Building more high-rise apartments could help alleviate the Las Vegas Valley’s housing crunch, but don’t expect a boom in taller residential buildings anytime soon, experts say.
A number of factors come into play when constructing buildings taller than three stories, including fire-code requirements, sprinkler systems, elevator capacity and speed, building materials and parking requirements, said Neil Opfer, an associate professor of civil and environmental engineering and construction at UNLV.
Over the years, regulations and construction requirements have become more stringent, Opfer said. Most of the valley’s apartment and rental stock was built decades ago, when there was little demand for high-rise apartment complexes.
A recent UNLV study found that the number of aging apartment buildings in the valley is poised to increase sharply, creating a growing need for renovation or replacement. Even so, Opfer said he does not foresee a wave of high-rise apartments being built to replace them.
While economists and housing advocates say adding higher-density housing could help ease housing costs by increasing supply, developers and analysts say steep construction costs, financing challenges, regulatory requirements and a lack of comparable projects make high-rise apartment development difficult in Southern Nevada despite growing demand for housing.
A recent Redfin report found the Las Vegas Valley is lagging behind several other Sun Belt cities in apartment construction. The region ranked 44th among the nation’s largest metro areas for apartment development and fell well below the national average.
“It used to be the standard apartment complex (in Las Vegas) was two stories,” Opfer said. “As soon as you get into building multiunit complexes, you’re into the International Building Code, which means building over three stories just becomes so much more expensive.”
Housing costs and rental rates remain elevated in the valley compared with pre-pandemic levels, said Daryl Fairweather, Redfin’s chief economist. Research shows multifamily housing supply has a direct effect on housing affordability, she said.
“Our data shows markets that add more apartment supply tend to see slower rent growth and more bargaining power for renters,” Fairweather said. “Higher-density housing, including high-rise apartments, can play an important role in easing pressure in fast-growing cities like Las Vegas, where demand has outpaced supply for years.”
How did we get here?
A wave of affordable housing was built in the valley during the 1990s through the Low-Income Housing Tax Credit program, a federal initiative established in 1986, Opfer said. Many of those properties were required to remain affordable for only 30 years, and those deadlines are now approaching.
As affordability restrictions expire, some housing experts warn that communities across the country, including Las Vegas, could face additional pressure on already strained housing supplies.
Real estate analysts and brokers have suggested that more high-rise apartment projects could help improve affordability by adding units to the market, potentially moderating rent growth and reducing pressure on existing rental housing.
Jeffrey Swinger, executive vice president of multifamily investment sales at Colliers in Las Vegas, said the market’s lack of high-rise apartments could begin to change as developable land becomes scarcer and pressure on the housing market continues to grow.
More high-rises could be built as the supply of privately owned land available for development continues to shrink, he said. One example is Southern Land Co., a Nashville-based developer that recently began preleasing units at projects in the Arts District and Symphony Park.
Southern Land has also said it remains on track to begin preleasing its new residential tower in Symphony Park this summer. The project is expected to be the first residential high-rise completed in Las Vegas in more than 15 years. The developer is betting on growing demand for urban living downtown and plans to add roughly 900 rental units to the market through its upcoming projects.
Apartment sales slowed last year, according to Colliers’ fourth-quarter report on the valley’s multifamily market, and the trend is expected to continue this year. The report said the market is still searching for equilibrium as investors and developers adjust to elevated interest rates and ongoing operational challenges.
The decision to build above four stories presents a classic chicken-and-egg problem, said Danny Khalil, associate director of market analytics for CoStar Group and Homes.com.
“The general four-story suburban multifamily complex is the industry standard these days, which means it’s often easier to find comparable projects to support financing these developments,” Khalil said. “Lenders like to see similar properties that were built and compare them to the proposed project, its forecast for lease-up and its projected rents.”
Because there are relatively few high-rise apartment projects in Las Vegas, lenders have fewer examples to use when evaluating potential developments, making financing more difficult to secure, he said.
“You often see this in certain markets where there hasn’t been much high-rise development,” Khalil said. “Suddenly, when one project is built, it is often followed by a couple of others, as there is now a benchmark or two in the market to gauge your return on investment. High-rise development is inherently expensive, but the demand for these projects could be increasing given the interest in and need for density in Las Vegas.”
Construction costs in the multifamily sector have climbed in recent years because of inflation, supply-chain disruptions and other economic factors. An ongoing labor shortage in the construction industry has further compounded those challenges.
Multifamily financing accelerated when interest rates fell to historic lows during the pandemic, triggering a construction boom and a record number of proposed projects. Much of that supply has now reached the market. However, the number of new multifamily developments in the pipeline is expected to decline significantly in the coming years.
Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.
