Even if Northern Nevada manages to regain all the construction workers it lost after the recession, building new homes still won’t be easy.
“All the easy lots have been developed,” Tatro said. “You also have a process that’s growing in complexity and price when it comes to developing new houses.”
Building costs are already skyrocketing as the increased demand for homes puts pressure on several of its components. In addition to increasing land costs, builders are seeing “huge spikes in lumber costs and materials,” Tatro said.
Permits and fees, meanwhile, are impacting not just costs but project timing as well. The problem is especially pronounced in Washoe County, according to builders and developers. In Carson City, permitting and fees cost about $12,000 for a new single-family home, Tatro said. In Washoe County, however, the cost can range between $30,000 to $40,000.
Add several regulatory hurdles and you’re looking at significant delays just to get something built, according to Tatro.
“If you have a project of any real significance, you’re looking at a minimum of 24 months before you can even start, so there’s a significant lag to meet demand,” Tatro said. “You have increasing regulatory cost, increasing regulatory expansion of codes and increasing regulatory expansion of jurisdictions, which is making it very complex and difficult to deliver new projects.”
The increased costs and project complexities combined with the unpredictability of the permitting process also make financing a new project a tougher proposition, Tatro added.
Chip Bowlby, a managing partner for developer Reno Land Inc., agreed that the process could be more streamlined. Bowlby also has experience developing properties in California and is involved in several projects in the area, including Rancharrah, Park Lane and the Summit Apartments near The Summit Reno mall. Bowlby says the city and state have “bent over backward” to help him with his various developments. At the same time, he admits that the process could be better.
“Is it fast enough? I don’t think so,” Bowlby said. “But it’s still a lot quicker than California.”
Bowlby cited the recession for some of the issues between developers and the cities and county. More specifically, the lack of activity during the downturn has adversely affected communication between the various parties, including the utility, water authority and planning agencies, Bowlby said.
“We went almost 10 years not needing to talk to anybody because nothing was going on,” Bowlby said. “Now my line is always busy and everybody else is very, very busy right now.
“We just all need to sit down together, have a conversation and figure out how to get this ball rolling so we can provide people with housing.”
To address the concerns raised by Tatro and Bowlby, Reno Mayor Hillary Schieve says that she formed a housing and development task force that works directly with developers. BANN’s Tatro was recently named the group’s chairman and the city has been working hard to play catch up and get on top of the situation, Schieve said. The mayor is also considering visiting other cities with the task force to see what works in those areas and learn from them.
Part of the challenge involves the need to work with various entities through the development process, which can take time, Schieve said. One of the responsibilities of the task force, which meets every Monday morning, is to find ways to streamline the fee and permitting process.
“There’s a disconnect involving the different entities and where to go next — the health department is a different entity, Truckee Meadows Water Authority is a different entity,” Schieve said. “What we found and think is a great solution is to bring in a liaison from the county to work in conjunction with the city of Reno so now you have a one stop shop to handle all of the duties.”
After seeing his house appreciate by $120,000 in the last couple of years, Bob Whitefield joined the ranks of what was considered a rare breed during the recession: the move-up buyer.
“We lucked out,” Whitefield said.
As more homeowners gain equity in their property, the pool of prospective buyers in Reno-Sparks starts to widen. For those dreaming about getting their first house, however, buying a new abode is easier said than done.
In addition to the challenge of finding a house in a market with limited options, buyers also have to deal with another side effect of low supply and high demand — rising prices.
Just four years ago in January 2012, the median price for an existing single-family home in Reno-Sparks was $135,000. By April of this year, the median price has climbed nearly 140 percent to $323,695. It’s the highest figure that the area has seen since the recession. Median price peaked at $365,000 in January 2006 at the height of the real estate boom.
With wages failing to keep pace with rising home values, affordability is a big concern in the Reno area. Based on current valuations, the median income in Reno can no longer afford the median home.
In order to afford a $319,000 house, for example, a household must have a salary of $70,000 per year — and that’s with a 10 percent down payment, according to the Reno/Sparks Association of Realtors. According to the latest numbers from the U.S. Census Bureau, the median household income in Reno in 2015 was $50,451. The number is slightly below the median household income in 2008.
Apartments typically provide an affordable alternative. With Reno posting the third-fastestand sixth-fastest increase in rents nationwide in the last two years, however, apartments aren’t providing much respite for residents who are feeling the squeeze from the housing crunch.
After staying within the $800 range from 2006 to 2014, average rents in Reno-Sparks hit $1,066 by the end of 2016, according to real estate consulting group Johnson Perkins Griffin. Although the average apartment vacancy rate at the end of last year was 2.93 percent, areas such as Northeast Reno, West Reno and the neighborhood around Reno-Tahoe International airport saw vacancy rates fall below 2 percent. Vacancies for rental properties managed by RE/MAX Premiere Properties in Reno are running at 1.2 percent.
Add Nevada’s lack of rent control to the mix and some tenants are seeing constant increases in rent, sometimes on a monthly basis. It’s an issue that is on the city of Reno’s radar, Schieve said.
“Apartments raising rents is something that we’re keeping a close eye on,” Schieve said. “One of the things this council is working hard on is to make sure that people can stay in their homes without their rents being raised (unreasonably).”
As part of efforts to increase available housing, the city of Reno is looking at selling land it owns so they can be used for developing projects such as workforce or affordable housing. In April, for example, the Reno Housing Authority sold $1 million worth of its landto Jacobs Entertainment as part of a project that the casino operator is working on that involves several downtown blocks. A side effect from the project is the displacement of tenants who had to leave the low-cost units they were renting. Schieve says the city is working with the housing authority to find housing for displaced renters. The city will also recognize landlords who do a good job as a way to incentivize them to keep rents fair and stable.
One encouraging trend amid Reno’s housing crunch is a moderation of price increases for housing in places such as Reno’s new southeast and new southwest neighborhoods, according to Fennell. The common thread in both areas? New housing construction. Given the challenges involved with building new projects, however, it could take a while before such trends become more widespread. Tatro is hopeful that the new housing task force will help speed things up.
“There’s a significant lag to meet demand,” Tatro said. “Anything along the way that can improve the process and bring predictability to development would help improve getting more projects through.”
The lack of housing is seen as a potential drag to Reno’s economic development prospects, which have celebrated the arrival of big names such as Apple, Tesla, Panasonic, Switch and Google. The University of Nevada, Reno recently made arrangements to house Tesla and Panasonic employees at its dorms in the summer. Other companies also expressed concerns about adequate and affordable housing for their workers.
“I’ve talked to Tesla, I’ve talked to Switch, I’ve talked to everybody and the No. 1 concern they have is housing,” Bowlby said.
With new jobs running the gamut from warehouse positions to advanced manufacturing, the area needs to have a comprehensive selection of housing options, said Mike Kazmierski, president and CEO of the Economic Development Authority of Western Nevada.
Some companies have responded to the area’s more competitive job market by raising wages, Kazmierski said. Wages, however, still won’t be able to keep pace if housing continues to skyrocket at its current rate, Kazmierski warned. The average pay for advanced manufacturing, for example, typically ranges between $40,000 to $60,000, he said.
“When you’re bringing jobs into town and even dual-income households have no way of buying a house, then you become San Francisco,” Kazmierski said. “We’ve got a long way to go before we get to that point but we are creeping up beyond the affordability factor.”
The housing crunch could lead to something considered unfathomable in an economy that continues to add big names: population loss. At least, that’s what state demographer Jeff Hardcastle is forecasting for 2018 — a 0.9 percent drop to 444,478 for Washoe County — citing the housing situation as one key factor.
“That’s because housing prices are so much higher relative to the nation and our wages are lower than relative wage rate,” Hardcastle said. “The migration of people is based on opportunity … so as housing prices go up, that may serve as a drag to attracting people to the region.”
On the positive side, a slight loss in population could lead to a decrease in housing prices, which could make the area more attractive to retaining people, Hardcastle said.
Kazmierski and the builder’s association’s Tatro, however, consider the failure to address the housing issue as tantamount to a lost opportunity.
“We don’t want to be the city that had a chance,” Tatro said. “We want to be the city that made the most of its opportunity.”
Meanwhile, prospective homebuyers such as Whitefield and Spann continue to take their chances in a tight real estate market. For the couple, the search for a new home is all about the opportunity to experience a lifestyle that they continue to dream about.
Whether it be running around a bigger yard with their golden retriever Ruby or having more space to raise a family, fulfilling those dreams makes it worth going through the grief of falling in love with property after property once more, only to face rejection repeatedly.
“We probably eat at places like La Vecchia and Hiroba more than we should, but that’s part of the appeal of living in Old Southwest Reno,” Whitefield said. “You get these mature landscapes and the trees are just so beautiful.
“Our hope is to be able to raise a family in this same neighborhood, but in a bigger house with a bigger yard.”
Preferably, with a white picket fence.