An influx of major companies such as Tesla, Google, and Switch combined with geographical limitations on development have pushed median home prices in the Reno area up to around the $400,000 mark — out of reach of many residents.
In September, Mayor Hillary Schieve announced a pilot program designed to address the area’s housing shortage called "1,000 homes in 120 Days," offering developers local permit fee deferrals that act as no-interest "loans" to attract more construction. By the end of the 120-day application period on Jan. 30, developers had proposed 4,628 housing units scattered throughout Reno.
"This initiative will be beneficial to getting more housing product into the market," Schieve said in a press release announcing the program. "At the Mayor's Housing Town Hall, I teased a bold new initiative for housing. I'm excited that we kept that promise, and that we're introducing this transformative idea right here in Reno. Not many cities in the country have introduced something like this to spur development."
A review of the applications submitted for the initiative revealed that out of the 4,628 proposed housing units, only 3 percent of the units are considered affordable housing — 160 units designated as senior housing. Price points for all of the units are not yet available.
As of March 2, the City Council has accepted every application it has reviewed. If all of the projects are approved and simultaneously built, the city will be offering approximately $1.5 million in building permit fee deferrals and $15.5 million in sewer connection fee deferrals that the developers will pay at the end of construction.
The program’s lack of quotas to prioritize less-expensive options has drawn criticism from the public. Others have questioned the funding mechanism that will front the cost of the fee deferrals.
Critics include J.D. Klippenstein, the executive director of the progressive-leaning non-profit Acting in Community Together in Organizing Northern Nevada (ACTIONN).
"Decades of research have shown that the market does not build affordable housing unless there's deep incentives or subsidies," Klippenstein said.
Still, Schieve said the goal of the proposal was to increase housing units as a way of decreasing the overall price of homes.
A Comprehensive Housing Market Analysis from the U.S. Department of Housing and Urban Development estimated that in 2018, the total demand for housing units in the Reno area was 7,000 when only 1,375 units were under construction, and the demand for rental units was 3,800 while 2,825 were under construction.
"In a perfect world, it'd be great if every developer built affordable housing, but at the same time, that's just not realistic,” Schieve said. “And economics prove that we need housing of all types.”
An evolving program
Even though the program initially allowed for the construction of up to 1,000 homes within Reno’s opportunity zones, council members decided to allow proposals outside those areas and increased the number of allowed housing units.
Opportunity zones originated in the Tax Cuts and Jobs Act that Republican President Donald Trump backed and signed into law in 2017. The U.S. Economic Development Administration defines an opportunity zone as “an economically distressed community where private investments, under certain conditions, may be eligible for capital gain tax incentives.”
Aric Jensen, Reno’s revitalization manager, told The Nevada Independent that the governor’s office designated the opportunity zones in Reno after reviewing city recommendations, but the city did not get to choose where the zones were placed.
“We as a city are heavily promoting opportunity zones, specifically the ones in our downtown area where we want revitalization, which is why we included them as criteria for the 1,000 homes project,” he said.
In an interview with The Nevada Independent, Schieve said she and the council chose to focus on infill projects — projects built on vacant or underused properties surrounded by existing buildings — instead of sprawl into undeveloped areas because infill projects are cheaper. She also said city leaders wanted to focus on revitalizing buildings and lots abandoned in the wake of the 2008 recession, create more housing to increase services in the area, and preserve the natural landscape.
Jensen said that city staff designed the project for developers who already had plans to build housing and wanted to reduce their development time, which can take anywhere from five to eight years.
The standard fee repayment period for the deferral agreement is five years after developers receive a certificate of occupancy. Most developers have 18 months from the time they sign a deal with the city to begin construction. The city will determine a window of time in which the developer must complete the construction — time frames could vary depending on the size of proposed projects.
Council members decided that developers who need more time to begin construction will have to request an amendment from the council, and may not receive fee deferrals. If the impact fee values increase, developers will pay the additional costs.
Money from the city sewer fund will be fronting the costs for the deferred impact fees — something that bothers Paul McKenzie, a former councilman and the secretary treasurer for the Building and Construction Trades Council of Northern Nevada. McKenzie worries the plan is removing funds essential to maintaining, repairing, and paying for sewer costs.
"The staff of the city of Reno ... has kind of used that sewer fund as a slush fund. Those impact fees by statute have to be set aside for projects that are on a Capital Improvement Plan (CIP)," McKenzie said. "If they aren't ... then they should reimburse those funds to the development table because it's not just that we get to collect money to be used for whatever we want."
Councilwoman Jenny Brekhus has raised concerns about the use of the sewer fund for the project in multiple council meetings, warning that using funds for fee deferrals could potentially raise rates for Reno households. Quarterly rates for the sewer fund for single-family homes are $144.60 and for units within a multi-family complex are $119.04.
"While I support broad policy to address the challenges the housing production market is having, individual deals are difficult to me and in this one in particular because it reaches into the sewer fund," Brekhus said in a council meeting on Jan. 22, noting the potential for fee increases that could "hit household expenses across the board."
Schieve said the project would not put stress on the sewer fund.
"There is plenty of money in there, and we don't have projects that are coming forward that are pressing," she said explaining the council is trying to be proactive about addressing the immediate need for housing.
McKenzie also raised concerns about the legality of the project and how the city could offer fee deferrals.
In the 2019 legislative session, lawmakers passed SB103, a bill proposed by Democratic Sen. Julia Ratti that gave local governments the ability to reduce or subsidize impact fees for affordable housing projects.
“1,000 Homes in 120 Days” does not fall under SB103 because it was not explicitly for affordable housing, so city staff created an ordinance specific to the initiative allowing the council to grant fee deferrals for applications related to the project.
The council adopted the ordinance in a meeting on Oct. 2.
Although the ordinance granting fee deferrals may raise questions about equity in the housing market, city attorneys did not note any legal implications on the staff report.
An analysis of Comprehensive Housing Affordability Strategy (CHAS) data from 2010-2014 shows that there are 94 affordable units available in Reno for every 100 renter households earning between 51 and 80 percent of the area median income. However, it’s more difficult for people at the lower end of the economic spectrum: for every 100 renter households earning between 31 and 50 percent of the median income, the number of affordable units drops to 41, and for every 100 renters making 30 percent or less of the area median income, the number of affordable units is 27.
Klippenstein said increasing housing without providing stipulations for affordable housing in Reno will not solve the housing crisis.
"The current shortage for affordable rental units for low-income folks in Washoe County is 25,000 units. Given the resources we have, it would take us a century to cover the current gap if we don't create significantly increased resources for low-income, affordable housing," Klippenstein said, referring to data from the Truckee Meadows Regional Strategy for Housing Affordability Report, an analysis and evaluation of the current housing inventory in the region.
Klippenstein also said the program does not address a gap created by wealthier people moving into the city and impinging on the ability of residents who may be looking for housing.
In response, Schieve said the program is just one solution to stabilize the market based on the principles of supply and demand.
As for how the city plans to keep up with the consistent demand for housing?
Schieve said the council has been addressing homelessness and the housing shortage, but it is difficult because state-approved incentives that helped large companies such as Tesla move into the Tahoe-Reno Industrial Center in nearby Storey County did not account for stress on local, neighboring municipalities.
"When they brought these big companies, and I think it was the right thing to do to jumpstart the economy, but we were never brought to the table and said, 'what about the infrastructure?'" she said. "Meanwhile, there were these big abatements for these companies, and they should have said a portion of that is going to help build infrastructure and housing and the cities. And I feel like we were not at the table when that took place."
Klippenstein said he understood where Schieve was coming from but added that Reno could have advocated for an agreement with either the state or the large companies to receive funding to address the need for increased infrastructure.
"I don’t think they get it both ways,” he said. “They want to claim all the good benefits ... Then push the challenges off onto a state-level decision.”