NEVADA VIEWS: Housing crisis: The cost of getting it wrong

When government rushes to solve a problem it doesn’t fully understand, the intended solution often compounds the problem. Nevada’s housing crisis is a case in point.

With Southern Nevada’s median home prices hovering around $460,000, homeownership is increasingly out of reach for working families. The urgency to act is real. Unfortunately, urgency has a way of producing legislation that is politically attractive but economically misguided.

Enter the latest villain in Nevada’s housing debate: corporate investors.

The Legislature’s focus on restricting corporate ownership of residential property offers lawmakers an appealing narrative. Blame Wall Street, regulate investors and declare victory for Nevada families. If only it were that simple.

Housing affordability reflects complex, interconnected market forces: limited land availability, rising construction and labor costs, elevated interest rates, permitting delays, financing constraints and investor competition. No single factor created this crisis, and no single piece of legislation will solve it.

Consider the numbers. Investors collectively own approximately 26 percent of single-family homes in Las Vegas, yet institutional investors represent just 1.6 percent. Most investor-owned homes belong to smaller investors, local businesses and mom-and-pop landlords.

So why are we restructuring housing policy around such a small fraction of the market?

Restricting corporate investors will not lower construction costs, release developable land, accelerate permitting or help working families qualify for mortgages. It may, however, discourage private capital necessary to finance new construction.

And therein lies the familiar government paradox: In its determination to make housing more affordable, government risks making it more expensive.

There is also a fundamental flaw lawmakers have failed to adequately address: Under the existing tax code and legal ownership framework, corporate investor restrictions will be virtually impossible to enforce. Residential properties are routinely held through LLCs, partnerships, corporations, trusts and layered ownership structures that can obscure the ultimate beneficial owner.

The Legislature’s continued focus on restricting corporate investors threatens to deliver exactly what our housing market cannot afford: more bureaucracy, greater compliance costs and additional regulatory burdens. The result will be legislation that looks effective on paper but proves largely unenforceable in practice, while compounding the very affordability crisis lawmakers claim to be solving.

And not one additional house.

Instead of asking how to restrict investors from purchasing homes, policymakers should ask a more productive question: What would motivate existing investors to sell? One answer lies in a policy issue conspicuously absent from the conversation: capital gains taxes.

Many investment properties are owned by individuals, including retirees, who purchased homes decades ago. Those properties have appreciated substantially, and selling can trigger significant capital gains tax obligations. For this reason, many investors see continuing to collect rent as financially preferable to selling.

Imagine a targeted federal capital gains tax reduction for investors who voluntarily sell residential investment properties to qualifying owner-occupant buyers. Rather than imposing restrictions, government could incentivize existing owners to release inventory, expanding homeownership opportunities without additional regulatory mandates and bureaucratic procedure.

Of course, increasing available inventory is only one part of the equation. Nevada must also expand its housing supply, and federal land releases are essential to that effort. But releasing federal land alone is no silver bullet. The opportunity must simultaneously met with action at the local level. Cities and counties can make a meaningful impact by streamlining permitting and entitlement processes, reducing unnecessary regulatory burdens and encouraging a broader range of housing products. Addressing these local constraints is essential to translating additional land into attainable housing and creating sustained downward pressure on prices.

Markets respond to incentives. Good policy recognizes that reality rather than fighting it.

Government has an unfortunate habit of measuring success by legislation passed rather than results produced. Housing policy should be judged by whether more families can afford homes, not whether lawmakers successfully identified someone to blame.

The housing crisis demands action. But acting on the wrong problem isn’t leadership. It’s how government makes a bad situation worse.

Tera Anderson has more than 20 years of industry experience in land, real estate and economic development across the public and private sectors. She writes from Las Vegas.