As Nevada booms, Henderson and Reno grapple with growth limits

In the boom-and-bust state of Nevada—which built its economy on mining, gambling, and tourism—ups and downs are a way of life. Henderson, the state’s fast-growing second city behind its neighbor Las Vegas, seems to be on a prolonged winning streak.

Earlier this year, Google broke ground on a state-of-the-art $600 million data center. The Golden Knights, the city’s new hockey team, which had a Cinderella season in 2018, announced that it would be building a practice facility in town, and Haas Automation, a maker of computerized machining tools, or CNC machines, revealed plans for a 2.34 million-square-foot factory that would employ thousands. Along with new housing and commercial developments, and a swelling population of more than 300,000, with an additional 100,000 expected by 2040, these marquee projects underscore Henderson’s resurgence, says city economic development director Ken Chapa.

“The business climate here is better,” he says. “We’ve enjoyed some natural assets, the competitive advantage of being close to places like Phoenix and Salt Lake City, but we’re really seeing a big draw coming from California. Employers are looking to their eastern neighbor, where their employees can actually afford housing.”

Bust, then boom, as Nevada recovers from recession’s hit

Like Henderson, the state seems to be on an upward trajectory. Crowned the fastest-growing state in the U.S. by the Census Bureau last year after topping 3 million in population, Nevada has also netted the fastest job-growth numbers in the country for the last eight months. Casino and entertainment conglomerate Jacobs Entertainment just released plans for a 20-block, 2,000-unit development in downtown Reno featuring hotels, restaurants, and possibly an aquarium, a billion-dollar bet that new tech firms will continue their growth in the city.

Development dollars have also flowed into Las Vegas; the city’s Convention and Visitors Authority predicts 2020 will see billions in economic growth, partly thanks to construction projects that include the $1.8 billion new stadium for the NFL Raiders and a 1.4 million-square-foot expansion of the city’s convention center. Las Vegas Weekly says the game-changing projects set to come online next year are all a sign of the city’s new “multifaceted entertainment industry.”

Nevada, by and large, is still an entertainment-driven state; tourism is expected to represent 30 percent of the economy this year. But as the state finally shakes off the Great Recession, which caused waves of foreclosures and nation-leading 14 percent unemployment, its more diverse economy hopefully makes today’s upswing more stable.

Digging out from a hole

To say the state was hit hard by the housing crisis and Great Recession is an understatement. In the lead-up to the bust, housing values appreciated 80 percent a year in Las Vegas between 2003 and 2006, and they just as quickly dropped from their peak, falling 60 percent a year after the bubble burst in 2008. By 2016, according to KNTV Las Vegas, one in four homeowners in Las Vegas owed more than their homes were worth.

According to Amanda Moss, senior director of government affairs for the Southern Nevada Home Builders Association, the region simply couldn’t sustain the number of homes being produced. In the run-up to the crash in 2006 and 2007, the region was issuing roughly 25,000 building permits annually for single-family homes (in the mid-’90s, that was 40,000 permits). Today, with double the population, Southern Nevada is only building 10,000 to 11,000 new homes per year.

“The challenges today are worker shortages and rising [construction] costs,” Moss says. “We can’t build them fast enough, and can’t keep them on the shelf.”

A similar crest and crash happened in Northern Nevada: In 2009, according to Moody’s Analytics data quoted by the New York Times, homes in Reno lost half the value they had in 2006.

The huge wipe-out in housing values led to a statewide rethinking of economic policy and priorities. In 2012, then newly-elected Gov. Brian Sandoval’s Governor’s Office of Economic Development released a report calling for renewed investment in high-tech industry, calling it the “new frontiers that will beckon future generations of Nevadans.”

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Offering new arrivals an incredible value

As the nation slowly recovered from the recession, Nevada, with its low prices, high inventory, and business-friendly climate (there are no corporate or inventory taxes) showed itself to be a deal. With median home prices hovering around $200,000, Nevada beckoned residents of neighboring states, especially California, seeking jobs and more affordable housing. Moss says that at its busiest, 3,500 Californians a month were moving to Southern Nevada, many to Henderson. Many of the master-planned communities going up in the southern Nevada desert, sprawling out to far-flung communities such as Logendale and Indian Springs, are quickly bought out by members of the middle class fleeing the Golden State.

Rich MacDonald, a regional developer, told the Wall Street Journal that his ex-Californian customers are “tired of getting their pockets picked.”

Chapa says the arrival of companies such as Haas, or more famously Tesla, whose gigafactory for electric battery manufacturing is reshaping the Sparks, Nevada, housing market, has really been the driver. They see the value in the region’s more affordable and accessible lifestyle.

“Nevada was founded on hospitality and tourism. That’s the backbone of the region and it always will be,” Chapa says. “But diversification with high-tech and new manufacturing is really giving people other options and diversifying the entire economy. Our biggest challenge is perception. I’m not always convinced southern Nevada has done a good job of communicating its job benefits.”

Boom that’s bumping against the limits of the housing market

As Nevada’s diversifying economy grows, there are signs of strain. Despite some flashy new projects, the state still relies on leisure and hospitality too much: According to the Hachman Index, a research metric used to assess economic diversity, Nevada is in the bottom five states in the nation, alongside mining-dependent Alaska and Wyoming.

“Hospitality is to Southern Nevada what government is to D.C.,” Jeremy Aguero, an economic analyst with Applied Analysis, told the Reno Gazette Journal. “We have three times the size of a leisure and hospitality market than we should for an economy our size and we’re still underrepresented in other areas like healthcare.”

Housing affordability has become a significant issue, with 48 percent of state renters categorized as cost-burdened, meaning they pay more than 30 percent of their incomes for housing. According to the National Low-Income Housing Coalition, the state has the largest in-need population of renters. In 2018, there were only 15 affordable homes available for rent statewide per 100 extremely low-income renter households—those at or below the federal poverty level or earning 30 percent or less than the area median income—and new affordable units aren’t coming fast enough.

The tech influx has made the problem worse. In the Reno-Sparks area, which has added 48,000 jobs in the last five years due to the arrival of companies like Tesla, Google, and Switch, housing has multiplied. In the last five years, median new home prices ballooned to $400,000, a 63 percent increase, and average apartment rents doubled, per the Wall Street Journal. But local homeowners are fighting plans to build affordable housing, and the employment rush has led to displacement, what some call “being Tesla’d.”

Nevada is once again moving fast, but it needs a more equitable and sustainable foundation before the next crisis hits. Otherwise, its growth risks leaving many residents behind.