Nevada housing ‘dodged a bullet’ with two bills, stakeholders say
Real estate stakeholders and industry analysts are applauding the Nevada Legislature’s shelving of two bills, saying they could have led to a repeat of the construction defect reform era of the 1990s and early 2000s.
Assembly Bill 505 (which would have revised provisions relating to construction defects) and Senate Bill 433 (which would have revised provisions governing common-interest communities) were shelved during this year’s legislative session.
Josh Hicks, a partner with law firm McDonald Carano and a lobbyist for the homebuilding industry, said the issue dates all the way back to Chapter 40 of the Nevada Revised Statutes, enacted by the Legislature in 1995 with the purpose of creating a formalized process for resolving construction defect disputes between homeowners and builders.
However, a recent paper by local research firm Applied Analysis on Nevada construction defect reform estimates that Chapter 40 increased construction defect claims by 355 percent between 2000 and 2012 while dropping new home sales by 86 percent.
Hicks said the shelved bills — which are similar in nature to Chapter 40 — could have hit multifamily housing starts the hardest at a time when the Las Vegas Valley clearly needs more housing units of all types. Zillow estimates the valley is approximately 32,192 units short of a balanced market, and that number has been growing exponentially since the start of the pandemic.
“The housing industry really dodged a bullet with those two bills,” he said. “It’s clear that our liberal construction defect laws pre-2015 resulted in so much litigation that builders wouldn’t construct multifamily for-sale units. With our current housing supply issues, it would have been a dramatic step backward had those bills passed. Fortunately, the governor and the Legislature recognized the problems those bills posed and decided not to move them forward.”
The Las Vegas Review-Journal reached out to the Democratic lawmakers involved in the creation of AB 505 and SB 433 but did not receive any responses. Real estate stakeholders contacted by the Review-Journal agreed that, outside of the 2008 Great Recession, construction defect litigation brought on by Chapter 40 was one of the main initial forces that created the valley’s current housing crisis.
Gov. Joe Lombardo said in an email response to the Review-Journal that the Applied Analysis report shows how construction defect reform played a “direct role in the housing shortage we’ve experienced in Las Vegas over the last five years.”
“Housing policy must be considered in the long term,” he added. “Because this is evidence that what we do today will have an impact decades down the road.”
Current state Sen. Jesse Haw, R-Reno, was the president of the Builders Association of Northern Nevada from 2005-08 and the president of the Nevada Homebuilders Association in the mid-2010s. He said Chapter 40’s legacy is that the local housing market is still trying to catch up on building affordable units.
“When Vegas saw a population explosion in the early 2000s it needed the building industry to match the growth or the lack of supply would push up the prices, especially in the lower cost points like attached housing such as condos and townhouses,” he said. “At the same time, construction defect litigation was spiraling out of control to a point where insurance and frivolous lawsuits made it much less desirable or even possible to build those products. There was a clear correlation between construction defect suits and the chilling of production of lower priced housing.”
Jeremy Aguero, one of the authors of the study and a principal analyst at Applied Analysis, said after 1995 the data shows that the homebuilding community essentially exited the local multifamily market up until reform was introduced in 2015 (Assembly Bill 125).
The research paper notes Chapter 40 pushed Nevada’s level of construction defect claims to the highest in the country, and the industry became embroiled in the largest federal public corruption investigation in Nevada history. That investigation, Operation Grandmaster, focused on HOA takeovers throughout Southern Nevada and a scheme between attorneys and contractors around the filing of construction defect lawsuits.
Aguero said it’s tough to put an exact figure on how many housing units were not created because of Chapter 40, but its legacy is crystal clear in 2025.
“At the same time (after 1995), builders tended to focus on single-family product and that put upward pressure on broader pricing of available new homes, further squeezing out families from the American dream of homeownership,” he said. “Following revisions to those reforms, increased capacity in attached product followed but availability constraints continued overall partially attributable to the underdevelopment during the pre-2015 timeframe.”
Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.