Reno, Nevada, is experiencing a mini boom in affordable housing production after years of inactivity.

By Brad Stanhope, Senior Editor, Novogradac

"Reno is known as the 'Biggest Little City,' but it has grown to a medium-sized city that still has a small­town flavor," said Dane Hillyard, principal and co­founder of Greenstreet, a full-service multifamily real estate development company based in Reno. "There's a limited subcontractor base and a limited labor pool."
 
There's also a historic lack of low-income housing tax credit (LIHTC)-financed properties—a drought that is seeing a reprieve, largely due to a half-billion-dollar investment by the state in affordable housing. But issues remain.
 
"Over the past years, we've seen rents continue to increase and incomes haven't kept pace," said Hilary Lopez, executive director of the Reno Housing Authority and a longtime player in the broader affordable housing space. "It's become more challenging for a wider swath of the population, both on the rental side and single-family side." 
 
Gambling, Divorce and Plenty of Growth
Reno was founded in 1868 along the new transcontinental railroad. Within three years, the city was the county seat of Washoe County. Reno's growth picked up in the 20th century with a bonus: it became known as "The Biggest Little City in the World" in 1926, when an arch with that moniker was built over Virginia Street to promote the Transcontinental Highways Exposition of 1927.
 
Gambling's legalization and the passage of liberal divorce laws in the 1930s created a boom in Nevada and the casino business became a mainstay of the Reno economy. Beginning in the 1940s, the population grew at least 30% per decade through the 1990s. Even in the 21st century, Reno's population growth outpaced the national rate. 
 
Reno trails only Las Vegas, Henderson and North Las Vegas among the state's most populated cities, with its population estimated at just over 270,000 as of July 1, 2022. The Reno-Sparks metropolitan statistical area (MSA, the second largest in Nevada, behind the Las Vegas MSA) has a population of about 530,000. 
 
"I've been told this is the most urbanized state in the country, meaning we have the highest percentage of our population in urban areas," said Eric Novak, president of Praxis Consulting Group and chair of the Nevada Housing Coalition Policy Committee. "Clark County [which includes the state's three largest cities] is about 72% of the state's population, Washoe County is 16% and the remaining 12% of the population is spread across 15 rural counties."

	Reno	United States
Population growth rate, 2010-2022	23.2%	7.9%
Percentage of residents who rent homes	51.7%	35.4%
Median monthly gross rent, 2017-2021	$1,213	$1,163
Median household income, 2022	$86,606	$72,414
Poverty rate	12.6%	11.6%
Foreign-born residents, 2017-2021	15.6%	13.6%
Percentage of non-white-alone population	31.0%	24.5%

Reno by the Numbers

Tech, Population Increases
Casinos were the economic engine for Reno for decades, but the introduction of native casinos in California in recent decades resulted in the city turning to technology, spurred by investments by companies such as Tesla, Amazon, Apple, Microsoft and Google. Combined with an influx of residents from California, things changed. 
 
Chip Hobson, executive director of Silver Sage Manor, a nonprofit affordable housing developer that has built several senior LIHTC properties in Reno, emphasized that it's not just wealthy Californians coming to town. 
 
"We have a large influx of population overall, given the tax environment of the state," Hobson said. "There are a lot of retirees that have come to the area, but we've seen parents of people who move to Reno also moving here to be with their family." 
 
The median household income in the MSA in 2022 was $86,306, 19% higher than the national median of $72,414. That median income is forecast to grow at nearly 4% through 2027, surpassing the national rate of increase and further widening the gap. 
 
Meanwhile, the region's construction world was hit hard by the Great Recession of 2008-2010 and took a long time to recover.
 
“Ten years ago, coming out of the prior recession, we had general contractors and homebuilders that weren't building or had left the area, so it took time to incent those contractors and developers back into the community," Lopez said.
 
Dearth of Bond-Financed Transactions 
LIHTC-financed development has been historically limited in Reno, partially because the state 9% LIHTC annual set-aside for northern Nevada is generally bout $12.5 million, which allows one, approximately 40-unit development per year. Economics made private-activity bonds and 4% LIHTC-financed properties difficult, too.
 
“There were no new construction bond projects for many years, because the AMIs [area median incomes] were low and our construction costs were comparable to Sacramento," said Novak. He said that 10 years ago, the market-rate rents were only slightly higher than LIHTC rents at 60% of AMI, discouraging affordable housing development. 
 
No new-construction, bond-financed affordable housing developments were built in Reno from 2002 until 2014, then the U.S. Department of Housing and Urban Development created small area difficult development areas (DDAs) in 2015 and extended to two years the window to start construction in a DDA or qualified census tract-crucial to the Reno area, where DDAs often lost designation and construction delays were common. At the same time, the state housing agency created the Growing Affordable Housing Program with its own reserves, which provided gap funding of up to $3 million for new construction bond properties. 
 
Bond-financed developments increased, going to two annually in the city for 2020 and 2021.
 
Challenges, Opportunities in Reno
Hillyard said the biggest challenges to building in Reno are the high cost of land, a very tight labor market and high construction costs. 
 
"The availability of land for affordable housing development is particularly interesting because we're seeking sites near transportation, other services and amenities," Lopez said. “In particular, we are looking for infill sites or sites located close to amenities and there's limited amounts of those parcels available. We've also seen land prices increase dramatically."
 
Permanent supportive housing (PSH) is a big need in Reno, even in the wake of a bill passed in the 2023 state Legislature that included $32 million for PSH. But there are other significant needs, too: according to the National Low Income Housing Coalition's 2023 report, "The Gap: A Shortage of Affordable Homes," Nevada has 17 affordable, available rental homes for every 100 renter households earning 30% or less of the AMI. That's the fewest available homes of any state.

"There's an incredible need for affordable housing of all types," Hobson said. "The senior population as well as those in that 50% [of AMI] and below category is what drives a lot of our mission and efforts. It's a high priority for the entire region to increase our affordable housing stock."
 
There is a bright spot: An influx of new state funding for housing.

Median Household Income in Reno, Nevada

State Resources 
"Nevada many times receives small-state minimums for federal resources," Lopez said. "We grew at a later time, so we don't have as many Section 8 housing choice vouchers as states with similar population. And within the state, we're smaller than Las Vegas, so they have more resources available to them."
 
Nevada affordable housing got a boost in 2022, when then-Gov. Steve Sisolak announced the state would invest $500 million from the COVID-19-related American Rescue Plan Act (ARPA) in affordable housing. It's a half-billion-dollar boost. 
 
"I think we're in a period of opportunity right now as a result of the ARPA funding," Lopez said. "It's a real opportunity at local level and the Reno Housing Authority is using a portion of these funds to preserve our critical public housing stock." 
 
As referenced, Gov. Joe Lombardo signed A.B. 310 in June, providing $32 million for a complete supportive housing package.
 
"Although RHA provides robust services for our clients, we haven't had a lot of purpose-built permanent supportive housing projects in the past," Lopez said. "But we're focusing more attention on it now." 
 
Another significant new law changed Nevada's longstanding requirement that affordable housing properties receive a property tax exemption only if they received HOME Funds. A.B. 62 allows other affordable housing financing tools, including the LIHTC, to create eligibility for that exemption.
 
And all that followed the creation of a state LIHTC in 2019.
 
Working Together 
Affordable housing stakeholders in Reno are optimistic. 
 
"Reno is a very developer-friendly community, and the housing division is easy to work with," Novak said. "A lot of developers are coming in because we still have volume cap for bonds. On the downside, because of the way the volume cap is allocated in the state, the housing division cannot predict the availability of bonding authority for multifamily housing. And, because the division expects bonds to be paired with ARPA-funded projects over the next couple of years, bonds may be more scares in 2023 and 2024." 
 
The relatively small size of the affordable housing world in the state also plays a big part in the optimism. 

"We're a small state and the people in the affordable housing industry all know each other, work together, and want to see our peers be successful," Lopez said. "We have very good access to all the staff members at different levels, which you don't get in some states. We can pick up the phone and call an administrator at the housing division or a city manager and work together to overcome an issue, with everyone wanting to figure it out and move forward. I feel like it's a real benefit for our state."

Source: Novogradac Journal of Tax Credits, Volume XIV, Issue IX, September 2023.