My Take on the New Millken Report (see below)

The new Millken Report has NW Arkansas continuing in the top 10 nationally as a vibrant economic zone. However, there were two areas of concern for possible future trends in the area: a low rating on technology output growth (a positive rating on this factor leads to higher paying professional and high-skill jobs) and increased housing values, which are now at the national average. The two trends, together with the strong job growth rating, points to a strong economy with low unemployment. But that job growth is and will continue to be of lower paying jobs which require less education. This, in my mind, hints at salaries for the average working person not keeping up with the cost of housing, thus creating a potential crisis in affordable housing.

When NW Arkansas topped the Millken Report a few years ago ahead of Las Vegas, the region catapulted to the top of the national radar in many respects. In the real estate market all of a sudden, in addition to local investors, there appeared investors from all over the country looking for “reasonable” investment property, beginning the upward exponential curve in prices for low-end homes and multi-family properties.

What happened was that many of the older existing homes, previously priced under $100K, began creeping upward in price as investors competed with first-time and low-income home buyers. Homes in that price range became smaller and shabbier as prices continued to rise significantly over the past couple of years. Now it is almost impossible to find a livable home for under $130K. Most homes in that price range either need work or are very small or both.

Sometimes these small fixer-uppers are even priced higher per square foot than nicer, larger homes. As recently as 3-4 years ago (before NW Arkansas was #1 according to the Millken Report), an older home in Springdale usually was listed for and sold for under $55 per square foot in the under $100K price range. Now these same homes—many in barely livable condition—are listed for and sell for over $85 per square foot. Some even sell for over $100 per square foot if they are in excellent condition.

On the other hand, larger, older homes in the $150K-$200K price range--completely remodeled--are being listed and sold at between $75 and $85 per square foot. But a home like this is not a suitable “rent house” and there is still a lot of building going on in this price range. The law of supply and demand applies here.

A contributing factor is that because of escalating land prices and higher construction and development costs, almost no builders are making small “starter” homes any more. As these costs increase, the new starter homes are now larger than they were previously, but they also have significantly higher price tags. It is no longer possible to acquire a home like this for under $100K, whereas about 3-4 years ago there were several builders offering such new homes as low as $75K. But such homes are also great rent houses. With the increased competition from investors as well as the lack of construction of new homes at affordable prices, first-time and low-income home buyers are having a tougher time finding adequate housing.

Even rental prices are rising as a result. In 2002 an average newer duplex with 3 bedrooms on each side in east Springdale was listed and sold for about $120K or less, depending on condition. Rents for those duplexes were about $550-$575. Now rents have risen to between $600-$650 for those units, and those same duplexes are listed for sale at $175K or above and selling for a minimum of $165K. Even some 2-bedroom units are selling for $165K. And the new duplexes being built are listed at $200K or above. Supposedly these can be rented at $850 per side per month, but I wonder….

In any case, because home prices on the low end and multi-family properties are now so expensive due to increased demand and low supply, rents are also rising as units are sold.

Is affordable housing in NW Arkansas a thing of the past? I hope not.