The Center for Business and Economic Research
University of Nevada, Las Vegas
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The Center for Business and Economic Research University of Nevada, Las Vegas
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As a rising tide sends water seeking a level distribution, so it is that surplus single-family detached units have sent vacancy rates up for rental multifamily units. The apartment vacancy rate reached 8.1 percent for the first quarter of 2008. The oversupply of single-family units in Clark County arose out of speculative investing in housing. The economic forces have sent prices downward. Furthermore, the pressure for price deflation remains.
The table below shows the estimated number of “see through” housing units in Clark County for firstquarter 2008 (measured as of April). We estimate 27,998 vacant units for all housing types. Most notably, multifamily vacancies (12,853) exceed the more-often reported vacancies for single-family detached units (11,855). We have seen only modest changes since the last quarter.
| Estimated Excess Supply of Housing Units in the Greater Las Vegas Area by Housing Type: April 2008 | |||||
| Type of Housing Unit(1) | Vacant Units | Estimated Units in the Greater Las Vegas Area | Assumed Percent Normal Vacancy Rate (%) | Estimated Normal Vacant Inventory | Estimated Excess Supply2 |
| Single-family detached | 11,855 | 426,761 | 1.5 | 6,401 | 5,454 |
| Condominium | 2,401 | 67,034 | 3.5 | 2,346 | 55 |
| Townhouse | 889 | 32,788 | 2 | 656 | 233 |
| Multifamily(3) | 12,853 | 158,680 | 6 | 9,521 | 3,332 |
| Total | 27,998 | 685,263 | 18,924 | 9,074 | |
| 1Excludes mobile homes 2Estimated excess supply = estimated units less estimated normal vacancy inventory 3Includes apartments and multiplex units |
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Our estimate of excess supply of units increased from 8,521 for the last quarter to 9,074 units for the first quarter. All in all, market pressure remains for further price declines. The average rental rate for apartments dropped in the first quarter of 2008, down by $5.00 from the average rate for the last quarter of 2007. Moreover, move-in specials lower the effective rate for new renters. These specials and who gets them prove a difficult adjustment; so we only report the asking rental rate. In addition, the average rate varies according to response patterns and customary sampling variability.
The excess-supply estimates assume norm vacancy rates. See the norms used in the above table.
Overall, the excess supply of “see through units” remains essentially unchanged. Population growth rates have slowed of late, the first-quarter drivers’ licenses count dropped to 16,397 for 2008, down from 18,957 (first-quarter 2007) and 21,393 (first-quarter 2006). Annual declines of 11.4 percent and 13.5 percent, respectively, foretell slower rates of adjustment to Southern Nevada’s housing imbalance.
The increase in apartment vacancies above the 8 percent level has marginally lowered rental rates. On the other hand, the excess supply of single-family detached units has pushed median prices downward at a rate in excess of 7 percent as measured from recorded sales. Other measures, for example, samesale measures, report greater price declines. Still, as long as excess supply conditions prevail housing sale prices should continue to decline.
Permitting activity, the first step in adding to the existing supply, dropped measurably during the first quarter. Only 2,563 units were permitted. This compares with 4,704 for the first quarter of 2007, a decline of 45.5 percent for the same quarter a year ago. Residential permitting in 2007 equaled 24,069. Of the 7,642 permits for fourth-quarter 2007, some were taken out early in anticipation of future activity and increased fees.
A continuation of the first-quarter rate through 2008 would yield an annual permit total of 10,252.
Population growth of 50,000 and 2.5 persons per household in 2008 would create a demand for 20,000 units. We could meet this demand with the excess supply on hand and completion of the small number of additional units reflected by recent permitting. Of course, market conditions may change for many reasons, rendering a range of possible outcomes, to be sure.
Still, the stylized facts point to continued excess supply for the remainder of 2008 and into 2009. And, in the final analysis, job prospects will drive demographic parameters and the derived demand for housing.
R. Keith Schwer, Ph.D.|
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