Sunday, September 26, 2004
Copyright © Las Vegas Review-Journal

VALLEY GROWING PAINS: Gap widens between wages, housing prices

Southern Nevada's popularity drives home costs up and some people away

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It was an e-mail Carlos Garcia dreaded receiving, the first of its kind he could recall, but the Clark County schools superintendent worries more are coming.

The terse message arrived before the start of school from Mark Dorman, a 47-year-old teacher from Oklahoma City. Dorman had agreed to take a job at Von Tobel Middle School. He flew here to look for housing. Eyed several neighborhoods. Then quit.

"I was astonished that even a modest three-bedroom home for my family would cost me over $200k!!" the message began. "There is simply no way at my age I am going back to living in an apartment, and even leasing a home in your city is a large financial burden on my meager teacher salary."

What he found is a market where the median price of a new home has more than doubled over the past decade, while household income has increased just 22 percent.

Put another way: A 35 percent appreciation in the price of new homes from January through August of this year has pushed the median home price over $250,000, while the annual pay package for teachers ranges from $39,495 to $74,903.

Garcia believes fallout from the price boom will play out next year, with more teachers turning down job offers after studying the housing market.

"Look at the raises we've given here, 2 percent. How do you stay up with that?" the superintendent laments. "That's probably in the future, hands down, our biggest worry, our biggest nightmare."

Garcia speaks of pushing for 5 percent pay raises for teachers during the upcoming session of the Nevada Legislature; but he realizes that would be a tough sell, especially after the contentious 2003 session in Carson City, in which taxes were raised by $833 million. Besides, he says, such raises wouldn't do much to close the gap.

A major blow

It might be the most important undiscussed issue in the Las Vegas Valley: the widening gap between wages and housing prices. For a community that has prided itself on housing affordability, there is a new reality.

Gone are the days when a casino worker, a teacher, a nurse could buy a $120,000, three-bedroom home in a new subdivision.

It is not much of a concern for tens of thousands of people moving here from Southern California or the New York metropolitan area, where many sold homes for healthy profits and have money to reinvest in less-costly Las Vegas housing. But tens of thousands more move here annually from economically troubled regions of the country, and when they arrive they face sticker shock and the realization that they will be renters, not buyers.

The culprits behind this reality shift include booming land prices, federal government control of 3 million of Clark County's 5 million acres, out-of-state investors seeking a hefty return on real estate investments, and the 4,000 to 8,000 people who move here monthly in search of work, lower taxes and good housing.

There are alternatives to purchasing single-family houses in new neighborhoods. They include older homes, condominiums and townhouses. But even their prices routinely start at $175,000.

Developers have begun selling single-family homes that offer less than 1,000 square feet of living space. They cost about $120,000. Astoria Homes has a subdivision near the Beltway and South Rainbow Boulevard that has 13 homes per acre with a starting price of $200,000.

Some believe a solution can be found in high-rise construction, but vertical development over five stories is not for the typical blue-collar wage earner. The cheapest units routinely start at $350,000 and rapidly climb toward $1 million.

"Not everybody can afford a mortgage of $1,400 a month here. When you look at median wages versus housing prices, there's a huge disparity," says real estate agent Vada McDaniel. "A teacher can't buy a house, but it's not just teachers. When you look at starting wages for casino workers, they can't buy a house. The problem is the wages."

At the same time, interest rates are inching upward with a push from the Federal Reserve, potentially forcing thousands from the market. For every $1,000 jump in the price of a home, an estimated 1,400 potential home buyers are forced out of the market, according to the Southern Nevada Home Builders Association.

The local housing market has cooled from the hyperintensity of the springtime, but it remains among the hottest nationally. Home Builders Research President Dennis Smith projects a record 28,500 new home sales for the year. The region ranks somewhere between fifth and seventh nationally for new home permits for every 1,000 in population.

Existing homes remain on the market for a longer period than they did during the investor-crazed days of March, April and May, but Smith is convinced houses are selling at a saner pace, one that will last through the rest of the year.

Just two years ago, Clark County school officials plugged housing affordability as a major recruitment tool. Not anymore. Now they hawk the weather, the district's yearly building spree of new schools, the fact that, unlike financially strapped districts elsewhere, Clark County is hiring teachers, more than 2,000 this year. But once they're here, district officials wonder whether their new employees will remain for more than a few years.

"Even with the economy the way it is in other places, losing affordable housing is a major blow to us, a major blow," says George Anne Rice, who heads the school district's personnel department.

Wages vs. prices

So much of Southern Nevada's economy is based on the health of the casino industry. It employs 168,200 of 853,100 workers, more than any other sector, and generated annual wages of $4.9 billion last year. A top executive at MGM Mirage is confident her company's recruitment efforts have not been harmed by the housing boom, because people want to work for the resort giant.

"We're hearing noise. ... But bottom line, because we're an employer of choice, it's not hurting our ability to recruit," says Cindy Kiser Murphey, MGM Mirage senior vice president of human resources

A significant percentage of the company's work force has moved from expensive California communities; but the leader of the Strip's largest labor union, Culinary Local 226, says he is "extremely alarmed" by the valley's price escalation, a jump that he believes could seriously alter the community's livability for hourly wage workers.

"We're concerned and obviously we're thinking, clearly, there has to be a multipronged answer to this," says D. Taylor, the union's secretary-treasurer, who suggests that government officials make loans and subsidies available to ease the affordability crunch. "The last thing I think this town wants is for housing to be out of reach for workers who make this town work."

The numbers tell much of the story:

• Median household income in Clark County grew by nearly $8,000 to $44,307 over the past decade, according to a yearly survey by the Center for Business and Economic Research at the UNLV.

• The average individual wage rose to $35,060 from $25,528 over the same period, according to the Nevada Department of Employment, Training and Rehabilitation.

• The median price of a new home jumped from $121,500 in 1994 to $259,700 through August, while the median price of a used home increased from $111,250 to $250,000, according to Home Builders Research, which draws its numbers from deed filings with the Clark County assessor's office.

• The Las Vegas Association of Realtors, which measures the sale of homes through the Multiple Listing Service, recorded an August median housing price of $280,000, up nearly 50 percent from a year ago. Most of the sales were of existing homes.

"The real policy issue is what are you going to do with people who can't afford homes? They're not going to come here. If you can't get a job to pay the bills it's going to hurt us, unless you do something creative like live in Pahrump or Moapa," says Bob Potts, assistant director of the Center for Business and Economic Research at UNLV.

"People can always figure something out. I think in some ways it's going to slow the growth of the valley because people can't afford homes unless there's places like California where people can sell for capital gains and move here."

The decade-long rise in housing prices has transformed the ratio of median home prices to median household income from 3 to 1 a decade ago to nearly 6 to 1 today, a change that Hal Rothman believes has dramatically altered Southern Nevada's sense of place. What was once "an idyllic" blue-collar haven has become a "growth-addicted" market that, in his words, caters more to real estate investors than hourly wage workers.

"It shuts down the intake pipe for new young talent to the city," argues Rothman, chairman of the history department at UNLV and a member of the Clark County Growth Task Force.

"Las Vegas is an opportunity stop. People don't come here because of our beautiful ocean. They don't come here because we're an exemplar of high culture. If the opportunity isn't here they won't come."

Rothman believes there are options to make housing more attainable, such as tax rebates or incentives, although he wonders whether the free-market ethos of Southern Nevada would ever allow that.

"We've been sitting here watching the goose lay the golden egg for a long time, and if we don't do something about it, we're going to strangle the goose. The truth is if we stop growth, we will trash the economy," Rothman says.

A nice place, but ...

Teacher Dorman first visited Las Vegas a year ago. His younger brother is a regular vacationer on the Strip, and the elder Dorman figured he would tag along. He'd considered a move since his divorce. Dorman has custody of his 16-year-old daughter, and he was seeking to earn more than the $32,000 a year he was making in Oklahoma.

The booming Clark County School District looked like a good alternative for the special education teacher.

"They really need people like me," Dorman says from his Oklahoma home. "Believe me, they're looking under rocks to find enough special ed teachers, math and science teachers."

He interviewed with the school district and was offered the job at Von Tobel. Dorman visited the valley three times in search of a home. An apartment wasn't an option, but he lacked the down payment to buy a house so he searched for a rental.

"It didn't have to be anything fancy, just a little house in a decent neighborhood," he says.

Dorman found a small rental home in Summerlin. But he couldn't afford the $1,200- or $1,300-a-month rent. Back home he paid $750 a month for three bedrooms in a duplex.

"The big difference between here and going to Las Vegas was I would get a pretty good raise in pay, but it would all be consumed in what I paid for rent or bought," he says. "So right now, I couldn't see putting my daughter through the move. Las Vegas, I think, would be a nice place to live, but not if you have no money to do anything."

Questions but no answers

The school district's Rice has thought of convening an informal group of homebuilders, apartment owners and mortgage lenders to devise a plan that would create more affordable housing for teachers.

Maybe one of every 20 new homes in a subdivision could be set aside for teachers at a discounted price. Maybe lenders could provide lower interest rates or specialized mortgages.

An unknown number of Clark County teachers already participates in a federal Housing and Urban Development program that helps them purchase houses in distressed neighborhoods for as much as 50 percent off a home's list price.

"My hope is there will be people in those organizations who care about the community and will be willing to put the community at least partially ahead of their other values," Rice says of local builders.

The school district could even float a bond measure to build apartments for teachers. For now, the district works with a company to find apartments and roommates for financially strapped teachers.

When asked what school district administrators should do to close the growing gap between wages and housing prices, Dorman sounded much like Rice. He had more questions than answers.

"I don't know what the district's going to do about it. I don't know what they can do about it," he says.