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August 8, 2022

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Nevada urged to use tax credits to rehab abandoned homes for renters

New Home Construction

Steve Marcus

Homes for sale are shown in the Villas at Black Mountain development near Horizon Ridge Parkway and Gibson Road in Henderson Wednesday, June 1, 2011.

Five years ago, with low-income housing scarce and apartments being converted by the hundreds into condominiums, the poor and elderly in Southern Nevada struggled to find places to rent. It made sense for the federal government, partnering with the state, to encourage construction of rental housing.

Yet since the Las Vegas housing bubble burst, leaving many neighborhoods half empty, the state has continued to use federal tax credits to encourage developers to build apartments.

More than 1,000 units have been built in Las Vegas over the past three years using federal tax credits awarded by the Nevada Division of Housing, according to state records.

The housing division has in recent years awarded about $3 million a year in federal tax credits.

The developers who receive the tax credits resell them for as much as 10 times their value, to corporate investors who use them to write down their taxes. The developers then use money from the sale of the credits to finance the housing developments.

The Low Income Housing Tax Credit is a national program passed in 1986 to encourage the construction of low-income housing.

One developer says the program made sense during the boom, but now the Nevada housing division must switch its focus away from encouraging new building and instead help developers acquire and rehabilitate some of the thousands of empty single-family homes in the Las Vegas Valley and convert them into rentals.

“There’s an opportunity here for the housing division to step in and be a leader,” said John Foley, a Nebraska developer and owner of Central States Development, who has tried for three years to get the housing division to change how it awards tax credits. The way the housing division allocates tax credits is merely contributing to the housing glut.

“The Las Vegas market is in a crisis,” he said.

Foley, of course, has an idea that he said would require tax credits:

Take vacant homes going through foreclosure and fix them up. Use money raised from the sale of the tax credits to write down the mortgages, and allow low-income people to rent them. And in 15 years — projects funded with the credits must remain rentals for that length of time — allow the tenants to purchase the homes at a discounted price.

The housing division has changed its approach since the real estate market’s collapse, if not fast enough for Foley.

Last year, it put “acquisitions and rehabilitations” in its top tier of preferred projects, giving it more points in the scoring exercise that decides which projects get tax credits.

“This is a balancing act, and I think we’ve reached that,” said Charles Horsey, administrator of the housing division.

The housing division recognizes acquisition and rehabilitation is a sound idea, but it also doesn’t want to so narrowly focus the criteria to unfairly benefit one developer, Horsey said at an advisory board meeting this month.

Plus, while the general housing market may be oversaturated, that’s not necessarily the case for the apartment market.

“While there’s some housing, it’s not all financially in reach of the population that we serve,” said Hilary Lopez, chief of federal programs for the housing division. “Affordable, senior housing was, and still is, in demand.”

Indeed, the Las Vegas housing market has plenty of stock, and experts would discourage new construction of single-family homes, said Nasser Daneshvary, professor of economics at UNLV and director of the university’s Lied Institute for Real Estate Studies.

But apartments are more in demand because Nevadans can’t qualify for mortgages or aren’t looking to buy, he said.

“Single-family homes are overbuilt,” he said. “There continues to be high demand for multifamily homes.”

Each year, the state adjusts its rules for how it awards the tax credits. While Clark County has not had any rehabilitation and acquisitions over the past three years, rural counties, including Lovelock and Winnemucca, have had such projects.

“We have always allowed acquisition rehab,” Lopez said. Last year, the division made acquisitions a “priority.” This year, the division decided to award additional points to projects that utilize foreclosed or abandoned buildings.

But Foley said the state should go further. In particular, he bristled at the extra points developers are awarded if they are in-state. At the housing meeting earlier this month, Foley said the penalty went against Gov. Brian Sandoval’s desire to attract businesses to Nevada.

Frank Hawkins, a developer who has been awarded tax credits in recent years to build apartments, defended the in-state advantage.

“This is the way we do it in Nevada,” he told Foley. “If you don’t like the way we do it in Nevada, go back to Nebraska.”

Lopez said the rules for this year’s projects are expected to be approved next week.

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