Housing's labor woes radiate outward. Apart from building trade subcontractor shortages, there's another whole ecosystem of workers related to housing--including municipal planning, zoning, environmental, and building inspection officials--who just aren't there to do the work that needs doing.

Take Reno, for instance.

Tesla put this poster-child of the last housing run-up's utter over-speculated insanity back on the map when it choose to locate its $5 billion, 10 million square foot battery gigafactory there. Google, the Wall Street Journal's Jack Nicas and Jim Carlton report, is a soon-to-arrive neighbor, with plans for a data center and very possibly a test track for its autonomous vehicle development. As BUILDER sibling company Metrostudy regional director Greg Gross notes, Tesla and Google are not alone in their interest in Reno for its proximity to Northern California, Silicon Valley's talent base, and, perhaps most important for the moment, its relative affordability.

Metrostudy's Gross notes in a first-quarter report on Reno:

Metrostudy expects demand to remain steady throughout 2017. Nevada is once again among the top relocation destinations, and more companies are beginning to consider Nevada. The Tesla factory has helped re-energize economic development for the state. Companies such as Switch, Rackspace, Apple, Google, Amazon and others have all helped to solidify Nevada as a worthy consideration for the “Tech Industry”. We expect a continued influx of Californians as well.

Redfin analyst Taylor Marr, we noted yesterday, has looked at residential migration patterns, both in online searches and actual moves, and found that Reno has popped up on the radar as one of the top 10 destinations for movers from the Bay Area in California. Marr writes:

Movement of Bay Area residents to more affordable metro areas dominated the nation’s migration patterns in the first quarter.

The fact that companies are moving in and that Reno is rapidly attracting movers as a less expensive alternative to Silicon Valley have put population, household growth, job growth, and overall wherewithal on an accelerated track. Job growth is at a better than national average 3.4%, and household growth of over 2% annually represents a solid demand pipeline.

Source: Metrostudy Reno Nevada Executive Summary, First Quarter 2017
Source: Metrostudy Reno Nevada Executive Summary, First Quarter 2017

The challenge is constraints on supply, and Reno is one of the towns where builder labor capacity has tamped down completions and slowed activity for a couple of years now, and is worsening as starts volume pushes upward. Still more concerning, are constraints at the municipal and county agency level, the planners, engineers, inspectors, and other officials involved in approvals, permits, etc. Not to mention the lack of laborers and project funding that would allow the city's infrastructure to keep pace with its commercial, industrial, and residential growth.

Single-family for-sale permits have been clocking in at around 2,000 per year for the past several years, but housing observers believe that if Reno could and would solve its permitting and infrastructure bottlenecks, permit demand would quantum leap upward, and top-share builders Lennar, Toll Brothers, and D.R. Horton are champing at the bit for more opportunity.

Source: Metrostudy data shows that in 2016, Lennar, Toll Brothers, and D.R. Horton shared 46% of the Reno single-family new home market.
Source: Metrostudy data shows that in 2016, Lennar, Toll Brothers, and D.R. Horton shared 46% of the Reno single-family new home market.

Last week, Wall Street Journal staffer Jim Carlton reports that Reno's mayor Hillary Schieve acknowledges that having reduced its own city headcount by a third during the downturn has slowed the permitting process, frustrating builders who want to bring more lots online. Carlton writes:

While the city is still getting back on its feet financially after the recession, local agencies can do a better job of trying to process permits in a more timely fashion, she said. She rejected calls by some builders for more radical streamlining.

Metrostudy's Greg Gross spotlights lot shortages as a growing suppressor of Reno's pace of growth in his latest Spring 2017 executive summary for the market:

The Reno market has slowly begun developing single family lots, but with lot absorption outpacing lot deliveries for five years, lot Inventory remains very low. The greater Reno market has 4,714 Finished and Vacant single- family lots, which equates to 32-months of supply based on current start pace. Only 3 years ago we had 14 YEARS of lot supply! Washoe County has 2,703 VDL; 23-months of supply. Now is the time to begin planning for future growth ... There are only about 1,963 lots various stages of development now; as we will need to see more projects come to life.

Of course, a constriction in the supply of lots, very tight supply of both for-sale and for-rent housing, and lots of demand has been driving prices northward, nudging affordability tolerance points, perhaps to their eventual limits.

Encouragingly, the fact that 35% of households in the market earn $75,000 or more per year has supported new home prices that have shot well over $300k on average.

"The fact that demand for Toll Brothers offerings in the mid-$500s to mid-$600s is right up there with Lennar's product lines in the low $300s shows a pretty strong mix of household earnings," says Gross."

Growing pains, yes. Some of them due not so much to construction's vaunted labor crisis, but to the incapacity in some municipalities and counties to deal with the sudden release of pent-up demand.