High land costs will lead to mixed results

Wednesday, Dec. 20, 2000 | 11:26 a.m.

New home sales in the Las Vegas area are off about 4 percent from last year's total and local industry leaders say high land prices are going to make it even harder to offer affordable homes in the future.

But there may be an up side for current home owners -- it may be easier to sell their own houses and they may get better selling prices as new-home prices climb.

Frank Pankratz, senior vice president of the Del Webb Corp., recently told the Real Estate Trends conference sponsored by Colliers International that higher land costs will result in higher price tags on new homes.

Del Webb, he said, plans to undertake a new strategic plan to enhance shareholder value and leverage the company's identity as an expert in retirement and Baby Boomer communities.

The company, which has three of its 17 Sun City retirement communities in Southern Nevada, will continue its focus on that market -- but future neighborhoods won't be as large as some of the existing ones. The new adult communities will be built on 1,000 to 3,000 acres, he said. By comparison, Sun City Anthem is on 3,300 acres and Sun City Summerlin is on 2,530 acres.

The entire Anthem master plan, which includes the Anthem Country Club and Del Webb's Coventry Homes neighborhood as well as Sun City, is on 5,064 acres.

Del Webb's smallest Sun City development in Southern Nevada, the nearly sold-out Sun City MacDonald Ranch, is on 564 acres.

Del Webb also will have a greater emphasis on country club communities serving the Baby Boomer market and will develop specialty communities, such as the evolving multigenerational market. The company also will invite other home builders or joint-venture partners to develop master-planned communities.

Pankratz said in the Las Vegas market, there already has been consolidation as higher land prices have forced some companies to abandon or scale back projects or partner with others to maximize profits. He cited Saxton Inc., Champion Homes and Del Webb's own Coventry Homes division as examples of companies closing out their neighborhoods and the consolidation of Kaufman and Broad with Lewis Homes as a cost-saving merger.

The new land offered by the Bureau of Land Management in auctions is no solution, he said, because the first BLM sales showed a pattern that is expected to be repeated -- aggressive bidding and higher prices.

Pankratz also cited other pressures that will make construction more expensive -- tougher air quality standards, new development fees, defending against costly construction defect litigation and the threat of increased taxes from a proposal backed by Clark County's teachers union.

"There's a great deal of criticism by the no-growth crowd, the I've-got-mine, close-the-door-behind-me bunch," Pankratz said. "It's not growth we're talking about. It's economic development."

Experts in residential development concur with Pankratz's analysis.

Dennis Smith, president of Las Vegas-based Home Builder Research Inc., said even though the 16,467 homes sold in Clark County through October represents a 3.8 percent decrease from the total sold during the same time frame in 1999, "the numbers are right where we expected them to be," he said.

"Last year, we projected that sales would be off by about 5 percent this year because of supply," Smith said.

The Meyers Group, a California-based housing industry consultant, has charted the rise in the median price of homes in the Las Vegas area.

Ken Perlman, a consultant with The Meyers Group, said not only are developers burning through lot inventories quickly and new land is hard to come by, but the Las Vegas home market is undergoing change.

"Las Vegas used to be primarily an entry-level market," Perlman said. "But that's evolving.

"With the arrival of high-end casino projects like the Bellagio, the luxury condominium market that has sprung up and developments like Red Rock Country Club, the nature of the market is evolving," he said. "There's much more move-up going on and the price reflects that."

Perlman said housing affordability also is declining in Las Vegas.

In the past three years, home affordability has dropped. In the third quarter of 1998, Perlman said, 53.4 percent of Las Vegas households had the income to afford a median-priced home. Since the median price of a home has increased from $127,990 in the third quarter of 1995 to $158,323 in this year's third quarter, it isn't surprising that the percentage of families that can afford a median-priced home has fallen to 44.3 percent in this year's third quarter.

The home's affordability can be traced back to land costs, Perlman said.

"The price of land is going up and up and up and it's pricing builders out of the entry-level market," Perlman said. "That's not going to change anytime soon."

But Perlman pointed out that many observers aren't used to Las Vegas being anything but a hot market. While the housing market is weaker, it's still far better than in most locations.

The decline in new-home sales also spells a potential bump up in the resale market, although officials with the Greater Las Vegas Association of Realtors say home owners selling their homes to move up have yet to realize any serious economic gains.

New-home sales represented more than half of the market for most of the '90s. But last year, for the first time, there were more resales than new home sales, said Irene Vogel, president of the association.

Meanwhile, the association's statistics on the median price of homes is more telling of the level of appreciation on resale home prices.

The association does not break out resales from new home sales, but the vast majority are resales. The association said the median price of homes sold in Las Vegas in June 1998 was $125,000. In June 1999, that had risen to $131,900 and by June 2000, it was at $136,000.

Jim Prohaska, information and technology director of the association, said 50 percent of homes sold being new is one of the highest percentages in the nation. He said the reason why is that it's easier -- and often more appealing for a first-time buyer -- to get into a new home.

Prohaska said Realtors contribute by taking prospective buyers to model homes as well as listed property.

"It's easier to see model homes," Prohaska said. "It's usually the first place a new visitor is going to see. Look at all the advertising there is for the new neighborhoods. A new resident is bombarded with it."

But Prohaska said in order to make new homes more affordable, builders are putting fewer frills in their houses. Features that used to be standard now come at a premium. And, there are subtle changes in homes.

"Sometimes, you really have to look closely for them," Prohaska said. "Is there a stuccoed frame around the window? That used to be a standard treatment, but now there are a lot more flat exterior walls that aren't as decorative.

"What about the grade of the carpet? Are there any hardwood floors? What about the quality of the cabinets?" he asked. "These are some of the things builders are doing to keep costs down."

Fafie Moore, broker-owner of Realty Executives of Nevada and a member of the board of directors for the Greater Las Vegas Association of Realtors and the Nevada Association of Realtors, said builders also are becoming more conscious of adding energy-saving devices in homes to make them more appealing.

By placing more emphasis on energy-saving features, the monthly cost of owning a home can be cut, she said. That's becoming more necessary as utility prices climb.

"(Saving) $20 in a month may not seem like a big deal, but at the end of the year, that could add up to $250 and that could buy a few extra pairs of tennis shoes," Moore said.

Moore also said she expects to see a trend toward more single-family homes being built because aging Baby Boomers don't want to negotiate stairs and single-story homes are less expensive to heat or cool.

She said real estate agents have begun seeing a rise in appreciation in existing-home sales, a sign that the appeal of resale homes is catching up to new homes.

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