Affordable Housing Institute : US

A booming economy is good, right? 

 

“Oh, Clark, you’re so manly for opening that casino.”

 

Rising tide lifts all boats? 

 

 

Not always, or not if you are thoughtless about it.  For the world’s best place for thoughtlessness, via the Boston Globe, let’s visit that uniquely American Sin City:

 

LAS VEGAS — Celine Dion is waxing romantic at Caesars Palace. Wayne Newton is warbling at the Flamingo. George Carlin is cracking jokes at the Stardust.

 

And outside the crowded shows, and up and down the fabled Strip, luxury condominium towers are sprouting like mushrooms.

 

At first glance, Las Vegas has never had it so good.

 

In fact, this desert valley of almost 2 million people is the fastest-growing in the country.

Las Vegas, in fact, leads the nation in job creation,

 

Gotta love it, but …

 

and it has a white-hot housing market.

 

That’s good, isn’t it?

 

”It’s going phenomenally well,” said Mayor Oscar Goodman, a former lawyer for mobsters. 

 

You have to admit, he’s no John Kerry (the mayor is on the left)

 

Observe the unsubtle dig, as if Mayor Goodman’s past invalidates his good cheer for his city.  Indeed, now the Globe pounces:

 

But as bright as the present appears, there are signs that Las Vegas is becoming polarized.

 

Yes, it was Eden before the casinos came, wasn’t it?

 

 

Prices have pushed home purchases beyond the reach of many families. Crime is on the rise. And activists report problems in recruiting teachers, nurses, and police to serve a population growing by 6,000 a month.

 

Setting aside those mysterious activists, who can always be counted on to decry, deplore, or worry, the reality is stark enough:

 

But now, the affordability of a city that relies on armies of low-wage workers to run its casinos, hotels, and restaurants is a glaring concern. Since 2000, the median price of a new home here, excluding condo conversions, has soared to $335,091 from $161,893, said [economic consultant John] Restrepo. Median household income in that time has increased to $47,741 from $41,657.

 

In five years, therefore, income has risen 15%, cost of housing 107%.  Ouch. 

 

 

Let’s look a bit closer.  Assume 80% loan-to-value (LTV), 6.5% interest rate, 30-year loan.  Who can afford Las Vegas housing, and what does it cost?

 

Price	2000	2005
Income	41,700	47,700
Down payment	32,400	67,000
Monthly loan payment	820	1,690
Down-pay-to-income	78%	140%
Payment-to-income	24%	43%

 

So in 2000, a Las Vegas house was very affordable: monthly payment of only 24% of income, and a down payment less than a year’s salary.  In the last five years, though, the affordable 24% has shot up to a painful 43%, and the down payment is now 140% of salary, or roughly twice as much before. 

 

That is an enormous gap in affordability.

 

In Greater Boston, by comparison, the median price of a single-family house is $430,900, according to the National Association of Realtors; the median household income is $63,521.

 

Using the same math, Boston costs 41% of income for debt service, and the down payment is 136% of a year’s salary.  In other words, measured relative to earnings, Vegas has become less affordable than Boston.

 

That is remarkable.

 

Even as housing prices shoot up, some are the left-behind own-nots:

 

Despite all its visible opulence, the poverty rate in Clark County, which includes Las Vegas, increased to 12.7% in 2004, compared with 11.6% in 2003. Child poverty stood at almost 19%.

 

A real estate agent, Georgia James, checked a part of Las Vegas called ‘‘Naked City,’’ one of the city’s poorest neighborhoods. (John Locher for the Boston Globe)

 

The consequences of a housing boom are sequential.  First is the spatial redistribution — in ordinary words, valuable land is redeveloped out of housing, so people have to move:

 

Goodman conceded that housing is a problem for longtime renters being forced from homes near the Strip, where developers are paying about $6 million to $10 million per acre.

 

At that price, the next structure is guaranteed not to be housing of any kind.  Not even high-rise condo’s are likely to make those numbers work.  It’s hotels and casinos for sure.

 

When asked where displaced Las Vegans will move, Goodman replied, ”I don’t have the answer to that one yet.” Later, he added, ”I don’t want a tent city, that’s for sure.”

 

Goodman said he is working with federal officials, including the US Bureau of Land Management, to release undeveloped land for affordable housing.

 

Making land availability is good public policy because it loosens an artificial supply constraint and drives prices upward. 

 

Ironically, large swathes of the American West are conservation land precluded from development, so when a Western city booms, growth funnels out in narrow bands, merely expanding density rather than reducing it.  Meanwhile, the people keep arriving:

 

[There is an] influx of 8,000 workers per month — offset by 2,000 who leave — which creates a constant labor pool.

 

Where will those folks live?

 

In April, a broad-based discussion of regional leaders will be convened for those interested in Las Vegas housing — developers, bankers, and urban planners, as well as police officers and teachers.

 

The stakes are enormous, said Ken Lange, the executive director of the Nevada State Education Association (NSEA), which represents non-management school workers, who range from teachers to custodians to bus drivers.

 

Unless the shortage of affordable housing is addressed, Lange said, ”I think we’ll see the tremendous growth inevitably slow here as we are unable to put people in homes.”

 

More people buying homes means more children in schools, which requires more teachers.  But where will they live?

 

Already, Lange said, school officials are finding that Las Vegas is a tougher sell for a starting teacher making $30,000 a year.

 

As we’ve seen above, that level is about half what one needs to buy a typical home in Vegas.

 

Recruitment problems are exacerbated by an overcrowding problem, Lange said, in which a high-school English class typically has 40 students. Pat Nelson, a spokeswoman for Clark County schools, said the district is about 250 teachers short.

 

Beyond the teachers, where will the police live?

 

Meanwhile, the number of police officers has not kept pace with the area’s growth. Between 1999 and 2003, the number of officers per 1,000 residents dropped by 24.1%, according to the latest figures compiled by the Clark County Monitoring Program, a quarterly analysis of social, economic, and environmental changes here.

 

The same economy whose boom creates jobs across the entire economic spectrum also makes the lower end of that spectrum unaffordable for the very workers whose immigrant is an essential complement to and sustainer of all that wealth. 

 

Although the Las Vegas case is extreme case, it is not a unique markets.  As the NSEA site notes:

 

WASHINGTON — Across the nation, teachers are losing spending power for themselves and their families as inflation outpaced increases in teacher salaries last year. According to the National Education Association’s (NEA) update to the annual report titled, “Rankings and Estimates: Rankings of the States 2004 and Estimates of School Statistics 2005,” inflation increased 3.1% over the past year, while teacher salaries increased by only 2.3 percent. Some of the key findings of the report include the following:

 

·         Teacher salaries, which rose 2.3% to $47,808 since last year, failed to keep pace with the nation’s 3.1% increase in inflation.

·         Average teacher salaries actually declined in three states — Maine, West Virginia and Alabama.

·         Education revenue increased 4.1% since last year.  [Faster than inflation. — Ed.]

·         Education expenditures rose 4.7% over the past year. [Ditto.  – Ed.]

 

Reg Weaver, president of the nation’s largest professional employee organization, expressed concern over the rate of inflation rising faster than increases in teachers’ salaries, as school districts across the country struggle to attract and retain teachers in the profession.

 

If that’s true, then the big pinch point for teachers is their housing.  Often they can’t afford to live in the community whose children are entrusted to them.

 

This brings us to this intriguing idea: If you live in an affluent community, then you have one of three economic choices in your approach to workforce housing:

 

1. Accept poor quality and high turnover.  Because you’re hiring the worst who have few choices.
2. Pay top-of-market prices.  To lure the best.
3. Provide affordable housing.  To make it worth their while and increase their love of (and therefore loyalty to, and longevity in) the community.

How do these respective strategies stack up from the perspective of a town competing against other towns?

 

1. Unacceptable for local officials doing the political calculus.
2. Works in the short term but places the locality in competition with every other locality.
3. Confers an enduring competitive advantage vis-a-vis other area communities.

Well, well … isn’t that intriguing.

 

“Do you subconsciously find it interesting, David?”

If you want quality public services (which are generally lower wage), then you are best served by building in affordable housing (perhaps using inclusionary zoning) from inception. 

 

Vegas is eschewing that approach:

 

Goodman conceded that housing is a problem for longtime renters being forced from homes near the Strip, where developers are paying about $6 million to $10 million per acre. But, the mayor said, he’s not ready to ask developers for set-asides to help construct affordable housing.

 

”Right now, I’m giving everybody the candy store,” Goodman said of his dealings with buielders. ”You can’t grow too fast. Growth is wonderful.”

 

Unfortunately, Mr. Mayor, you can …and you are. 

 

Meanwhile, Nevada’s voters are proving that elected officials aren’t the only people who can be inconsistent:

 

CARSON CITY — A proposed constitutional amendment to make education a priority was approved by the voters Tuesday but they didn’t want to put their money into the venture.

 

Question 1, the initiative petition sponsored by Republican Rep. Jim Gibbons to require the Legislature to pass the public school budget before other appropriations, won in the election with 444,317 to 340,141 votes, or 57% to 43%, despite being defeated in 16 of the 17 counties.

 

Only Clark County [Las Vegas — Ed.] voters supported the measure.

 

Question 2, the initiative pushed by the schoolteachers union to raise the financial support for public schools to the national average by 2012, narrowly lost with 401,732 votes, or 51%, against it, compared with 378,791, or 49% of votes, in favor.

 

Clark County was the only one to support the measure, with the other 16 counties opposed.

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