The neon sign not far from Steve Dommermuth's bedroom stands 25ft tall, and has become a world-famous symbol of capitalist excess. "Welcome," it declares, with an exuberant flourish, "to Fabulous Las Vegas, Nevada".

A stone's throw from the double bed where he lies with his girlfriend, Kathryn, reading paperbacks and eating cookies, is another all-American landmark: the Las Vegas Strip, home to vast hotel-casinos devoted to the billion-dollar business of having fun.

Yet despite its starry location, Steve and Kathryn's cosy residence is firmly hidden from the 40 million free-spending visitors who come to the desert city each year. Local taxis and stretched limousines can provide little help getting there.

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Instead, callers must make an arduous journey on foot, using a torch and some decent waterproof boots to help navigate almost half a mile along a pitch-black, underground tunnel, sidestepping rubbish, syringes, and occasional bad smells.

"I've been living here two years," Dommermuth says, offering a biscuit. "It's pretty secure, and it's sheltered. When the temperature reaches 110 outside, and you'd be cooking to death on the street, this place is something like 20 degrees cooler."

The place where Steve and Kathryn eat, sleep and live is a concrete storm drain which runs for several miles beneath central Las Vegas. They form part of a little-known community, several hundred homeless people who have taken up residence in a network of tunnels beneath America's strangest city.

For an underclass to have taken over the bowels of a major Western city may sound like the premise for a dystopian science-fiction movie. But witnessed first hand, the lives, and homes of the "tunnel people" seem almost shockingly mundane.

Steve and Kathryn's bedroom, with its wardrobes of clothes, book-laden shelves, and colourful salvaged ornaments, could pass for a slightly ill-lit student flat. It is deep inside a passageway that stretches from the outskirts of town all the way to Caesar's Palace, a 5,000-room luxury hotel.

As well as a sense of security, the storm-drains offer inhabitants easy access to the surreal world where most of them make a living: the city's massive casinos, where fortunes are won and lost and every down-on-his-luck gambler is only ever one bet from a jackpot. "What we do for money is known as 'silver mining'," adds Dommermuth. "That means we tour casinos, looking for slot machines that people have accidentally left credits on. Then we take the cash, and boogie on out. I can spot a penny on a machine from 100 yards."

On an average night, Steve and Kathryn make between $50 and a $100, and will also sneak a free supper from a casino buffet. Sometimes they get even luckier. Once, they found a fruit machine with $900 unclaimed on it.

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But it is hard, unforgiving work, under the constant threat of discovery by the casino security staff, who will expel them on sight. "Casinos hate us," says Steve, showing off a clean pair of chinos and a cream sweatshirt he'll be wearing later. "So we dress up, try to look as presentable as possible, and blend in. We've even built a shower in here. We clean up really well. You wouldn't recognise us."

At least 300 people are living in the 350 miles of underground storm-drains that dissect Las Vegas; some estimates put their number at closer to 700, in the shadow of some of the world's most valuable pieces of real estate. And their numbers are growing. Homelessness, which blights America – just as it affects every other major economy – has spiralled up since the onset of a recession that counts Las Vegas among its "ground zeroes". The city's unemployment rate just broke 13 per cent. It has one of the nation's highest foreclosure rates; official figures suggest nearly 15,000 people are sleeping rough there.

As a result of the economic crisis, fewer tourists are spending less money in Vegas. And there are now more people ekeing out a living "silver mining", further hitting the revenue of tunnel dwellers, whose lifestyles revolve around scavenging.

"I literally make my money off what I like to call the stupidity of tourists," says Eric, a crystal-meth addict who lives in the next-door dwelling to Steve and Kathryn. "There's fewer people here, so less money to be gotten from them. People who do come out are gambling less, and are a lot more money conscious. It makes them more careful, and less stupid."

Even without financial troubles, life in the drains, where Steve, Kathryn, and many of the city's long-term homeless end up, can be a dangerous business. There are black widow spiders, clouds of mosquitoes, and the constant threat of disease. They must also keep a wary eye on local weather conditions.

"It doesn't rain much in Vegas, but when it does, the city can flood very quickly," says Matthew O'Brien, a local author who recently published Beneath the Neon, a study of the storm-drains and their inhabitants. "When that happens, water inside can rise at a foot a minute. It can be incredibly dangerous."

Las Vegas has had at least 20 drowning deaths in recent years. That statistic, together with a growing number of attacks on homeless people across America – a report last week revealed that 880 unprompted assaults have been recorded this year – recently led O'Brien to found the Shine a Light foundation, to help residents of the storm drains.

In the six months since it was launched, O'Brien's organisation has moved 12 residents of the tunnels into permanent accommodation. He now goes underground at least twice a month, building relationships with residents and putting them in touch with counsellors and support staff who can help them.

"The isolation inside the tunnels can also be dangerous," says O'Brien. "If something goes wrong, or if a resident feels threatened, they can forget about the cops helping; there's no one to call."

Helping the homeless is never a quick fix. Many have deep-seated psychological problems, some with drug and alcohol dependencies. In Las Vegas, another proportion suffers from gambling addictions.

Eric, who is 40, came to Vegas from New York 15 years ago. "I decided I was going to come out here and learn all there is to know about gambling, to get first-hand knowledge, and then go back home get a job in a casino, as a dealer or a pit boss or whatever," he says. "Turns out I wasn't a very good gambler, and I ended up on drugs instead."

Steve, for his part, came to Las Vegas a decade ago to work on hotel receptions, but lost his job after becoming addicted to crack cocaine. He has now quit drugs, claiming to have been "clean" since January, but there are still two outstanding warrants for his arrest, related to drug possession charges that were filed two years ago.

Before he can leave the storm drains and enter proper accommodation, he must first resolve the legal issues, a process that may land him in jail. His case is being deftly handled by O'Brien's colleague Rich Penska, from the homeless organisation Help. "These folks in the tunnel are what we consider the most service-resistant of the people we help," says Mr Penska. "They have been homeless a very long time, and for them to get as far down as they are, they usually have some very serious problems which prevent them from living on the surface among other people."

Mr Penska adds that the nature of Las Vegas, a 24/7 city that is a destination point for people with frailties, and will exploit weaknesses for any forms of vice – be they drugs, sex or gambling – also presents unusual challenges. "There's a gentleman called Miles, who lives up in the mouth of the tunnel," he says. "He has an income from social security of $800 a month. And he blows all of it, every penny, every month, in the poker rooms. He would rather gamble than have a roof over his head.

"The irony of their situation down there is obviously unbelievable. But most of these folks have made a conscientious choice that they don't want to participate in society, so this is the lifestyle they've chosen. Now, with our team coming down, and the efforts that we're making, hopefully we can start dragging them out of that lifestyle choice."