Residential Lots Scarce As Northwest Arkansas Draws a Crowd

Residential Lots Scarce As Northwest Arkansas Draws a Crowd
Tara Limbird, a real estate broker, recalls “ghost town subdivisions” in northwest Arkansas after the recession a decade ago. Now lots are in big demand, and getting expensive. (Beth Hall)

Space is not the problem for northwest Arkansas as thousands of new arrivals show up each year. The struggle is with affordability.

The region has seen strong growth since 1990, when its population stood at almost 240,000. By 2017, that number had grown to more than 525,000 and is projected to top 580,000 by 2022.

Those surging numbers have not only helped the three-county area become a vibrant economic engine, but they have also put a strain on the region’s infrastructure. Not the least of the problems is finding places, affordable places, for all these people to live.

Officials said there is plenty of room for everyone, but not enough living space is being prepared for the kind of residential stock that’s in demand.

The people moving in are not all high-income Walmart Inc. vendors. Most are coming from less robust regions of Arkansas and are already struggling with the sticker shock of housing prices, for sale or rent, in their new home.

“Nearly 70 percent of the population growth is migration, so of the 12,000 people we’re adding in a year, 70 percent have to find housing,” said Mervin Jebaraj, the director of the Center for Business & Economic Research at the University of Arkansas’ Sam M. Walton College of Business in Fayetteville.

“That’s why you’re seeing a lot of activity in the multifamily piece because that tends to be built where people want to live, near the amenities. What we are dealing with as a region is as home prices have gone up, we have to keep up with people who are moving to this region.”

Jebaraj is the lead researcher for Arvest Bank’s Skyline Report, which focused on the residential sector of Washington and Benton counties in a February study. The report’s analysis concluded that the number of available residential lots was at the lowest level since 2004 in the two counties, which make up what is most generally considered northwest Arkansas. (Madison County, with 16,000 residents, is also included in the metropolitan statistical area.)

Tara Limbird, the principal broker at Limbird Real Estate Group in Bentonville, moved to northwest Arkansas in 2000 and got involved in real estate a couple of years later.

Limbird said she remembers vividly the sights of undeveloped subdivisions during the recession a decade ago.

Ghost Towns No More
“For such a long time there were all these ghost town subdivisions back from the recession and they sat there,” Limbird said. “Those are long gone now.”

The postrecession building boom swept up those fallow subdivision lots and continues to drive a demand for new lots. The Skyline Report put the numbers of available lots in the second half of 2017 at 26,437 in 371 subdivisions, which works out to a 27-month supply.

Those lots are becoming more expensive, an expense compounded by rising construction, labor and material costs. The average price of a home in Washington County rose more than 5 percent to $216,279 in the past year, while Benton County saw a nearly 2 percent jump to $232,735.

The Benton County numbers would be higher if not for the anomaly of Bentonville, where the average home sale dropped more than 7 percent from $285,000 to $265,000. That was because Bentonville saw an uptick in smaller home construction, but the price per SF of those smaller homes remained generally the same.

“The hard part is making the numbers work because the land costs are higher and the infrastructure costs have gone up,” Limbird said. “By the time the lot has been established ... the only thing the builder can afford to build and make any money is some of your higher-end stuff. “Right now, we’re fortunate because interest rates are so low. Every time they tick up, purchasing power for that buyer begins to decline. It’s amazing in a 12-month time period in Washington and Benton county, prices have increased. It’s just crazy, which is great for sellers.”

Jebaraj said the lot crunch is also a byproduct of where many new arrivals are looking to live. Downtown development has surged in the four major cities of the area — Bentonville, Rogers, Springdale and Fayetteville — and the places to live close to the amenities they offer are either expensive or zoned for nonresidential uses.

Zone Offensive
Jebaraj said Fayetteville has shown a willingness to rezone — or “upzone” — nonresidential lots to a residential or mixed-use designation. Uptown Fayetteville has seen several developments recently that mix residential apartments with retail and restaurants at the same location, although that mix has proved harder to develop in other areas of Fayetteville and other cities in the region.

Jebaraj said not much can be done about the simple economics of rising land and related costs, but the municipalities in the region need to work together to one thing that can be done: create more developable lots.

“The piece we can address is the availability of lots. We needed to start yesterday, but now would be good enough,” Jebaraj said. “Rezoning and upzoning, especially around commercial thoroughfares — where we have a loss of retail — there’s definitely an opportunity to change what those commercial thoroughfares look like. The land around where people want to live is really limited. The only way to have more people living there is to upzone all of them.”

Jebaraj said CBER is working with the Walton Family Foundation and the Northwest Arkansas Regional Planning Commission on a study on how the leaders of northwest Arkansas can work together to get ahead of a potential housing crunch. The report won’t be out for at least a year, Jebaraj said, and any plan presented would still have to be initiated by the region’s elected leadership, preferably in concert with all the cities and smaller towns in the area.

“If you don’t address it, it will choke off the growth,” Jebaraj said. “One of the selling points for northwest Arkansas is affordability. If we’re going to not maintain our affordability, it’s going to affect our growth. Most of the people moving [in] are not coming from Los Angeles or Seattle. They’re coming from other counties in Arkansas, and, for them, northwest Arkansas is already more expensive and we don’t want to lose the advantage we had.

“Cities across northwest Arkansas need to deal with this now. As a region we need to sit down and tackle this now. I don’t think we have done this yet.”