Renting is on the rise in Northwest Arkansas and the rest of the country. The percentage of renters vs. buyers in the Northwest Arkansas housing market grew to 37% of occupied housing units in 2015, up from 33% in 2010, according to the U.S. Census Bureau.
In general, rentals are up and homeownership rates are declining, said Mervin Jebaraj, interim director of the Center for Business and Economic Research in the Sam M. Walton College of Business at the University of Arkansas in Fayetteville.
In part, it could be a hangover from the Great Recession, he said, citing the U.S. homeownership rate was 63.7% in the fourth quarter of 2016. It took a downward turn following an all-time high of 69.2% in the second quarter of 2004 and has mainly been decreasing since then, according to the Census Bureau.
The drop in homeownership is evident across the various age groups, but Millennials, in particular, are not buying houses at the rate that is expected for their age group, said Jebaraj. Also at play is the growing student population at the UA in Fayetteville and other area colleges and universities, he said. The UA enrolled more than 27,000 students last fall. Five years before, enrollment was a little more than 23,000, up significantly from 2006, when it was close to 18,000.
“There is a huge influx of students, and they’re almost all renting,” Jebaraj said. “That shows up in our statistics and affects the picture of Northwest Arkansas as a whole. In Fayetteville, you have these huge multifamily developments essentially catering to students at the UA.”
During the five-year period between 2010 and 2015, rental housing vacancy rates were down for the metro area, at 5.3%, compared to 11.6% five years earlier, according to the Census Bureau. For multifamily housing, the preferred lodging option for college students, the vacancy rate is much smaller, at 2.4%, according to the latest Skyline Report, a biannual analysis of the residential market put together by the CBER team and sponsored by Arvest Bank of Fayetteville.
The Skyline Report tracks 34,906 multifamily units across Northwest Arkansas as part of its commercial real estate analysis. CBER does not collect data on single-family rentals.
MORE RENTERS IN NWA
On a statewide level, vacancy is 9.3%, showing no change from 2010. The percentage of renters grew slightly though, to 33%, compared to 31% in 2010, according to the Census Bureau.
The share of renters in the Northwest Arkansas metro area is larger than in the rest of the state and larger than the national average share, at 35%. In fact, 2016 marked the largest single-year increase in renter households based on Housing Vacancy Surveys records dating back to the mid-1960s, up 1.4 million, according to a report from the Joint Center for Housing Studies at Harvard University.
However, the Northwest Arkansas region might be edging out other areas in terms of renting because of its demographics, Jebaraj said.
“It makes sense that renting is on the rise in Northwest Arkansas, given how fast the area has grown and also the fact that it has a slightly younger population,” he said.
Renters are more diverse than homeowners in terms of race, ethnicity, and household type. Minorities and foreign-born households account for half of renter households, compared with just one in four homeowners, according to the Harvard report.
While more than a third of renter households earn less than $25,000, a growing number of high-income households are choosing to rent, according to the report.
“Indeed, renter households earning $100,000 or more have been the fastest growing segment over the past three years.”
Though renting might have caught on for higher earners, it hasn’t killed homeownership.
“People are buying houses continually in Northwest Arkansas,” Jebaraj said. “Residential real estate is hot.”
In the last half of 2016, residential building permits were up 37% over the same period in 2015, according to the latest Skyline Report. New homes being occupied showed a 38% increase.
RENTING AS A TEMPORARY FIX
Doyle Yates, executive vice president and real estate agent at Coldwell Banker Harris McHaney Faucette in Fayetteville, said he believes an increase in the popularity of renting within the region could be the result of some home buyers being temporarily pushed into the rental market because of a lack of available housing to buy.
“Inventory for existing properties and new construction is pretty tight,” Yates said.
He pointed to Northwest Arkansas’ rapid population growth. The region is adding about 30 residents per day, according to a report published in July by CBRE Real Estate.
“More and more people are moving into Northwest Arkansas, and it’s made it difficult for inventory to keep up,” Yates said.
When new people come into the market and are not able to immediately find what they are looking for in terms of real estate that is in their price range, they might rent while waiting for inventory to open up, Yates said. Other times, they might rent while working to improve their credit score before buying, he added. The free market will fix any housing inventory issue, as developers and builders watch the market, he said.
“It’s always something of a roller coaster,” he said. “It is normal progress in residential real estate that things become slightly overbuilt. Then there’s pull back for the market to absorb that, and during that time you have low inventory. When it looks like the market is moving, the builders and developers become more engaged.”
Yates said there is now a good number of developments in the process of being built, and Jebaraj agreed.
“I can tell you that the number of houses under construction are going up across Northwest Arkansas. Occupied housing is going up as well, these houses are being absorbed off the market,” he said.