Two years after being named the fourth-best performing city in the United States by a key national ranking, Reno has slipped for the second year in a row thanks in large part to a familiar culprit: housing affordability.
Reno fell to 20th place in the Milken Institute’s list of the best performing cities in 2022, two places down from its 18th place last year when it was eliminated from the annual report’s first “Tier 1” category. .
Look back:Why is Reno on the Milken Institute’s list of top cities?
Being in the top 20 of 200 metropolitan areas is always a great achievement, said Kevin Klowden, executive director of the Milken Institute’s Center for Regional Economics. It’s also a testament to the diversity and resilience of The Biggest Little City compared to Las Vegas, ranked 149th, which was among the top five metropolises to see the highest concentration of business closures due to the coronavirus pandemic. COVID-19, according to the report.
“Reno is generally doing well,” Klowden said. “He just doesn’t see the absolutely explosive job growth he’s had for a number of years.”
Housing affordability issues continue to plague Reno
“Explosive job growth” is also at the heart of a challenge that has plagued Reno in recent years as its housing supply continues to struggle to keep up with demand.
The median price of an existing home in the city of Reno hit $600,000 for the first time in January, according to the Reno/Sparks Association of Realtors. The number is nearly double the median home price just five years ago, when it was $320,000.
Last year, the average rent in Reno also posted new highs for six straight quarters, hitting a record high of $1,632 in the third quarter of 2021, according to real estate appraisal and consulting firm Johnson Perkins Griffin.
The result is reflected in the ranking of the best performing cities of the Milken Institute. Housing has been a big factor in Reno, dropping from fourth to 18th place last year, when it ranked 139th for housing affordability. The city did even worse this year as Reno fell all the way to 181st place, “a pretty dramatic drop,” Klowden said.
Reno has essentially become a victim of its own success, according to Klowden.
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Just over a decade ago, Reno was one of the cities hardest hit by the housing crisis, as home values plummeted during the Great Recession. Fast forward to pre-pandemic 2019 and it was one of the most successful cities in the country, attracting businesses to the area and thousands of jobs in the process.
However, not all boats have been able to ride the rising tide of growth, at least not right away. Wages in Reno initially did not keep pace with growth, Klowden said. Housing construction, meanwhile, has seen a litany of challenges, which began even before the pandemic. In addition to some reluctance among local developers to fully return after the housing crash, there were national trends that affected Reno locally.
“Trump tariffs instituted against countries like China, Canada and Mexico on commodities like steel and lumber have made them more expensive and slowed housing construction,” Klowden said. “And then now you also have supply chain disruptions (due to the pandemic).”
Add in the competitive construction market and Reno’s struggles to meet housing demand are easier to understand.
Mike Kamzierski, president and CEO of the Western Nevada Economic Development Authority, acknowledged the community’s challenges with housing affordability. Housing will likely continue to be an issue in the short term, but needs to be addressed as soon as possible in order to maintain Reno’s economic momentum.
“No one is surprised by our housing numbers…and I don’t expect much improvement anytime soon,” Kazmierski said. “The kind of better paying jobs that we need as a community keep coming, but we as a community need to fix this housing issue so they keep coming.”
Housing affordability challenges ‘not unique to Reno’
Like the proverbial canary in the coal mine, Reno also serves as a cautionary tale for other cities currently ranked at the top of the Milken Institute’s Best Cities list.
“Reno is an area where job growth has been disproportionately high relative to population,” Klowden said. “When job growth is this high for several years relative to the size of a city’s population, a housing shortage may have a more immediate effect.”
Klowden says he has no doubt other highly rated metros will experience the same housing issues if they aren’t already.
Klowden pointed out that No. 1-ranked Utah is already experiencing “a wild ride” in real estate prices. Previously affordable markets such as No. 2 Austin are also no longer the bargain they used to be for businesses looking to leave the big metros, he added.
“It’s not unique to Reno and many major metros are now impacted by this (housing affordability issue),” Klowden said. “The spike just hit Reno earlier.”
At the same time, housing affordability issues aren’t stopping cities like San Jose from doing well on the list.
After dropping to 22nd place last year, San Jose has surged back to seventh place this year. This surge has been attributed to significant improvements in job growth, wages and technology.
“The real reason San Jose can hold (despite its high cost of housing) is because it’s one of those metros where people can work and commute from outside the area,” said Klowden. “You meet a lot of people who work there but don’t live there and that’s something that’s increased a lot more during the pandemic.”
Just as technology continues to elevate San Jose, Reno’s booming tech scene could also pay dividends for the city in the future, Klowden added.
Reno fell from 86th to 65th place on a metric that measures the role technology plays in the local economy. Reno fell slightly from 104th to 108th place for its overall high-tech concentration ranking, but it’s still a good place for a city that wasn’t really known for its tech sector before.
“Reno at one point wouldn’t have come close to 108th place and it was way, way below,” Klowden said. “It’s really remarkable progress.”
Recent developments support Klowden’s assessment. Last year, for example, the greater Reno-Sparks area generated record $1.4 billion in seed funding.
Reno-Sparks is also doing a great job of improving synergies between businesses and educational and research institutions such as the University of Nevada, Reno, according to Klowden. This helps create a sustainable foundation for recruiting an educated workforce and building local startups and tech spinoffs without having to spend huge sums recruiting outside companies.
At the same time, housing affordability continues to be an albatross around Reno-Sparks’ neck. Housing issues will hamper the region’s future progress if not resolved.
“Even though Reno has slowed down a bit, it’s still doing a great job of creating a good business climate and building infrastructure for businesses,” Klowden said.
“But when a company looks at Reno and says housing affordability has dropped dramatically, that’s a problem.”
The Milken Institute’s 2022 list of top performing cities
- Provo, UT
- Austin, TX
- Salt Lake City, UT
- Phoenix, Arizona
- Palm Bay, Florida
- Seattle, Washington
- San Jose, California
- Fayetteville, Arkansas
- Colorado Springs, Colorado
- Dallas, TX
- Durham, North Carolina
- Huntsville, Alabama
- Oden, UT
- Denver, Colorado
- Boise, Idaho
Jason Hidalgo covers business and technology for the Reno Gazette Journal, and also reviews the latest video games. Follow him on Twitter @jasonhidalgo. Do you like this content ? Support local journalism with an RGJ digital subscription.