The Rent will Become Too Damn High
There was a time no one would venture near Swenson and Sierra Vista in Las Vegas, unless you were looking to score some drugs or something else that might be traded outside the law. Now Daniel Grimm, founder of DG Development Corp., has announced plans for a six-story, 250-room hotel at the southwest corner of the aforementioned corner, and a 300-unit apartment complex immediately south of the hotel.
Grimm is looking to piggyback on the Las Vegas Convention Center’s $1.4 billion investment in the neighborhood. According to the LVCVA’s website,
Nevada State legislators and Nevada Governor Brian Sandoval approved a bill during a 2016 special legislative session paving the way for development of the Las Vegas Convention Center District. The $1.4 billion project will add 600,000 square feet of new meeting space ensuring Las Vegas remains the No. 1 trade show destination for decades to come. The legislation established a 0.5 percentage point increase in Clark County’s room tax to help fund the Las Vegas Convention Center District.
Nothing like a billion plus tax dollars to turbo-charge a neighborhood. Eli Segall reports for the Las Vegas Review Journal, “The Las Vegas Convention and Visitors Authority aims to finish the convention center’s 1.4 million-square-foot expansion in 2021. It then plans to renovate the existing 3.2 million-square-foot facility.”
Grimm’s apartment complex on 6 acres, will offer units ranging from 458 to 1,229 square feet., and he expects to charge an average of $1.50 per square foot in rent. So, many of these units will rent for $1,000 to $1,500 a month.
If that seems high, that’s where apartment rents are headed everywhere. Joel Kotkin and Wendell Cox write for Newgeography.com,
that 58% of the 1,300 renters in the Hunt survey said they felt “stressed” about their rent, or that many respondents said they couldn’t save for future purchases like homes. Rather than the sunny freedom promised by those who promote a “rentership society,” most of those surveyed said that finding a convenient place with the amenities they required – for example, fitness rooms, places for pets and adequate space – was very difficult. Some renters have been forced to euthanize their pets, spend upwards of 50 days looking for a place or move farther from family and friends.
Despite rent increases, vacancy rates nationwide have fallen despite a surge of new construction.
Kotkin and Cox write,
But it won’t just be renters impacted by rising rents. Jason Furman, who served as chairman of the Council of Economic Advisors under President Obama, calculated that a single-family home contributed two and a half times as much to the national GDP as an apartment unit.
The decline in investment in residential properties has dropped to levels not seen since World War II. By some estimates, if we had that kind of housing investment again, we would return to 4% growth, as opposed to our all-too-familiar 2% and below.
America’s housing crisis, long tied to ownership, is now extending into rising rents. But the stress that renters are feeling impacts all of us.
Morgan Stanley concluded in their report in 2011,
It is our view that these required market conditions will not return for several years. In fact, some of the conditions that we identified may get worse for owner-occupied housing. Specifically, GSE reform, Dodd-Frank securitization rules, mortgage interest deduction reform, continued home price declines and a long workout period for distressed homes, will likely make it harder to buy an owner-occupied home. As such, we believe that the US will become a Rentership Society, in which the homeownership rate will keep falling, the homerentership rate will conversely rise, and the rental market will dominate the investment landscape in housing for years to come.
However, eventually, the rent becomes too damn high.