Whatever happened to the starter home? There's no profit in it

[Lee Chowaniec]

Many of us of age well remember those times and starter homes fondly. There was a much better opportunity to purchase a new home then, though smaller in size. And the size worked for new families starting out in life.

https://dnyuz.com/2022/09/25/whateve...-starter-home/

WASHINGTON – As recently as the 1990s, when Jason Nageli started off, the homebuilding industry was still constructing what real estate ads would brightly call the "starter home." In the Denver area, he sold newly built two-story houses with three bedrooms in 1,400 square feet or less. The price: $99,000 to $125,000, or around $200,000 in today's dollars.

That house would be in tremendous demand today. But few builders construct anything like it anymore. And you couldn't buy those Denver-area homes built 25 years ago at an entry-level price today, either. They go for $500,000. The disappearance of such affordable homes is central to the American housing crisis. The nation has a deepening shortage of housing. But, more specifically, there isn't enough of this housing: small, no-frills homes that would give a family new to the country or a young couple with student debt a foothold to build equity.

The affordable end of the market has been squeezed from every side. Land costs have risen steeply in booming parts of the country. Construction materials and government fees have become more expensive. And communities nationwide are far more prescriptive today than decades ago about what housing should look like and how big it must be. Some ban vinyl siding. Others require two-car garages. Nearly all make it difficult to build the kind of home that could sell for $200,000 today.

Nationwide, the small, detached house has all but vanished from new construction. Only about 8% of new single-family homes today are 1,400 square feet or less. In the 1940s, according to Core Logic, nearly 70% of new houses were that small.

At the root is the math problem of putting – or keeping – a low-cost home on increasingly pricey land. "When we started out 20 or so years ago, we could buy a lot for $10,000-$15,000, and we could build a home for under $100,000," said Mary Lawler, the head of Avenue Community Development Corp. in Houston, a nonprofit developer. "It was a totally different world than we are in today." In Portland, Ore., a lot may cost $100,000. Permits add $40,000 to $50,000. Removing a fir tree 36 inches in diameter costs an additional $16,000 in fees.

In Savannah, Ga., Jerry Konter began building three-bedroom, two-bath, 1,350-square-foot homes in 1977 for $36,500. But he moved upmarket as costs and design mandates pushed him there. Today in some parts of the country there is hardly anything on the market for under $300,000 resembling the American starter home of the past 70 years.

[yaksplat]

The starter homes are already built. The problem is that the current generation of young home buyers want to live the same way they were in their parent's home and would rather buy new and go into severe debt than live in what they can afford.

We started in a 1200 sqft home 20 years ago. We lived there for 3 years and then moved into a 2100 sqft house. Now we're in the process of building an addition and making our house into our dream home. All with a mortgage rate of 2.6%