In theory, accessory dwelling units (ADUs) seem like they’d be an effective way to increase housing supply.

In practice, however, relatively few are being built in Bentonville.

Sometimes called mother-in-law suites, these additions to a residential property can take several forms, including a backyard cottage or an apartment above a garage.

Recent changes to state law have made them easier to build, but ADUs have yet to emerge as a meaningful share of Bentonville’s new housing production.

In 2025, Bentonville issued eight permits for ADU additions to existing homes. Over the past five years, the average has been six per year. Due to the way permitting works, it’s difficult to determine how many newly constructed homes included an ADU.

Last year, Arkansas joined a growing number of states working to address housing shortages by decreasing regulations surrounding ADUs. 

A new state law allows homeowners to build an ADU “by-right,” meaning they do not need case-by-case approval from the city government. The new law also removes the ability of city governments to require extra parking spots, mandate that ADUs match the character of the existing home or neighborhood, or require homeowners to live on-site.  

Despite the efforts to make construction easier, ADUs still make up only a small fraction of new housing being built.

“States and cities coast to coast are allowing ADUs by right at a speed I never thought would occur,” said Wes Craiglow, executive director of Urban Land Institute Northwest Arkansas. “Yet we're not seeing production increase at a share commensurate with the overall need.” 

One of the main reasons for the lack of significant ADU activity is financing, Craiglow said. For homeowners who don’t have a couple hundred thousand dollars in cash on hand, building an ADU typically means tapping into existing home equity. But many homeowners with enough equity to do so are effectively constrained by what Craiglow refers to as the “golden handcuffs.”

Those homeowners often bought or refinanced their homes before interest rates began climbing, locking in low rates in the 2%–3% range. Those interest rates, along with rising local property values, have allowed them to build significant equity, but  also makes borrowing against their homes less appealing today.

“Why am I going to mess with a good thing just to have a stranger living in my backyard?” Craiglow said. “And that's what's really stopping America right now from producing ADUs at scale, except in those markets that are really, really favorable because the ADU is such a strong cash flow opportunity for homeowners.”

Long-term rentals of ADUs can offer income stability for homeowners, but require sharing property with a tenant for months or years — something some homeowners may be reluctant to do.

Short-term rentals can feel more manageable and typically generate stronger cash flow, but that market has slowed down compared to five years ago, Craiglow said. With hundreds of new hotel rooms opening in downtown Bentonville, homeowners might be left wondering whether tourism demand is still strong enough for an ADU to reliably pay for itself. 

Added complexities such as insurance costs, property management and ongoing maintenance make the decision even tougher.

“When you really start digging into the layers, there's a lot to it,” Craiglow said. “This is a homeowner-by-homeowner question of, ‘Is the juice worth the squeeze?’”

While recent policy changes have theoretically made ADUs easier to develop, some builders say the real challenge begins once those projects move into the permitting and construction phase. 

“When pro-building policies like ADU ordinances come online — which are well-intended and a great direction to offer another layer of choice for the homeowner — the policy itself is really just the beginning of a much longer process,” said Kat Anderson, executive officer, Northwest Arkansas Home Builders Association. 

Permitting is rarely straightforward, Anderson said, with builders navigating different interpretations of code and inspection standards from city to city. 

“It’s often the process and the systems those policies must fit within, and how that is communicated, that create inconsistency, delays and unintended costs,” Anderson said. “That’s where the friction happens, and where key regional goals like increasing attainable housing can start to get lost.”

Compared to primary homes, per-square-foot construction costs for ADUs are often higher, and labor shortages continue to strain timelines.

“Despite these challenges, there’s broad agreement among builders that ADUs are a valuable tool, especially for addressing the ‘missing middle’ and increasing options for homeowners and renters,” Anderson added. 

As one of the fastest growing metropolitan areas in the country, ADUs may increasingly become a more attractive investment in Northwest Arkansas. Brody Boston of Evergreen Tiny Homes, which builds custom ADUs, tiny homes and other smaller-scale projects, said they have seen an increase in interest surrounding ADUs and expects demand to accelerate in the coming years.

Last year, about 80% of the ADUs built by Evergreen Tiny Homes were for family members of their clients, with the in-law suite for aging parents as the most common use case. 

“Outside of high-density areas, spec homes and housing built at scale are still likely the most cost-effective option for new construction if you look at price per square foot. But many of our customers outside of downtown areas are looking beyond just the immediate financial opportunity,” Boston said. 

The other 20% of Evergreen’s ADU projects were for rental purposes. However, Boston said he expects a greater share of future projects to be intended for rental use.

He points to downtown Bentonville, where homes now sell for an average of more than $500 per square foot, as an area that’s valuable enough for ADUs to make sense as an investment.

“Regardless of price per square foot, the total cost to add a residence can still be at a total price that you simply could not get in any other way,” Boston added. “Essentially, nowhere in NWA could you buy a nice, livable home for under $200K.”