Markets in Focus: Las Vegas

The Local Economy and the Rental Market

When the pandemic first took hold, it seemed Las Vegas would be impacted more severely than other cities due to its reliance on the tourism industry. As tourism halted, unemployment rose to 33.2% in April 2020 and has since retreated to 9.5% in March 2021.

Despite the pandemic’s impact on the local economy, the rental market performed well during 2020. RealPage reported occupancy increased to 96.5% in Q4 2020 from 95.3% in Q4 2019. Rent growth was 3.6%, much higher than the national average of -1.1%. At the same time, rent collections were down around 5% over the past six months¹; a higher percentage than the national collections rate in the same time period.

Exhibit 1: Rent Growth Compared with Rent Collections

* Sources: RealPage, NMHC, Freddie Mac

One partial explanation for what we see in Las Vegas is that despite unemployment benefits in Nevada and the stimulus helping to replace nearly 90% of the median renter’s pre-pandemic income, tourism and gambling employees may rely more heavily on tips that were not replaced by benefits. This could have left renters with less income for monthly expenses, leading to lower rent collections.

At the same time, we found that demand for rental housing increased in Las Vegas but with limited supply.

Limited Supply: Construction History and New Demographics

Looking at historical construction data helps us better understand the past 16 months. Total housing construction ramped up before the 2008 financial crisis. In 2004, the Las Vegas metro area delivered just over 37,000 new homes, both for sale and for rent.

The national peak happened in 2006, with roughly 2 million homes completed. National deliveries have rebounded to 65% of the pre-crisis peak while Las Vegas has only reached 36% of its pre-crisis delivery volume. Total housing deliveries continue trending upward nationally, but Las Vegas total completions have flattened.

Exhibit 2: Housing Unit Completions

* Sources: Census.gov, Moody’s Analytics, Freddie Mac

As the 2008 crisis unfolded, the Las Vegas housing market was decimated; after the bubble burst, there were high levels of vacant supply to absorb. The vacancy rate spiked to about 16% in Las Vegas, averaging nearly 4% higher than the national rate from 2008 to 2014.

Since 2014, the Las Vegas vacancy rate has been comparable with or better than the national average. Data from Q3 and Q4 2020 show the housing market in Las Vegas is now much tighter, with the vacancy rate falling to just 3.1% at the end of the year, less than half the national vacancy rate.

Exhibit 3: Overall Housing Vacancy Rates

* Sources: Census.gov, Moody’s Analytics, Freddie Mac

Unique Market Characteristics, Unexpected Outcomes

Demand for multifamily rental units in Las Vegas was expected to be weak in 2020 due to the high number of job losses. However, the opposite was true. Data pulled by CBRE analyzing USPS change of address suggests more people moved to Las Vegas from neighboring California during the pandemic.

Total move-ins to Las Vegas from California were up 13.6% from 2019 to 2020, with the largest increase from San Francisco up 36.6%. Likewise, the share of all move-ins to Las Vegas from California rose from 9.6% to 10.4%.²

Questions remain around how the pandemic and the economy will take shape. Limited new supply and higher demand kept vacancies down and allowed for rent growth in 2020. But at the same time, rent collection rates lagged. For Las Vegas, we project vacancy rates to remain relatively flat and rents to increase by nearly 4% in 2021.

¹  Average differences from October 2020 through March 2021

²  A majority of the moves in a city stay within the metro areas boundaries. Las Vegas saw about 74% of change of address forms submitted to the United States Postal Service staying within the Las Vegas metropolitan area.