Opportunities disguised as a problem

The future comes at us in hard-to-process events. We are always trying to figure out what we are experiencing or how to use the situation or event to our benefit. But continue we must and create a path forward and hope we get it right.

Sometimes opportunities disguised as problems hit us head-on. Three articles recently appeared in the Northwest Arkansas Democrat-Gazette highlighting our area’s critical need for affordable housing. The articles reference the 2019 Walton Family Foundation-funded report “A Call to Action for Northwest Arkansas.” Entrepreneurs should take notice of the articles and the report.

The report projects 80,000 families relocating to Northwest Arkansas’ four largest cities over the next seventeen years (2040). If the current ratio of 2.7 persons per household in Northwest Arkansas holds, we need approximately 29,000 housing units (rentals or ownership) over that period. The report says Northwest Arkansas only created about 1,400 dwelling units annually between 2010 and 2016, so there is a looming shortfall. And the report based its figures on what was known in 2018-2019, with no mention of how these things will affect the region:

• Alice L. Walton School of Medicine in Bentonville
• Tyson Foods’ relocation of executive jobs
• Work-life changes brought on by the pandemic
• Walmart’s new home office campus in Bentonville

The articles and the report identify problems concerning the need for more housing — affordability (big deal), income inequalities, local politics, regulatory constraints, the lack of a unified regional housing plan and flaws in the housing delivery system. We need to analyze these problems together.

For example, affordability covers the cost of developing housing, potential money-saving construction techniques and area median household incomes. Regulatory constraints include zoning, urban density and lot sizes etc.

What might that mean? Elected officials and planners need to study density constraints and see where they might be loosened. Although there are second-order consequences, elected officials should also consider banning (or at least sun-setting) short-term rentals. If short-term rentals migrated into the long-term market, overall area rents might decrease. While these issues are for the politicians to debate, there remain opportunities.

Affordability of housing, on the family income side and pricing of the dwelling unit, is a problem begging to be solved. Better ways to deliver, build or finance the overall product may exist. Building more efficiently or squeezing costs out of existing components or other parts of the delivery system is a scalable opportunity. Even reanalyzing specific demographic groups’ needs may lead to fresh solutions.

Entrepreneurs should look at slices of the overall housing business and find ways to improve it. While frequently discussed, factory-built housing components might make a dent in construction costs. Also, participants in industries like building supplies, title insurance, mortgage origination, building trades, and real estate development should look hard at their business models and see where they might eliminate costs. If one cannot address land or infrastructure costs (let the politicians take on these issues), there are other areas to study.

The demographic changes taking place, nationally and locally, affect housing demand. In the future, we need different forms of housing, not just standard three-bedroom, single-family dwellings. Northwest Arkansas needs housing types that address a growing senior population, people living alone, and families of varied sizes.

The Northwest Arkansas Democrat-Gazette articles and the Walton report are excellent outlines of available business opportunities. But serious, long-term thinking needs to go into how to profit from these opportunities to have a lasting impact.

Alan Lewis is a retired transaction lawyer in Bentonville and the managing member of 207 Consultants LLC. The opinions expressed are those of the author.