Sunday, March 27, 2005
Copyright © Las Vegas Review-Journal

COST OF LIVING: State losing ground in affordability

Rising home, health care prices tarnish image of Las Vegas as low-cost city

A house is seen for sale on Port Huron Lane. Las Vegas scored poorly in housing affordability on the American Chamber of Commerce Researchers Association's cost-of-living index, dramatically jumping from 96.6 in 2003 to 122.5 in the latest study. Photo by John Gurzinski. Click image for enlargement. A man walks through the showroom Wednesday at Findlay Volkswagen in Henderson. Rising fuel prices have caused some residents to trade in large vehicles for something smaller, but Cliff Findlay, principal of Findlay Automotive Group, said people are pretty set on what they want to drive. "You get a soccer mom with two or three kids and a big SUV is almost a must." Photo by John Locher. Click image for enlargement. Click image for enlargement. Graphic by Mike Johnson. Nurse's aide Ralph McClay takes the pulse of Olivia Mingo at UMC Primary Care on Craig Road. Mingo, a Michigan snowbird who's lived in Las Vegas for six years, says the price of living in Las Vegas evens out in the end. "I think it basically turns out to be about the same," she said. "With utilities, here you use more air and there you use more heat." Photo by Ralph Fountain. Click image for enlargement. Graphic by Mike Johnson.

People who think it's cheaper to live in Las Vegas than other parts of the country probably haven't done their homework.

New residents who have migrated from California or the East Coast, for instance, may find the cost of living in Las Vegas to be relatively lower, certainly on the housing side, although that's changing.

Someone coming from the Midwest or Northern states, however, may be shocked by Southern Nevada's prices.

"Historically, for everybody excluding California, it used to be more expensive on average to live in those areas than Nevada. Now it's more expensive to live in Nevada, and specifically Las Vegas, than those other areas," said Jeremy Aguero, principal of Applied Analysis, a Las Vegas economic research firm.

Aguero tracked the relative cost of living compared to other states such as Texas, Washington, Illinois, New York, Arizona and Florida and found that Nevada has lost ground in affordability. He attributes the rising costs of living here to a number of factors, including increased service costs, real estate speculators, constrained land supply, relatively low interest rates, rising construction costs and undersupplied medical services.

Statistics from the Arlington, Va.-based American Chamber of Commerce Researchers Association bear him out.

Indeed the association's numbers suggest that Las Vegas has been incorrectly perceived as a low-cost city for some time.

ACCRA's cost-of-living index, which is based on six categories of data gathered from some 300 participating U.S. cities, has ranked Las Vegas above the national average for the past 15 years.

At the end of 2004, Las Vegas had a rating of 112.7, up from a 103.0 rating the previous year, on the group's cost-of-living index, which uses 100 as the average for each component of the index.

In a comparison of regional cities, the index shows Las Vegas to be more costly than Reno-Sparks (109.2), Phoenix (98.7), Salt Lake City (94.4) and Denver (103.3). Only Los Angeles-Long Beach (156.4) was higher.

ACCRA's calculations for each city are based upon their relation to the 100 baseline average, explained Erol Yildirim, project manager for the research organization. The index does not factor taxes because the multiplicity of state and local taxes, taxing jurisdictions and assessment procedures makes it infeasible to calculate local tax burdens reliably.

Groceries (112.2), utilities (103.8), transportation (109.5) and miscellaneous goods and services (105.3) in Las Vegas all registered above the national average in the index.

Las Vegas' highest index rating, however, was recorded in the health care category at 133.9, up from 126.7 the previous year.

"There's a lot that adds to the cost of health care," said Ivan Hilton, vice president of Longford Properties, developer of Longford Medical Center. "A lot of it is pharmaceutical companies, these glamor drugs that come onto the market. They've got a ton of money invested in the research and they're trying to get their money back out of it.

"Also the technology. Equipment manufacturers are increasing their prices and hospitals are increasing their rates to keep themselves afloat."

Health care costs will be driven even higher if Nevada doesn't reform its medical malpractice tort laws, Hilton said. He talked to an obstetrician who graduated from the University of Nevada Medical School last year and the graduate said all of his classmates are leaving the state because they can't afford malpractice insurance.

"It's going to cost them $100,000. Can you imagine that? They're probably not even going to make that in their first year," Hilton said, adding that having health maintenance organizations cover about 80 percent of Las Vegas residents should help rein in health care costs.

As expected, Las Vegas scored poorly in housing affordability on the index, dramatically jumping from 96.6 in 2003 to 122.5 in the latest study.

With the price of land in the valley having doubled and tripled in the past 10 years, Las Vegas is becoming a lot like Southern California, where housing affordability in Los Angeles, Orange County and San Diego ranks among the lowest in the nation.

The average price for a four-bedroom, 2,400-square-foot new home in Las Vegas is $345,833, compared with $240,384 in 2003, ACCRA reported.

Renters aren't immune from price increases either. Average rent for a two-bedroom, 950-square-foot unfurnished apartment in Las Vegas is $752, compared to $739 the previous year.

Nevada led the nation in housing appreciation last year at 32.4 percent, according to the Office of Federal Housing Enterprise Oversight. Hawaii had 24.6 percent appreciation and California had 23.4 percent. Las Vegas showed a 36.2 percent increase, highest among major metropolitan statistical areas.

"We all saw the average price of a home in Las Vegas double in the last couple of years," said Ken Lowman, principal broker for Luxury Homes of Las Vegas. "I know for a fact that the average worker did not double their paycheck in that last couple of years. Naturally, that makes it more difficult to purchase a home here."

A "big-ticket item" like housing carries a lot of weight in the cost-of-living index, said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. It's 29 percent of the ACCRA index.

"It's interesting. If you look at the 20 MSAs with the biggest price gains in real estate, 14 of the 20 are in California and four are in Florida. That leaves Hawaii and Las Vegas," he said. "We're relatively new to this rapid price increase and the level of (home) prices in Las Vegas is still below major urban areas in California."

Rising housing prices are not a problem just for cities like Las Vegas and Los Angeles.

Housing has become prohibitively costly in many of America's best-known tourist communities, with two popular destinations in the Reno-Lake Tahoe area near the top of the list, according to a new study by The Wyndham Financial Group, a Connecticut-based consulting organization that focuses on housing and community development. Reno's housing was at 114.7 on the ACCRA index.

Dollar City, Calif., ranks highest among the region's tourist destinations for lack of affordable housing and 19th-highest in the nation, followed by Incline Village at 26th. Just missing the top-50 list of unaffordable housing are Sunnyside-Tahoe City and Kings Beach, Calif. The rankings are based on a formula that weighs housing prices, rents and local incomes.

"This is a dangerous situation," Wyndham President and Chief Executive Officer William Hettinger said. "Skyrocketing prices of second homes drive up all housing costs, forcing year-round residents to move. Local businesses can't find or keep workers as rents become unaffordable. As a result, communities risk losing the sense of community and quality-of-life benefits that made them attractive in the first place."

Rising fuel prices also are causing problems for local residents.

Gasoline prices have become "unreasonable," Don Fleischman said as he filled up a Statewide Fire Protection company truck at Terrible's at Bonanza Road and Rancho Drive. "Someone's making a ton of money and it ain't us."

Gasoline and electricity rates are the two big cost-of-living increases Fleischman said he's seen since moving to Las Vegas from Reno 15 years ago, although he noted, "Housing in Reno is a bit more (expensive). They've got controlled growth up there, and we don't have it down here."

Adrian French, who moved to Las Vegas five years ago from Northern California, said it costs him $70 to fill up his Hummer now, compared with $55 just a few weeks ago, and that's just for regular grade gasoline.

"If you run around Vegas, you can go broke quickly," he said. "It gets me to the point where I plan my day, where I'm going, so I'm not running all over."

He said his wife wanted the Hummer to haul their three children around and they have no plans to trade the vehicle in for something smaller, though.

"There's some of that going on," said Cliff Findlay, principal of Findlay Automotive Group. "But people are pretty set on what they want to drive. They want luxury, power, comfort, safety. You get a soccer mom with two or three kids and a big SUV is almost a must. It's a lifestyle and people don't want to give it up."

Schwer said higher costs in Las Vegas could soon start to hamper the area's efforts to bring new businesses here.

"When these decisions are made, they're based on the cost of things in Las Vegas compared to costs elsewhere, so if all prices are going up, that doesn't change your relative position," Schwer said. "But if your prices are rising faster, like housing, it may affect business decisions."

Sen. Bob Beers, R-Las Vegas, has watched the cost of living climb not just in Las Vegas but statewide.

"It's going up and up and up," he said. "Oil prices, tax hikes, property values, even minimum wage is going up. That's the biggest impact we'll see in the increase in the cost of living. If the government isn't doing something to drive it up, the economy is."

He said we'll just "suffer" from rising oil and land prices, and entry-level housing will be pushed to Pahrump, Mesquite and Dolan Springs, Ariz. "We'll be like L.A.," Beers said.

ACCRA's Yildirim does caution that the index's ratings don't tell the complete story about a city's cost of living.

"The mixture of participants changes each quarter," he said. "What that does is change the average price. If one city doesn't participate, like New York, everybody's index changes. Because of that, we don't do quarter-to-quarter comparisons."

The ACCRA index measures differences in prices for consumer goods and services among areas at a single point in time, but provides no information about how rapidly prices are changing within any area. The index reflects cost differentials for the standard of living present in a professional or managerial household. Operationally, this standard of living is set by the weighting structure. Home ownership costs, for example, are more heavily weighted than they would be if the index were structured to reflect a clerical worker's standard of living or average costs for all urban consumers.

The cost-of-living index also does not measure inflation or price changes over time within a single geographic area. That's measured by the Consumer Price Index, compiled by the U.S. Bureau of Labor Statistics.

"What we historically told everyone is if you look at a big-ticket item like housing, overall you could use the national CPI. What happened is with last year's housing prices, the national CPI is not a useful measure because housing prices are substantially higher," Schwer said.

The UNLV economist said it's important for businesses such as construction companies to follow the CPI for "escalation clauses" in their contracts. "We know it's above the national average, but we don't know how much," he said.

Schwer said ACCRA doesn't have the funding to gather its own data and is doing the best it can, "but it's a self-generated set of numbers."

Las Vegas did not meet minimum population requirements for the Bureau of Labor Statistics' Consumer Price Index survey, though the survey now includes cities smaller than Las Vegas, he said.

Others agree the cost-of-living index numbers don't tell the whole story.

Olivia Mingo, a Michigan snowbird who's lived in Las Vegas for six years, for instance, believes some things even out in the end.

"I think it basically turns out to be about the same," she said. "With utilities, here you use more air and there you use more heat."