Sunday, February 08, 2004
Copyright © Las Vegas Review-Journal

HOUSING MARKET: Space Value

Rising home assessments make residents feel richer, but also add to homeowners' tax bills

Residential assessment values in Clark County jumped more than 12 percent in Clark County this past fiscal year, raising home values for present home owners while also raising the median price of new housing such as these in KB Homes' Sonesta development. Photo by Steve Andrascik. Click above for enlarged image. Click above for enlarged image. Illustration by Anton.

Las Vegas homeowners feel a bit wealthier when they read about double-digit appreciation rates, many of them gaining upward of $15,000 in value on their homes in the course of a year.

Investors are finding better returns on Las Vegas real estate than they could in the stock market, continuing to fuel a boom in commercial and residential building valuation, even as the U.S. economy was receding.

It all looks great on paper. In the meantime, people are paying more in property taxes while rising home prices cut into the affordability of Las Vegas' housing market.

Local real estate experts dispel any myths that a housing "bubble" exists in the valley, a situation in which values are in danger of dropping drastically. But there has been some talk about hitting the wall on prices, a point where Las Vegas may lose its appeal for low cost of living.

"Part of the reason we've had so much growth in Las Vegas is that it's a good value to move here," said Perry Muscelli, a native Las Vegan and senior director of Cushman & Wakefield brokerage firm.

"Housing is a good value and a big reason why people come to Las Vegas. Much of our economy is (housing) construction. What happens if that starts to slow down and a lot of construction workers are not working?"

The net assessed value for 546,214 secured parcels in Clark County totaled $45.7 billion for fiscal year 2004-05, a 13.8 percent increase from $40.1 billion the previous year, County Assessor Mark Schofield reported in December. That number will be revised with new construction on July 1, the start of the fiscal year.

Residential assessment increased 12.4 percent to slightly more than $27 billion, while commercial property rose 12.5 percent to $11.8 billion and industrial was up 9.5 percent at $1.4 billion. Vacant land jumped 26.6 percent in value to $5.5 billion.

Schofield said the taxable value on notices mailed to property owners in December will not correlate with actual market value because of the methodology and structure of the appraisal process, which the Nevada Revised Statutes sets forth.

"The good news is the value of property is appreciating at the highest rate it has in the history of Nevada, 8 (percent) to 12 percent," he said. "The bad news is that appreciation directly correlates to property tax increases."

Tax rates are determined by bond issues such as school bonds and library bonds, along with operating costs for the five local municipalities and Clark County, determined by a complex formula that is statutorily based.

Depending on where a property is within the county, tax rates include Metropolitan Police Department manpower supplement, Clark County capital projects, indigent medical, emergency 911, Clark County flood control, Las Vegas artesian basin, city and county debt service, school district bond debt service, school maintenance and operation and library debt.

Tax dollars for secured and unsecured property in the current year, fiscal 2004-05, totaled $1.48 billion, compared with $1.29 billion the previous year, the assessor reported.

"So all of this ballooning in value assessment is a windfall to the community, to the government to provide infrastructure and services to the public," Schofield said.

Every $5 billion in new construction equates to about $50 million in property taxes, he said.

The assessor's office does not consider the amount of tax a property will generate, but strives to treat everyone equitably and make assessments according to the law, he said.

County appraisers estimate the land's full cash value by considering location, zoning and actual use. Taxable value of buildings is the estimated replacement cost new, less depreciation of 1.5 percent a year up to 50 years.

That's why homes in older neighborhoods are taxed less than those in new developments, Schofield said.

The land value is added to the improvement's taxable value to arrive at the property's overall taxable value. The law requires the assessor's office to notify taxpayers each year of any changes in their property's assessed value, which is 35 percent of taxable value.

"People are real happy about the way their homes go up (in value) until they get their tax statement," said Dennis Smith, president of Home Builders Research, a company that tracks the local housing market.

"What are they going to do? If it was a down market, they wouldn't be so happy."

In the early 1990s, Las Vegas was less expensive than Phoenix in housing prices by about $10,000, but that's changed, Smith said.

Smith reported median new home prices in Las Vegas at $207,931 in November, up 10.1 percent from a year ago. New-home sales set a record with 25,230 for 2003.

Phoenix is also having a record year, Smith said, but with a median new home price of $172,000, about $26,000 less than here.

"Why? The price of land. They have land available at a much lower price than us. They have all those giant farms and fruit orchards that are eaten up by development," he said.

"Phoenix just keeps growing and growing. There's jobs in Phoenix and it's cheaper there. Phoenix is also a much larger town. We think we have bad traffic here. They have all the growth issues we have, but it's magnified by four or five times."

Muscelli said rising land prices in Las Vegas is a trend that he doesn't see tapering off any time soon.

"When does it end?" he said. "When we reach California prices? Eventually it peters out to where people say, `I don't want to move there.' We take our growth for granted."

"Rising land prices will affect affordability," said Keith Schwer, director of the Center for Business and Economic Research at University of Nevada, Las Vegas. "If it doesn't start to slow down, we're going to have a train wreck."

Smith said he knows of a home builder with land in escrow at $400,000 an acre.

"If anyone thinks the prices are going to come down, they're in a surreal world," he said.

John Restrepo, a real estate consultant and principal of the Restrepo Group, said the positive side of the tax assessment equation is obviously home investment growth and benefits to the public sector.

But the question of housing affordability relates to the valley's economic growth and diversification.

"While we'll always remain less than California, it is an issue when we compare ourselves to Salt Lake City or Albuquerque (N.M.) or Phoenix," Restrepo said. "If your company is thinking about relocating and if they consider housing prices for employees as an issue, you have to look at Phoenix differently."

He said housing appreciation nationally is three to five times the inflation rate, whereas 30 years ago they were more in line with each other.

"There's some factors out there we need to look at and what that means when you have these differentials," he said.