While Las Vegas gets most of the attention, Reno, Nevada’s second largest city has an economy and real estate market that’s on fire. “Reno has emerged as a tech manufacturing hub,” reports Jim Carlton for Fox Business. “as local officials have cleared a regulatory path and as the state has offered hundreds of millions in tax breaks for companies willing to invest.” This all started with Elon Musk going hat in hand to Governor Brian Sandoval for tax credits to build his gigafactory near Reno.
Mr. Musk is believed by some investors to be the boy genius, but, “SolarCity, Tesla, and the rocket company SpaceX, Elon Musk’s confederacy of interests, has gotten at least $4.9 billion in taxpayer support over the past 10 years,” writes David Williams in The Daily Signal.
Here in Nevada, “the overall value [of tax credits] to Tesla is estimated to be $1.3 billion over 20 years–a figure that is more than double the $500 million package Musk said would be required to draw the company, reported the Reno Gazette-Journal.
But Musk isn’t the only big employer coming to town. Last month the Alphabet Inc. unit, Google, bought 1,210 acres at the Tahoe Reno Industrial Center, where it plans to build a data center.
The Reno region’s housing market crash hit as hard as anywhere in 2008, but now a housing shortage looms. “This will be a serious crisis if we don’t address it quickly,” Mike Kazmierski, president and chief executive officer of the Economic Development Authority of Western Nevada told Fox Business.
Of course city hall stands in the way of supply satisfying demand. The City of Reno cut its workforce by a third during the crash, and the lack of staff keeps entitlements, maps, and building permits from being issued in a timely manner, the city’s mayor admits. “Permitting now takes 2 1/2 years,” writes Carlton. “Builders say 18 months is a more typical span.”
With techies moving in from the Bay Area and either buying or renting whatever they can move into, prices and rents are exploding. February’s median price of an existing single-family home was $320,000, a more than doubling from $145,500 in the same month in 2012. This February’s resale median price in Las Vegas was $208,000.
Builders are flocking to Reno to catch the apartment boom that had the market vacancy at last year’s end only 2.9%. An appraiser friend told me he visited three projects recently that were all raising rents on a weekly basis. Average monthly rents had climbed to $1,066 at year end from $822 in 2012.
Carlton writes, “Companies are taking unusual measures to cope. Tesla and partner Panasonic Corp. have arranged to rent dormitory rooms at the University of Nevada, Reno, this summer to temporarily house 800 workers for Tesla’s big battery factory here, said Marc Johnson, president of the school.”
There’s just one problem: how long can Musk keep his pie-in-the-sky government-funded schemes going? The famous short-seller Jim Chanos compares him to Enron’s Jeff Skilling. Chanos says, ”battery technology has been leap-frogged, making the gigafactory a white elephant built out in the middle of the Nevada desert.”
Chanos called the merger of Tesla and Solarcity, “a walking insolvency.” Solarcity, according to Chanos is just “a roofing company with a consumer finance company attached to it.” The business is not high-tech and not economic. At the SALT conference in Las Vegas recently, Chanos told Bloomberg, “We thought Solarcity was headed to bankruptcy and they [Tesla] bought it out and now the CEO is quietly resigning, Musk’s relative.”
Even Musk seems to have his doubts. The Guardian published an article focused on the large number of accidents at Musk’s plants where he said, “We’re a money-losing company. This is not some situation where, for example, we are just greedy capitalists who decided to skimp on safety in order to have more profits and dividends and that kind of thing. It’s just a question of how much money we lose. And how do we survive? How do we not die and have everyone lose their jobs?”
Chanos says “the valuation of Tesla is based on the come, on what will happen between 2020 and 2025.” In the meantime the “Biggest Little City in the World,” with a comparatively low cost of living and proximity to Silicon Valley, is following Musk’s lead.
But at least one builder in Reno has seen this movie before. At age 70, homebuilder Perry Di Loreto told Fox he’s lived through five boom-and-busts and this time he’s keeping his powder dry. “My view is we are in another boom period, but that doesn’t mean you throw caution to the wind,” said Di Loreto.
Followers of Rothbard and Mises would agree. They know where this is going, and it’s not pretty.
