With overall inflation down from a summer 2022 peak, the Federal Reserve’s effort to tame inflation through monetary policy has been on many accounts successful. However, households across the United States are still feeling the pinch in one specific area: housing. In this sector, inflation is running two points higher than the mainline rate.
Housing cost increases have particularly affected Nevada as the number of cost-burdened households—defined as spending more than 30% of pre-tax monthly income on housing—has been growing for both renters and owners, meaning less money is left over for other household needs. These increases in cost are so great that recent research from the Lied Center for Real Estate at UNLV found that over 47% of Nevada renters face excessive cost burdens (35% or more on housing), second behind only Florida.
While this itself is a troubling finding for Nevada, the fundamental issue with comparing cost burdens across the country is that we may overlook stark differences in housing affordability between neighborhoods within the state. Just as home prices vary from neighborhood to neighborhood, so too will other measures of housing market health. Simply put, the price we pay for aggregating data is that we get a topline average number that is simple to interpret but ignore what is going on under the curtain.
So, what is happening when we peer into the neighborhoods of Southern Nevada? Thanks to recent work from the Lied Center for Real Estate that maps the housing market by state legislative districts, we can now do so, and it becomes clear that conveying the story of rising cost burden across the Las Vegas Valley is more complicated and nuanced than previously thought.
Every single area is suffering from some amount of cost burden, particularly those areas within the 215 Beltway, where up to three out of every five renter households spend more than 30% of their monthly income on housing.
While renters represent the most severely affected side of the housing market, homeowners are being affected by rising housing costs as well. Across these same districts, excessive owner cost burden impacts up to one in six households throughout the Valley. This means these households are on a veritable knife’s edge and may be teetering on the brink of mortgage default if they were to confront an unexpected expense or medical bill.
Solving this cost burden affordability problem in Las Vegas is complicated, as several factors are at play.
The fact that the federal government owns over 86% of the land in Clark County constrains our ability to respond to our collective housing needs but it is not the only impediment.
Reforming zoning across Southern Nevada’s jurisdictions to allow for the development of denser housing units would help, particularly when it comes to the development of housing types like duplexes, fourplexes and townhomes.
Streamlining the permitting process would allow for more responsive building by developers and remove some amount of the uncertainties that drive up construction costs.
These latter two issues can be addressed at a local and state level and would not require actions from our distant federal agencies.
The high cost of housing is not a partisan issue; rising costs do not care who you voted for in the past or will vote for this fall. Failing to address these issues through reform will jeopardize efforts to grow and diversify our local economy by providing a strong disincentive for business relocation or startups for fear of finding affordable workforce housing. It will also discourage teachers from relocating to the Clark County School District to help educate our children, leaving us further behind than we already are in national education rankings.
In a similar vein, housing is one of the greatest nonpartisan equalizers in a regional economy, as it is linked to both economic growth and quality of life. As household income rises, so too will housing demand, but the extent to which housing costs subsequently change is linked to the efficiency by which a city can facilitate new housing supply. When supply is slow to adapt, demand will outpace it and lead to shortages, worsening renter and owner cost burdens.
Policies geared toward improving the quality of life by targeting growth in the regional economy may be less effectual than originally intended if they do not concurrently support one of the most important parts of the equation: the housing economy.
Nicholas Irwin is research director at Lied Center for Real Estate and Shawn McCoy is director at Lied Center for Real Estate.