Northwest Arkansas Builders Struggle to Keep Up with Demand

Like a burgeoning adolescent whose mom struggles to keep it in clothes that fit, Northwest Arkansas continues to experience growing pains related to the influx of new residents. And thanks to lingering issues related to available workers and materials, contractors are having a hard time supplying new homes to keep up with increased demand.

John Easterling of John Easterling Construction in Springdale said materials availability is increasing somewhat for him after a spring and summer of supply chain stoppages. But what he really needs now, he says, are skilled laborers.

“We’ve been woefully short on skilled laborers for many years,” he said. “We still don’t have the ability to fill work orders.”

Easterling attributes much of the worker shortage to the extension of federal unemployment benefits related to COVID. Through the CARES Act, extended federal unemployment payments were made through Sept. 6. Many states ended their participation in the program this summer; Arkansas opted out on June 26. The program paid the unemployed an additional $300 per week.

Builder John Easterling is in the market for skilled laborers.

“The unemployment benefits really hurt. Eventually, everyone will get unmotivated if you pay ’em not to work,” Easterling said.

But materials availability remains an issue, and coupled with a scarcity of available or willing workers, continues to place pressure on builders struggling to meet demand. One contractor who wished to remain anonymous told Arkansas Money & Politics that he was driving to Mexico to pick up appliances since the local wholesaler he uses can’t get anything delivered.

Another said some local builders are forced to bring on undocumented workers for work like brick masonry at up to $30 an hour in cash.

“You can have all the houses you want, but without the materials, we just can’t get ’em built,” Easterling said. “The demand for houses is still really high. Our incoming calls are steady. Right now, construction is in high demand. Projects just take longer now.”

NWA growth is resulting in new builds like this one in Goshen. (Photos provided)

And Northwest Arkansas, almost as much as any region in the country, needs those projects. The 2020 census put its population at roughly 550,000, virtually all of it in burgeoning Benton and Washington counties. Benton County’s population grew by 29 percent between 2010 and 2020, and by a whopping 44 percent between 2000 and 2010.

Washington County, meanwhile, saw 21 percent growth the past decade and 29 percent growth before that. Fayetteville is now the state’s second-largest city at just under 94,000 residents; four of the state’s 10 largest cities and six of its fastest growing cities are in Benton and Washington counties.

According to the most recent Arvest Skyline Report, conducted by the Center for Business and Economic Research in the Walton College of Business at the University of Arkansas, building permits were up the first half of 2021, from 2,074 issued to 2,754.

Throughout the region, there are virtually no completed and unoccupied new homes in active subdivisions, the report found. As of June 30, there were just 54, the lowest number since 2012. And homes listed for sale in the region’s MLS database numbered 642, the lowest number since 2009.

As builders are forced to wait out materials shortages, new builds — like this one in Cave Springs — remain in high demand. (Photos provided)

From January through June, 4,854 homes were sold in the three-county NWA footprint (Benton, Washington and Madison counties) used for the report, and homes continue to last on the market for less than 90 days. The number of owner-occupied lots in the region has steadily declined over the past decade as well — 64 percent in Benton County and 61 percent in Washington County.

Home values are increasing, the numbers reveal. The average sales price in the region for the first half of 2021 was $306,236, up 16 percent from the same time in 2020 and up 44 percent since 2016.

The report identified 23,693 total lots in 414 active subdivisions across NWA, with 3,769 of them empty, as of June 30. With 14,602 residential lots having received preliminary or final approval, it calculated 62.1 months of remaining lot inventory in the market.

A robust seller’s market lingers, but Suzett Sparks, senior vice president and designated broker for Lindsey & Associates, said it’s been tempered somewhat from the summer, when potential sellers were being inundated with offers, in some cases even before placing their houses on the market.

“Instead of 30 to 40 offers, there might be three to 10 offers on a property,” she said. “We’re seeing a small increase to days on the market. There are still cases of homes selling for $10,000 or more over asking price but not as common as we saw during the spring and summer, although it still exists. During the spring and summer, it wasn’t uncommon to have offer prices of $40,000 over list price, not contingent upon appraisal.”

Towns like Cave Springs, just southwest of Rogers in Benton County, are absorbing much of the region’s growth and evolving from quaint hamlets into small cities. Now with a population of more than 5,000, Cave Springs grew by 57 percent from 2000-2010 and by 218 percent over the last decade. Other examples include Tontitown, where growth rates over the past two decades were 161 and 75 percent; Highfill, 54 percent and 172 percent; and Centerton, 343 percent and 87 percent.

But can such growth — any growth, for that matter — be sustained when materials to build homes, and workers to wield those materials, are in short supply?

“I have talked to several builders who are building but waiting to finish and put those homes on the market to be able to make sure they know how much money they have in them before getting them under contract,” Sparks said. “Material prices have been all over the place in the last 18 months, and builders just aren’t sure what it will cost to complete a home.”

Sparks said she expects the market to see some new homes come open in the next six months.

In the meantime, apartments will help fill the void. The average multifamily vacancy rate across Benton and Washington counties for the first half of 2021 was 3.4 percent, down from 5 percent the latter half of 2020, according to the report. The regional average lease rose 5 percent to $768.48 in the last year and 26 percent in the last five.

A recent study commissioned by the Walton Family Foundation acknowledged a current lack of production capacity necessary to build the required number of housing units. It cited other factors such as high land costs and “inefficient” or “exclusionary” development rules. The study recommended region-wide zoning reforms to address what it called sprawling development patterns.

For now, builders like Easterling will keep plugging away. He said last year his company made less than half of its 10-year average gross.

“It’ll be crash or correction,” he said. “This will continue until the market crashes or corrects itself.”