Harris housing policy is long on potential for Nevada, experts say
Dana Gentry
(Nevada Current) Vice President and Democratic presidential nominee Kamala Harris’ proposal to bridge America’s housing gap is being hailed as the most aggressive since the post-World War II era by some, and by others as a campaign ploy based on bad math.
Nevada, like most states, has a healthy supply of mid-level and high-end homes, which are profitable for builders to turn out. But few have been on the market – the result of high interest rates, high home prices, concerns over inflation, and homeowners who are opting to stay put.
The Nevada median household income in 2022 was $72,333, according to the U.S. Census Bureau – enough to qualify for a home in the $290,000 to $310,000 range.
Southern Nevada Home Builders Association CEO Tina Frias says within the past year, some builders have sold homes for less than $350,000. But that is far from the norm. The median price of an existing home in Southern Nevada was $480,000 in July, and $538,800 in Northern Nevada, according to the area realtor associations.
About 42% of Nevada households rent their homes, and have a median income of $54,410, according to the Nevada Low Income Housing Coalition. A third of renter households earn less than half of the area median income.
While all states have a shortage of housing for extremely low-income residents, Nevada has the most severe shortage in the nation, with only 14 units available for every 100 extremely low-income renters. By contrast, South Dakota has the most, with 57 units for every 100 extremely low-income residents.
Without government incentives, building low-income housing doesn’t, as the industry says, ‘pencil out.’ Harris’ policy calls for a tax break to incentivize builders to construct affordable rental units.
It also seeks to increase construction of single-family and multi-family housing by freeing up federal land and expanding the Low-Income Housing Tax Credit (LIHTC), an incentive used for decades to encourage multi-family development.
Economist Mark Zandi and housing expert Jim Parrot wrote in the Washington Post last week that in a supply-constrained market, builders lack the incentive to construct homes for low-income buyers. The LIHTC, they write “while not perfect… has broad political support, can be scaled up quickly and distributes the tax break equitably nationwide.”
The vice-president’s plan would also assist renters by capping annual increases at no more than 5% on corporate-owned rentals, and Harris is asking Congress to put an end to price-fixing by corporate landlords who use algorithms to collude and jack up rents.
Harris is also backing the Stop Predatory Investing Act, a measure designed to stop investors from buying up large numbers of single-family homes to use as rentals by eliminating their tax benefits. That legislation is sponsored by Ohio Democratic Sen. Sherrod Brown and ten other Democratic senators, but Nevada’s U.S. Senators Catherine Cortez-Masto and Jacky Rosen are not co-sponsors, and did not respond to requests for comment.
The vice president is proposing a tax credit for renovating homes with repair costs that exceed the property’s value, such as a number of vacant properties in Las Vegas’ Historic Westside.
“This would help bring to the market homes long languishing in neighborhoods that have fallen into disrepair,” Zandi and Parrot write.
Red tape and NIMBYism
The housing initiatives Harris outlined in North Carolina earlier this month, part of a broader address on economic issues, is intended as a potential fix for a nation short as many as 4.5 million homes by some estimates. It calls for constructing 3 million housing units in four years – a pace that is doable based on construction in recent years. In the first four years of this decade, builders turned out 5.4 million homes, according to the National Association of Homebuilders.
It’s unknown how many of the homes envisioned by Harris would be built in Nevada. Harris’ campaign declined to say.
“That’s the most complicated question. It’s very much in the air,” says Nick Irwin, research director at UNLV’s Lied Center for Real Estate, noting that 80% of Nevada land, and 86.2% in Clark County, belongs to the federal government.
Streamlining the release of federal land for development would be essential to Harris’ plan, Irwin says, adding it will be time-consuming and will likely require an act of Congress. Gov. Joe Lombardo and Nevada’s congressional delegates are lobbying the feds to reduce the red tape involved in obtaining land from the federal government.
In the meantime, “we do have a lot of infill land,” says Irwin, adding the right tax incentives could encourage development.
Harris’ policy also seeks to cut red tape to facilitate home building, a provision in line with an upcoming effort by Nevada lawmakers, says Irwin, who suggests a state fix could come to fruition sooner than the vice-president’s plan, given the delays inherent in releasing federal land.
“It’s still in the early stages, but some legislators say this is an issue of high priority for the next session to streamline the process and build more housing, especially affordable housing,” says Irwin. “If you can discourage NIMBYism, if you remove some of the zoning authority and vest it at a higher level, like the state, lawmakers may be relatively indifferent” to opposition.
But altering zoning authority – and confronting NIMBYism – can be notoriously hard to pull off.
During the 2023 legislative session, driven partly by a legal interpretation that local government lacked sufficient zoning authority to tackle the affordable housing shortage, Nevada lawmakers approved a bill empowering counties and cities with the authority to “enact any ordinance or measure relating to affordable housing.”
Gov. Joe Lombardo vetoed the bill.
Irwin notes Arizona lawmakers entertained a number of measures this year designed to remove some control over zoning from local governments and vest it in the state.
“Unfortunately, Gov. (Katie) Hobbs vetoed it because she was unhappy with a couple of the components,” Irwin says.
Hobbs vetoed HB2570, known as the Arizona Starter House Act. It would have required that municipalities of 70,000 people or more allow single-family homes to be built on 1,500 square foot lots, and wou;d have prohibited cities from forcing residents to form homeowners associations or requiring features and amenities requiring maintenance by an HOA.
Hobbs signed House Bill 2297 which requires local governments of 150,000 or more to allow the redevelopment of any commercial building into residential or mixed use without applying for rezoning if at least half of the development is converted into residential or mixed use.
Another bill, designed to allow new apartments on lots zoned for commercial use, was held in the House.
Anatomy of a crisis
Home construction in the U.S. plummeted from more than 14 million homes built from 2000-2009, to 7 million from 2010-2019 – a result of the Great Recession and foreclosure crisis.
Today, high interest rates and inflation have put a crimp in the new home pipeline. Some experts say builders are releasing fewer homes to avoid the risk of pricing a large number at a time when values could increase by completion.
The Pulte Group, one of the biggest builders in Nevada, “purposely restricted sales through lot releases or similar actions in roughly 75% of our communities across the country,” CEO Ryan Marshall told investors in July 2021, as the company reported $500 million quarterly profit.
“While meaningful constraints on home availability and price increases are likely influencing short term conditions, we remain very optimistic about the long term demand trends.”
“The number of home releases varies builder-by-builder and community-by-community,” says Frias of SNHBA, who says factors such as the size and age of a community can affect the timing of lot releases. “Unfortunately, there is not a one-size-fits-all approach to the pace and scale by which homes are brought to market. Over the long-run, supply and demand conditions tend to work toward a balance.”
“Builders are not in a hurry to replace our inventory. When they did turn out a lot of homes and nobody bought them, a lot of builders went out of business,” says Las Vegas real estate agent Jeff Crampton. “Builders have discovered, because of the supply and demand right now, they’re making more money selling fewer homes. Some are releasing two or three houses a month, and making extra profit. So they may not like Harris’s proposal.”
Frias says while builders are “open to exploring any policy aimed at putting more Southern Nevadans into homes, we feel that it is too early to offer a detailed comment on the proposed housing initiatives from the Harris campaign. While a focus on increasing housing supply is indeed an important aspect of addressing housing attainability, the specifics of how these initiatives would be introduced, funded and regulated have yet to be defined.”
Affordability takes a holiday
The Federal Reserve is expected to lower the benchmark interest rate when it meets in mid-September, but experts suggest the decrease in mortgage rates, which are currently around 7%, will be gradual, with rates dropping to 6.5% by year’s end and decreasing further next year.
A study from Redfin found 89% of American homeowners with a mortgage have an interest rate below 6%, while 59% have a rate below 4% – a statistic that explains why so few homes are for sale in today’s market.
Irwin of the Lied Center says countless Nevadans are sitting on homes that no longer meet their needs rather than buying a new home at a much higher rate, or competing with buyers from out of state.
“Even as interest rates and home prices have climbed, there are still people from other states, like California, coming in and driving up prices,” says Irwin, adding a lot of them “have much higher incomes so they’re out-competing local residents.”
According to the Census Bureau and the Nevada Department of Motor Vehicles, more than 400,000 Californians moved to Nevada in the last decade with many purchasing homes, often with the cash garnered from selling their California property.
One way Harris seeks to counter the high costs of housing is by providing $25,000 in down payment assistance for first time homebuyers. The government’s definition of first time buyer includes, among others, a person who has had no ownership in a principal residence in the last three years, and a single parent who only owned with a former spouse while married.
The cost of the down payment subsidy is estimated at $100 billion. Critics suggest it could cost as much as $500 billion.
The subsidy requires that a member of the household has a job and has not been late on rent in the last two years. In 2023, 11.5% of renters were delinquent.
The median price of a home in Southern Nevada was $480,000 in July.
To purchase a $450,000 home, a potential buyer with a 20% down payment of $90,000 would need to earn at least $100,000 a year to qualify for a 6.5% loan.
Crampton, a long time realtor, says in today’s market, the $25,000 subsidy may be more valuable if used to buy down a borrower’s interest rate.
“If you spend the $25,000 as a down payment, it’s not going to go as far as if you spent it buying the interest rate down,” he says. “The interest rate is the largest part of the mortgage payment.”
On a $450,000 FHA loan at 6.5% interest and 3.5% down, a borrower’s mortgage payment would be $3,450, Crampton says. A borrower who adds the $25,000 subsidy to a down payment of $15,000 would have a payment of $3,250.
“But using the $25,000 to buy down the interest rate one point to 5.5% would result in a house payment of $2,929,” Crampton says. “You’d be getting a sustained bump from that, because your payment is going to be lower.”
The Harris campaign declined to say if the down payment subsidy could be used to buy down the interest rate.
Experts are mixed on their prediction of whether the subsidy will increase home prices.
Billionaire Elon Musk, responding to a post on X, told his 195 million followers the proposed down payment assistance would increase the cost of housing.
“Harris plan focuses on subsidizing demand, not improving the efficiency of supply,” says an article from the Hoover Institution, which is led by Condoleeza Rice, who served as Secretary of State for President George W. Bush. “Hers is a potentially very expensive program that moves us away from legitimately increasing affordability.”
The “supply-side measures” alone in Harris’ proposal are estimated by Zandi and Parrot to cost $125 billion, “a hefty tab that must be paid with spending cuts or taxes, since adding to the federal deficit would drive up mortgage rates and undermine the very housing affordability effort it’s paying for.”
Real estate agent Crampton says it’s unlikely the proposed $25,000 subsidy for down payment assistance would increase prices, though he says it should have a greater impact on purchasing power in Nevada than in other states with even higher housing costs.
“Real affordability will happen when rates sneak down between 4.5% and 5%” he says. “Giving people $25,000 worth of grease is going to be helpful, but I don’t see it raising prices.”