The dramatic turnaround in the real estate market at Lake Tahoe during the past 18 months has spurred the notion that the time is ripe to build some new developments. Recently a concept came on the drawing boards to create a subdivision in proximity to the Fiberboard Freeway off of Highway 267 above Kings Beach. This curious columnist went for a hike last Saturday to explore the area under consideration and analyze the pros and cons of new developments in general in the Lake Tahoe basin.
While real estate prices declined precipitously during the Great Recession, they have rebounded rather quickly on both the California and Nevada side of Lake Tahoe due to a number of factors including the laws of supply and demand. With a very small number of undeveloped parcels remaining at Lake Tahoe, it is only natural that prices will continue to rise as long as the supply of houses, condos and freestanding condos remains relatively stable and the economy does not backslide significantly.
However, if a perception is created that there are going to be large-scale developments up here then a number of things will likely occur. Some buyers will defer their purchases in the hopes of having the opportunity to buy a brand-new home or condo built with the latest construction techniques. An increase in supply in any one locale will have the net effect to slow the rate of increase or even depress prices as the inventory becomes saturated. And the residential rental market will experience a short-term uptick in average monthly rents as construction workers move into the area; then rents will decline when a project is completed and the workers vacate the properties they were previously renting.
At the present time, there is approximately a seven month inventory of residential housing for sale in Incline Village and Crystal Bay. This is typical of communities around Lake Tahoe and this level of supply is quite healthy for the housing market. It provides enough property inventory from which buyers can select a suitable place to live without creating a shortage that will artificially inflate prices thereby causing a housing bubble.
But, if developments of any significant size are created anywhere around Lake Tahoe than the increased inventory will result in an oversupply and based on generally accepted economic theory prices will first stabilize and then likely start to fall. It's not just property values that should be of concern to anyone who owns real estate at Lake Tahoe but also the impact on the environment and the existing infrastructure.
The creation of new subdivisions means the installation of electrical transmission lines, water and sewer systems, increased traffic on existing roadways, greater air pollution and a general degradation of our relatively pristine mountain environment. The negative side effects of adding to the housing stock far outweigh any short-term economic benefits from a temporary increase in construction employment.
There is no way to develop the Lake Tahoe basin to a level of permanent economic prosperity by creating new subdivisions and increasing the number of residential and commercial buildings. Unless Mother Nature undergoes some radical change Lake Tahoe is always going to be a vacation resort area that has a strong economy approximately 12 weeks every year. The recreational activities and scenic beauty that draw visitors and their tourist dollars are dependent on warm sunny weather in the summertime and abundant snowfall in the wintertime.
Property owners will see the greatest appreciation in the values of their houses and condos when remodeling and redevelopment projects take place on a steady basis as opposed to the creation of new subdivisions. Also, there is simply not a large enough population base to justify the creation of new shopping centers and commercial developments and any attempt to do so is doomed to failure. With an abundance of shopping malls and big-box stores located just a short drive away in Reno and Carson City, it makes far more sense to redevelop aging commercial areas at Lake Tahoe rather than create new ones.
The Lake Tahoe basin has a relatively stable year-round population and a fairly static level of residential properties for full-time residents and visitors to occupy. Any attempt to create new subdivisions will alter the perception of the general public in regards to housing availability and property values. Once that perception has been changed, sales of residential properties will likely slow down and price increases will taper off, followed by a general price decline. Even though it takes a minimum of two to five years for a development to go from concept to completion it's important to remember that the vast majority of property purchases at Lake Tahoe are discretionary and not the result of some necessity such as a job relocation.
Buyers can defer discretionary purchases in anticipation of a spate of new homes similar to the way they held off buying property during the Great Recession. While the current uptrend in real estate property values is likely to continue through at least 2015, that equation could change if a significant number of residential properties are approved and construction commences. Adding as few as 200 new residential units to the housing stock at North Lake Tahoe will dramatically increase on a percentage basis the amount of inventory for sale and have a negative impact on the supply/demand equation. The long term prospects for property values are good, but only if the overall supply of housing stock remains relatively static and is not increased by any significant amount.