Area faces high housing demand

Michelle Davis spends hours answering the steady ring of calls from working residents -- most single mothers -- who need help buying a home. She faced the struggle firsthand when it came time for her to find a place.

Davis works as the resource development manager for NWA Habitat for Humanity and wanted to find a place to rent near her south Fayetteville office.

"I couldn't even begin to afford to rent a house in this area. The ridiculous thing is that I did qualify to buy a home, but even that was a little difficult for me," Davis said. "It was tough to find. I had to go a little further out."

The demand for homes in Northwest Arkansas' cities is booming, fueled by low unemployment, increasing population, low mortgage rates and cheap prices on a national scale.

The supply can't keep up, hindered by rising prices for land and materials and investors seeking rental properties.

So when developers build, especially in the cities, they build more expensive homes where they make a higher profit. The good news for homeowners: Values are rising in a seller's market.

But lower-income people trying to enter the market or just find a house to rent are being pushed further away from the city centers and the jobs and inexpensive transportation they offer.

Habitat for Humanity, like many homebuyers, has turned its eyes away from Fayetteville's core.

"That is because land in the city limits has gotten prohibitively expensive," Davis said. "We've come to realize that if we are building within the city limits, it is probably from this point forward going to have to be multifamily."

Driving demand

Almost 15 percent more homes sold in 2015 in Benton and Washington counties than the previous year, according to the May 2016 Housing Market Report from the Arkansas Realtors Association.

This demand is stimulated by low mortgage rates, which are in the 3 percent range, and low unemployment in the area, said Kay Weiderhaft, Arkansas regional manager of Bank of Arkansas Mortgage.

"We are seeing people who are now re-entering the housing market that had to foreclose or who were able to leave the market around 2008," Weiderhaft said. "I think it's all pretty much a matter of their circumstance. As the job market has grown stronger, it's encouraged the market."

Unemployment in the metropolitan area has dropped to 3.1 percent, falling below state and national averages, according to the U.S. Bureau of Labor and Statistics' June 2016 economic summary. The Fayetteville-Springdale-Rogers Metropolitan Statistical Area covers Benton, Madison and Washington counties and McDonald County in Missouri.

Piling onto the housing demand is the area's continuing growth, which is projected to increase 4.2 percent annually through 2020, according the Northwest Arkansas Council, a nonprofit organization of business and civic leaders.

Bentonville issued the highest number of residential building permits in Benton and Washington county last year at 479, followed by Rogers, Fayetteville and Centerton. Bentonville also had the highest average value at $302,185, according to the Skyline Report.

Northwest Arkansas is still one of the cheapest places to live on a national scale despite the high appreciation rate for homes, said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville. Home values in the Benton and Washington counties increased an average of about 8 and 6 percent, respectively, the report says.

"It's easy to see our prices go up and say, 'Oh no, people are getting priced out,' but you have to look at it in perspective to the rest of the country."

U.S. News and World Report ranked Northwest Arkansas first in most affordable places to live in a 2016 list of the country's 100 largest metropolitan areas. However, many first-time and lower-income home buyers are indeed being priced out of the core, Deck said.

"I think that has been gradually happening for a while," she said.

Locating land

Available land to build on in the cities has dropped and much of the new construction is on the higher end, according to two Skyline reports released in 2015 by the Sam M. Walton College of Business.

This does little to help the supply pressures.

"We are not seeing as many subdivisions being platted as we did in the boom," Deck said of the first half of this decade. "Those that are being platted are being developed right away, so they don't linger on the market."

The cost of homes is rising, developers said, mainly because of the rise in land and building costs.

"It's just not practical to build homes below $210,000 in many areas," said Clay Carlton, owner of Buffington Homes. The company builds throughout Fayetteville, Cave Springs, Rogers and Bentonville at an average cost of $340,000, he said.

"Lot prices are going up much more than in the last five years," Carlton said. "I think it's hard to find affordable and entry-level homes ... and it's going to get harder with the lot prices we've seen. You're going to have to go further out."

The company sold about twice as many homes so far this year as it had at the same time the previous year. The demand plays into housing costs, said Carlton and broker Juliana Salazar. About 30 percent of his inventory are spec homes that sell before they are finished, Carlton said.

"I'm not sure if it's an indication of wages, but certainly there are people willing to pay more for those larger homes," Salazar said.

Salazar pointed out cheaper, acre lots the company is building on now in Cave Springs were bought a few years ago. It bought them around $15,000 a piece. The same lots would be about $40,000 today, Carlton said.

"You would have to raise the price at least $25,000 just to keep up," he said. "Yes, that's just for lot costs."

Moving out

Around half the area's residents lived in the four biggest cities in 2013, according to population estimates, but have since spilled into outlying communities.

The lack of lower priced homes in the cities could be playing a factor. A normal, balanced market has around six months of inventory, said Jackie Keene, NWA Realtors president. In the $100,000-$150,000 price range, inventory should be around 600 homes, she said. The inventory on a given day this summer is around 30.

Homes in the $175,00-$225,000 range are only slightly more balanced with an inventory of 80 homes compared to a balanced market figure of 470, Keene said.

As long as supply is this low, prices will continue to rise, she said.

"The price is going up. It doesn't matter what the commodity is," she said. "Does it put a pinch on beginning and low-income home buyers? Absolutely."

Areas outside the cities offer more affordable homes for those looking under $200,000.

Homes sold in the last six months in Bentonville, for example, averaged $114 per square foot, according to the national Multiple Listings Services. They averaged $103 in the same time period a year ago.

Prices increased by roughly the same $10 per square foot in nearby Centerton and Bella Vista, but remained lower than Bentonville at about $103 and $84, respectively. It could be the difference in spending $170,193 to live outside the core or $277,900 to live in the same size home near downtown.

With five children and one more on the way, Brett and Kathie Yamaji decided it was worth heading out to the country. Their Bentonville home sold soon after they put it on the market for $50,000 more than they bought it for in 2009.

"We priced it pretty high just to see what happened, and literally in a couple of hours we had several hundred views," Brett Yamaji said. "The market is hot right now."

"You can see the high demand because the average homes are selling for 98, 99 percent asking price," Burnett said, "Some of the more expensive homes are selling above asking price."

Brett Yamaji said the city had never been his "cup of tea," and the growing family could not practically afford to stay.

"We looked, and you're lucky to get $100 a square foot whereas there's several places for $60 out here," he said. "We have twice the square feet and a little more than a third of an acre for a little over $200,000."

Alan Mallach, a senior fellow at Center for Community Progress in D.C., is author of A Decent Home and has studied housing trends in university cities. Because of stricter regulations put on mortgage loans after the recession, Mallach said, people looking to buy a home are more likely to go outside the area.

"The reality is if you don't have good credit and a substantial down payment, you're going to have a hard time affording a house, more than you would 10 years ago," he said.

This is certainly not just a Northwest Arkansas issue, but one the entire country is facing, he said.

"We are seeing a shortage of affordable homes around the country, and I'd say it's fairly modest there compared to the rest of the country," he said.

"If you work at the low income level, there is no way you can live in the city, in bigger cities, anymore. Then, you've got the problem of commuting costs eating into what you might be saving on housing costs, and that's not counting the time you're losing at your job and with your family and friends -- the emotional stress."

Investment property

Many of the cheaper homes in cities are being bought by investors, Burnett said.

Fleeta Gentry, 88, has lived with her husband in the same Springdale home since 1957. She said she has seen most of the houses in her neighborhood sold to investors for rental properties.

"It's been unbelievable. There was not a rent house anywhere and now, just within a few years, only three or four of these homes are owned" by their residents, Gentry said. "I've had several offers to buy the place to rent, but we're staying here."

Investment property is a problem particularly for Fayetteville, where landlords profit from renting lower-priced homes to college students as University of Arkansas housing struggles to keep up with the growing enrollment.

"If you're a landlord, you can make a heck of a lot more renting each room to a student than renting or selling to a family," Mallach said. "It can crowd out housing for lower income families."

Fayetteville's city council sought to help with over-occupancy with an ordinance that went into effect July 2015 requiring anyone who sells or rents a house in Fayetteville to disclose to the buyer or tenant no more than three unrelated roommates are allowed to live together in a single-family home.

Denser development

Area cities have considered more urbanized planning as their populations grow, and Deck thinks this is the way to go for those who want to stay in the core.

"If the area continues to be successful in terms of economic development, which shows no sign of stopping now, there will be fewer and fewer spaces available," she said. "That means accepting denser multifamily homes or accepting more expensive single family homes in the core."

The diminishing lot supply has shifted developers' plans toward more dense, infill housing, especially in Fayetteville and Bentonville, Carlton said.

Troy Galloway, Bentonville Community and Economic Development director, said a city can't do much to affect the housing market.

"I get that larger cities who are the beneficiaries of community development block grants and programs that are provided at the federal level may have tools at their disposal to help provide housing programs," Galloway said. "We don't have that benefit.

"I'm not sure where or how a municipality should involve itself in the free market. The best way we can influence it, and how we are choosing to try to influence it, is to provide a permissive environment in Bentonville for a wider variety of housing types and housing densities. And by doing that we hope that the free market provides the housing that consumers are looking for at the price points they are looking for."

Abby Williams wanted her first home to be close to her office. The 24-year-old recently started a job in Wal-Mart technology communications and has a couple of friends moving in to help with the mortgage.

She recently walked through two homes in south Bentonville, near the edge of town and a little more than 20 minutes from her job. The home in move-in-ready condition was priced at $140,000, $140 per square foot.

Ten business cards laid on the kitchen bar. It had been on the market for two weeks.

'It is very common in this price range," said Melony Belt, real estate agent with Lindsey & Associates who assisted Williams. "Anywhere between about $125,000 really all the way up to $300,000."

Williams said she is not rushing into anything and knows she will have to compromise location or price.

"I knew something was going to have to give."

Galloway hopes the denser zoning codes, which Fayetteville is also implementing, allow for smaller, more affordable lots and multifamily units. This is crucial in promoting entry-level type homes, Mallach said.

"Eventually, we would like to see housing prices in at least fairly close proximity to downtown and some of our major employers be where wage-rate employees can afford to live," Galloway said. "There are very few places right now where that can actually happen. We are very conscientious of the affordability problems we have."

Making room

To maintain affordable housing -- defined as costs less than 30 percent of one's gross income -- many groups turn to strategies of building government-sponsored housing and maintaining older homes.

Michael Ward is the executive director of Partners for Better Housing, which aims to develop affordable homes. The group plans to build the Willow Bend neighborhood in Fayetteville for lower- and middle-income families. It hopes to break ground on the 10 acres in August, he said.

"We are hoping to see that by building smaller houses that will cost a little less," he said. "I really believe in making affordable and attainable housing in such a way that lower-income people can be bolstered up just because of who their neighbors are. By creating a mixed-income community, you create diversity and opportunity that don't reinforce negative patterns of behavior."

Mallach said many nonprofits hesitate to tackle the affordable housing issue.

"I'm the last person to say that art, theater or trails aren't important, but if you put it in perspective, these are the kind of feel-good, not challenging types of philanthropy," he said. "Getting involved in affordable housing is more difficult and can get political -- some people don't want low-income housing anywhere near them -- but is a basic human need that needs to be addressed before someone can enjoy the arts or a trail."

Area nonprofit groups like the United Way of Northwest Arkansas said they're turning their attention to affordable housing.

"If you look at people in poverty, especially those with children, two big levers are housing and transportation," said Kim Aaron, United Way president.

The median household income for the metro area was $50,128 in 2014, according the latest U.S. Census American Community Survey. This is nearly $9,000 more than the median Arkansas household and about $3,000 shy of the national median.

Income in the area has been rising since 2012, but the median household income, which adjusts for inflation, peaked in 2005 at $51,887 and has fallen $1,759, or about 3 percent.

Davis, with Habitat for Humanity, said many people don't believe poverty in the area is prevalent.

"I don't think people see it, because they see that higher income, and it's probably because that's what they want to see. Ours is an interesting area, because we do have both ends of it and not a lot in the middle. That the problem is when housing prices go up and wages do not."

NW News on 08/28/2016