History and Analysis of the Las Vegas Housing Market By Dante Anselmo Bachelor of Science Civil Engineering Arizona State University Master of Science Civil Engineering University of California, Berkeley Submitted to the Department of Architecture in Partial Fulfillment of the Requirements for the Degree of MASTER OF SCIENCE In Real Estate Development At the Massachusetts Institute of Technology September 1997 @1997 Dante Anselmo All rights reserved The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in wl)leyr infart. Signature of the Author Dante Anselmo Department of Architecture August 3, 1997 Certified by William Wheaton Professor of Economics and Urban Studies and Planning Thesis Supervisor Accepted by William Wheaton Chairman Interdepartmental Degree Program in Real Estate Development SEP 1 6 1997 -1- IRA IES History and Analysis of the Las Vegas Housing Market By Dante Anselmo Submitted to the department of Architecture on August 3, 1997 in partial fulfillment of the requirements for the Degree of Master of Science in Real Estate Development at the Massachusetts Institute of Technology Abstract This thesis looks at the historical growth indicators of Las Vegas and compares this data with the indicators of classic models of growth economics. Based on these comparisons, a determination of the type of growth experienced by Las Vegas will be made. Once the type of growth model has been determined a set of equations based on the equilibrium of supply and demand will be devised. These equations will then be used to build a stock flow model that will extrapolate economic indicators into a forecast of price and production of homes for the coming years. Finally, based on the stock flow model and a number of economic scenarios, the future of the Las Vegas housing market will be investigated. Thesis Supervisor; William Wheaton Title; Professor of Economics and Urban Studies and Planning -2- Acknowledgement I would like to thank the following people for their generous assistance during this project. My Advisor, Professor William Wheaton, for introducing me to the concepts used in this paper, and for having the patience to guide me from half-baked ideas toward a workable thesis project. All of the folks at the UNLV Center for Business and Economic Research, without their help I would have gotten nowhere. And most importantly, my wife Julie who during the time I wrote this paper, and with almost no help from me, managed to coordinate our move to St. Louis, the birth of a baby, and running a household. -3- 1. INTRODUCTION................................................................7 1.2. OUTLINE OF PAPER ..................................................... 8 2. HISTORY OF THE LAS VEGAS VALLEY................................................................10 2.1. SPANISH/MORMON TRAIL.............................................. 10 2.2. RAILROAD ........................................................... 11 2.3. HOOVER DAM (ORIGINALLY BOULDER DAM)...............................13 2.4. DESTINATION RESORTS/MAFIA TIES ................................... 15 2.5. CORPORATE OWNERSHIP ............................................... 16 2.6. FAMILY DESTINATION/THEME RESORTS ................................... 16 3. ANALYSIS OF THE LAS VEGAS ECONOMY ............................................................ 19 3.1. THREE SECTOR MODEL ..................................................... 19 3.1.1. DEMAND INDUCED GROWTH .................................................................................... 20 3.1.2. SUPPLY INDUCED GROW TH ...................................................................................... 24 3.2. OBSERVED DATA ON LAS VEGAS'S THREE ECONOMIC SECTORS........................... 27 3.2.1. THE O UTPUT SECTOR ................................................................................................ 27 3.2.1.1. Visitor volume 29 3.2.1.2. Visitor revenue 29 3.2.1.3. Revenue Per Visitor 31 -4- 3.2.2. THE EMPLOYMENT SECTOR ....................................................................................... 32 3.2.2.1. Employment by Sector 32 3.2.2.2. Income Per Worker 33 3.3. COMPARISON OF THE LAS VEGAS ECONOMIC GROWTH TO THEORETICAL GROWTH MODELS............................................................. 34 4. ANALYSIS OF THE LAS VEGAS HOUSING MARKET.............. ............. 39 4.1. HISTORY OF LAS VEGAS HOUSING DEVELOPMENT ........................... 39 4 .1.1. C r IE S . ........................................................................................................................ 39 4.1.1.2 L as Vegas .................................................................................................... 39 4.1.1.3. North Las Vegas ........................................................................................... 40 4.1.1.4 H enderson........................................................................................................ 40 4.1.2. UNINCORPORATED AREAS ......................................................................................... 42 4.1.2.1. E nterprise ................................................................................................... 42 4.1.2.2. Lone Mountain ............................................................................................. 42 4 .1.2.3. P aradise ........................................................................................................... 43 4.1.2.4. Spring Valley ................................................................................................ 44 4.1.2.5. Sunrise Manor ............................................................................................. 45 4.1.2.6. Whitney ........................................................................................................... 45 4.1.2.7 Winchester.......................................................................................................45 4.1.2.8. Sum m erlin ................................................................................................... 46 4.2 HISTORY OF HOUSING PRICES....................................... 46 4.2.1. SINGLE FAMILY HoME PRICES.................................................................................. 47 4.2.2. TIMELNE OF HOUSING STOCK..................................................................................47 -5- 4.2.3. TIMELINE OF APARTMENT RENTAL RATES................................................................. 48 4.2.4. TIMELINE OF APARTMENT STOCK............................................................................. 48 4.3. LOOKING TO THE FUTURE .......................................... 49 4.3.1. STOCK FLOW EQUATIONS............................................................................................. 49 4.3.1.1. Dem and FitEquations................................................................................... 51 4.3.1.2. Supply Fit Equations..................................................................................... 55 4.3.2. DERIVATION OF STOCK FLOW TABLE...........................................................59 4.3.3. FORECASTS FOR THE LAS VEGAS HOUSING MARKET ................................................. 64 5. CONCLUSION.............................. ....... o.. ..o. .................. 67 6. BIBLIOGRAPHY............o...... ......... oo.......o....... ooo............. 70 1. INTRODUCTION 1.1. Introduction For the past ten years, "Build it and they will come" has been the mantra of homebuilders in Las Vegas. With Clark County's population increasing from 588 thousand in 1986 to nearly 1.2 million in 1997', development companies have been able to schedule projects based solely on production logistics, and available land. However, this explosive growth cannot last forever. Therefore, in the coming years (if not already), the successful companies will look past current projects and wonder: "How long will the boom last, and when should we rethink production?" To answer these questions, one has to understand the parameters driving the current market. Where are the buyers coming from? Who are they? Why are they buying in Las Vegas? What factors have made them choose buying a home over their current housing? And finally, In both timing and volume, what has been their effect on the housing market? This paper will try to answer these questions. To do so, it will start by looking at the fundamental forces driving the influx into Las Vegas. Is this influx Historical Perspective of Southern Nevada Center for Business and Economic Research, University of Nevada, Las Vegas. due to an increased demand for services produced in Las Vegas, and thus the local economy has "pulled" people from other areas? Or, has the influx been due to exogenous factors that have in effect "pushed" newcomers into the area? This thesis will try to discern the underlying factors driving this migration, in addition it will also look at the correlation between the demographics of the influx and the type and location of product demanded. Finally, this thesis will use the observed correlation of influx, to economic indicators, and housing to forecast the Las Vegas housing market. 1.2. Outline of Paper This paper will be divided into five sections: 1) Introduction, 2) History of the Las Vegas Valley, 3) Analysis of the Las Vegas economy, 4) Analysis of the Las Vegas housing market, and 5) Conclusion. The first section, Introduction, has introduced the topic and goals of the