Affordable housing

Remember when home prices were swelling like a cleanup hitter on steroids? Just three to four years ago, the hand-wringers of the political class were mourning the death of affordable housing in the Las Vegas Valley. The days of blue-collar couples buying a sparkling-new, three-bedroom piece of the American dream were ancient history, they moaned.

Surprise -- it's 2004 all over again. The plunging housing market has sent prices back in time, to the pre-bubble days when detached homes sold for less than $100 per square foot.

It's true. Working men and women who were convinced only two years ago that they'd never be able to afford a new house in Southern Nevada now have an abundance of choices around town. In the northwest valley, one builder is selling homes from $149,900. In the northern valley, homes with more than 2,000 square feet start at less than $200,000. Homes with more than 3,000 square feet can be had for a little more than $300,000.

Naturally, builders and real estate agents are doing all they can to tout this buyer's market. "These prices won't last!" they warn.

They're just a bit off the mark. It's not that these bottomed-out prices won't last. It's that they can't last.

The land-supply pressures that helped drive home prices up in the middle of this decade haven't gone away. The valley is still an island of private property in a sea of federally controlled land. Yes, the Bureau of Land Management occasionally auctions property to the highest bidder, but even in this depressed market, raw land prices are still much higher than those of other Western cities. In the fourth quarter of 2007, the average sale price of undeveloped land away from the Strip was $939,000 per acre.

So how can builders who, in some cases, paid much more than that for their acreage offer new homes for less than $200,000? How could these prices have returned when inflation has sent the cost of building materials such as cement, copper and plastic through the roof tiles?

It's painfully simple. Builders are giving the land under their houses away and, in some cases, they're taking a loss on their labor and lumber costs.

Home builders have their own bank loans and property taxes to pay. So companies are clearing out their existing inventory, taking whatever they can get for their product now in order to survive until the housing market recovers.

When businesses lose money with every transaction, they go out of business. Just as high fuel prices are sending airlines into bankruptcy, low home prices are killing the home building industry and all the jobs that depend on it.

These prices can't last. Eventually, the valley's bloated supply of new and resale homes will shrink, robust job growth will return, and demand for housing will rise. When that happens, builders will resume raising new subdivisions from the desert floor.

And prices will go back up. They always do.

"I guarantee you every home you buy is going to be worth more down the road," said Jim Letchinger, president of Chicago-based JDL Development, which is building midrise condos in the southwest valley. "I can't say when -- three years, six years -- but in the history of the world, land prices go up, construction prices go up. Las Vegas is a unique city, unlike any other city in the country and always will be. Take advantage of it."

The days of discounted new housing are nearing an end. At some point in the next few years, consumers will have to pay full price. And when that happens, the hand-wringers of the political class will moan, "Remember when you could get a new house for less than $200,000 -- in 2008?"