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Tesla and Competitors Fuel Housing Boom in Nevada

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Construction on the Tesla Motors Gigafactory east of Reno, Nevada, March 25, 2015.
Photo by David Calvert/For The Washington Post via Getty Images.

Welcome back to Property Lines, a column by veteran real estate reporter Alexei Barrionuevo. Each week on Tuesday, Barrionuevo will report on housing trends, real estate deals, and major business moves right here on Curbed.

In the 1860s, gold and silver discoveries spurred a short-lived economic boom in Nevada. Hundreds of prospectors flooded into the hillsides of what is today the western edge of the state, many of them coming from the gold mines of California. Men like Henry Comstock, for whom a giant silver lode was named, scrambled to stake their claims in a wide-open frontier.

Today, it's electric car plants and data centers that are setting the stage for a modern-day economic transformation in a state still sweeping away the ash from the fire sales ignited by the recent housing bust. Once again, California opportunists may be among the biggest beneficiaries of a new mini-housing boom. Over the past year Tesla Motors and Faraday Future, the electric car manufacturers, have announced massive new operations in Nevada, and as a result, the state needs to add tens of thousands of new housing units.

Tesla, based in Palo Alto, is building a $5 billion, 10 million-square-foot Gigafactory in northern Nevada, near Sparks, for the production of lithium ion batteries for its electric cars. Faraday Future, a Los-Angeles-based startup (which just unveiled a 1,000 horsepower electric car at CES) backed by Chinese investors, plans to build a $1 billion, 3 million-square-foot factory in North Las Vegas, with the goal of producing electric cars by 2017. Nevada lawmakers approved the Faraday project last month.

The companies say that between them they will be hiring 11,000 new workers in Nevada over the next five years. As a result, Reno-Sparks and Las Vegas are expected to grow by some 80,000 residents by 2020, unheard of growth for the regions. To meet the demand from Tesla, Faraday, and other major employers, Nevada will need at least 40,000 more housing units—single-family homes as well as apartments and condos for younger engineers and techies—over the next five years, according to state projections. Who will fill the demand? And will they fill it in time to stave off price inflation?

"The bulk of the investment is coming from outside the state" so far, said Mike Kazmierski, president of the Economic Development Authority of Western Nevada. The response to the forecasted demand is being met by national players like Lennar and Toll Brothers, and by California-based developers like Lansing Companies.

Nevada-based builders, their psyches still singed by the previous housing bust, have been less eager to jump into the fray. "Most of the builders in this region went under with the recession and the housing bust," Kazmierski said. "We were over-building, and when the music stopped it was pretty dramatic in this region. People around here are saying, 'I have seen this before. I am going to be careful.'"

Builders outside the state, by contrast, have been less intimidated. "They have come in and said, 'Wow, we need to get into this, it is really taking off,'" Kazmierski said.

To be sure, the housing market in Nevada has improved, especially in the Las Vegas and Reno-Sparks areas. The housing bust slashed prices by half in both areas, but they have rebounded to just over half of pre-recession highs. In Las Vegas, median prices for single-family homes rose by 9 percent in 2015 to $220,000, according to the Greater Las Vegas Association of Realtors. In Reno, prices increased by 17 percent to $275,000, said Kevin Sigstad, president of the Nevada Association of Realtors.

An aerial view of neighborhoods in Las Vegas. Photo by Ethan Miller/Getty Images.

Foreclosures and short sales—which reached 75 percent of sales in southern Nevada as recently as late 2011—have plummeted to 6 percent of the combined Reno and Las Vegas markets, Sigstad said. Demand has caught up to supply and today it's getting tougher and tougher to find an available home. What's happening in Nevada is transformative, and it's not just the electric car companies that are locating big operations in the state.

Dozens of companies have begun moving operations to the state recently. While Tesla's Gigafactory, which will be located in the Tahoe Reno Industrial Center, a 107,000-acre behemoth of privately owned land about 15 miles east of Reno, will be the largest, Wal-Mart already has a 1 million-square-foot distribution facility there. And the center is also the future home of Las Vegas-based Switch, which is building the largest network data center in the world; it will connect Las Vegas, Reno, San Francisco, and Los Angeles with the SUPERNAP, one of the fastest fiber-optic loops in the world. Amazon has a distribution center in Reno. Apple has a data center there, too, which it is currently expanding to increase its iCloud server capacity.

"We were already really busy before Tesla announced," Sigstad said. "Now we are three, four, five times busier than we were. It is kind of heady."

Despite Nevada being the state with the highest percentage of land owned by the federal government—less than 20 percent is in private hands—there is sufficient available land for residential development. To avoid more urban sprawl, state leaders have been encouraging in-fill housing to meet the needs of the new companies.

Of bigger concern, especially around Las Vegas, has been whether there is enough water for all these companies and new residents. State lawmakers spent considerable time charting the future water needs of the Apex Industrial Park, where Faraday will be based, before signing off on the deal, which will give the company $215 million in tax abatements and tax credits.

While Faraday is just getting started, Tesla's new facility broke ground last June, and the company is preparing to hire a slew of new workers beginning this month. To house these newcomers, Lansing Companies is co-developing the Santa Maria Ranch, a 954-acre riverfront community in the Dayton Valley that is planned to have 2,214 homes over 13 construction phases. Lot sizes range from a quarter of an acre to 11.54 acres, with homes from 1,800 square feet to 5,000 square feet. Only 20 lots of 139 in the development's first phase are still available, according to the project's website.

The Reno Development Company, which, like Lansing Companies, has California roots, has six housing projects in the works in the Reno area, including the 141-acre Rancharrah community, which plans to feature 691 units and two commercial parcels. The developer wants to build single-family homes, and apartments or duplexes in seven residential villages, which would be gated. The centerpiece of the development are a 52,000-square-foot equestrian center and a 30,000-square-foot mansion. Reno Development bought the former estate from John Harrah, son of Harrah's Hotel and Casino founder Bill Harrah.

Just minutes from the Mount Rose Ski Resort, Toll Brothers is building the Presidio at Damonte Ranch, a luxury single-family home community starting in the mid-$400,000s, with three single-story home designs.

State economic development officials are in talks with other potential developers. But Kazmierski said some still need arm-twisting. One Nevada developer, whom he declined to name, has been reluctant to build despite having 600 people on a waiting list, he said.

"We will have a housing crisis if we don't respond to it," Kazmierski said. "They are building at a pace that based on their historic trends has been adequate, but they need to accelerate the pace. The sooner we get things started the better."
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