Starter homes for first-time homeowners are harder to come by today due to rising land, labor, and materials costs. This trend, coupled with changing zoning laws and increasing demand for larger homes, is re-defining the housing ladder and leading to a major shift in alternative solutions like green tiny homes and auxiliary dwelling units to satisfy emerging homeowner needs.
Owning a little house on a plot of land had become synonymous with the American dream—a sign of prosperity and social mobility.
And in the past, the dream began with a starter home. This home was seen as the first rung on the property ladder and tended to be smaller and less expensive.
“Conceptually, a starter home is one that is purchased by a first-time homebuyer with the goal of getting a foothold in homeownership,” says Realtor.com Chief Economist Danielle Hale.
Today, affordable homes are hard to come by. Here’s why—and what homebuyers can do about it.
The history of the starter home
They were mass-produced by builders such as William Levitt to meet a severe housing shortage after World War II. Veterans were returning home from the war, marrying, and starting families, and hundreds of thousands of people needed a place to live.
By 1947, Levitt, who had mass-produced Army barracks during the war, was churning out small homes on Long Island, the first of seven Levittowns in the U.S. and Puerto Rico. Other developers in other areas soon followed suit.
As part of the GI Bill, some veterans for the first time became eligible for a government-backed home loan with no money down. So the tract home, designed in cookie-cutter fashion and produced assembly-line style, sprang up to meet the demand.
What defines a starter home—size, cost, or both?
The first starter homes were small—from 800 to 1,000 square feet. They were boxy, with a pitched roof, an old-style open floor plan, and a plain interior with no decorative molding.
“A starter home is usually smaller and lower priced and might be a home that a buyer expects to outgrow in a handful of years,” says Hale. “But the idea behind purchasing one is to experience homeownership and start to build up equity that can be used later to trade up into a bigger home.”
In the 1940s, homes were affordable, making climbing the rungs to wealth building through property possible. In 1947, starter homes cost between $8,000 and $12,000. That’s $109,000 to $168,000 in today’s dollars.
Where is today’s starter homes?
Unfortunately, there’s not a lot of supply to meet the demand for starter homes as of late.
The pool of starter homes has not only been shrinking, but the price has been increasing as well, according to data from Realtor.com.
In 2019, the median list price for such a home was about $220,000—which a household earning roughly $50,000 a year could afford. By 2021, that same home was selling for $325,000—a 48% increase. Today, it’s even more.
And so, between higher mortgage interest rates and skyrocketing home prices due to low inventory, first-time homebuyers today are feeling increasingly priced out of homeownership
Roadblocks to building starter homes
Many factors affect the feasibility of a builder churning out small, affordable homes, including the costs of land, labor, and materials.
“But the biggest barrier has to do with zoning laws and building codes,” says Eclipse Cottages CEO Justin Draplin, who is developing communities of green tiny homes in South Carolina. “Most 1,000-square-foot units are stacked onto each other and developed as apartment complexes.”
Builders say consumer interest in dense housing developments just isn’t there. A recent Pew survey showed that 6 in 10 Americans would prefer larger homes spaced farther apart. This might be one explanation for why the average new home is 2,600 square feet and costs roughly $332,524 to build.
But there’s another reason: Bigger homes can command bigger sales prices.
“Developers often build larger homes because they are more profitable,” explains Draplin. “They can sell more square footage and charge higher prices for larger houses.”
How to find a starter home
Starter homes aren’t being built like they used to be, but they are still out there. And keep in mind, “a starter home for one buyer may not be a starter home for another buyer,” notes Hale.
“Picking out a starter home generally involves looking for smaller, more affordable homes,” adds Hale. “Some researchers define this by lower bedroom counts or square footage, while others might look at pricing—either the actual dollar cost or the cost of a home relative to some local area norm.”
So when you are searching for a home, start small. Look for homes well within your budget with minimum bedrooms.
Or go tiny instead of a starter
To address the need for today’s starter homes, many states have been teaming up with the U.S. government to combat NIMBY opposition (a “not in my backyard” trend to describe neighbors who fight nearby development) by offering tax breaks and builder incentives or by overriding zoning restrictions.
In addition, eight states have recently passed laws allowing an accessory dwelling unit, or ADU, to be built on a single-family residential lot, and more states have initiated similar laws. An ADU is essentially a second, smaller home built behind the primary home.
Some buyers would even happily go smaller. You can see this in the staying power of the tiny-house movement and the popularity of shows such as “Tiny House Nation.”
“There is a growing movement toward smaller, more sustainable homes,” says Drapin. The homes his company is developing come with a land lease, similar to a mobile park model, and the community amenities include things like a dog park and a bike path into town. The largest cottage is 400 square feet, with the option to expand it by adding a loft and porches.
Demand for small, sustainable, newly built homes is strong, according to Draplin.
“Many individuals and families, including young professionals, are actively seeking out smaller homes,” he adds.
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Source: https://www.realtor.com/advice/buy/what-is-a-starter-home-the-small-affordable-houses-that-arent-being-built-anymore/?utm_campaign=Homeward%20Bound&utm_medium=email&_hsmi=268098190&_hsenc=p2ANqtz-8Np6JpkaOEJyh8SeNaAjKsA9q3jgg5SXOW3CtoakPO8Bu-lNarTBRJ7NNx59Xan5pQnmeYA_98Za6rJYv4ZW_RvZNeRA&utm_content=268098190&utm_source=hs_email