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Builders Less Interested in Starter Homes

By Allison Halliday | March 6, 2015

Starter homes normally form the backbone of the housing industry, but nowadays such homes are becoming few and far between. An article in Builder Online shows that the median new home price at the beginning of this year was in excess of $280,000 which is much more than many people would consider to be the price of a true entry-level home.

The article also points out the difference between first-time buyers and entry-level buyers as it’s easy to assume they are one and the same. In fact an entry-level home is one priced at the lowest end of the price spectrum which would enable a renter to move into a home they could own. There are three reasons as to why the starter home may be becoming a rarity.

The first is down to available lots for building. Most of the lots that have been sold over the past 30 months have been so called “A” quality and very little has been done to B, C and D type lots which require more development and marketing. Land and development costs have remained high and in some markets have reached bubble level. Costs need to come down for builders to be able to construct entry-level housing.

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Entry-level buyers are also being deterred by the higher cost of entry-level homes, much of which is due to local entitlement and permit fees that effectively bar entry-level homes from being built in communities that are already well established. Such fees and charges can add 20% or 25% to the cost of a new home due to builders needing to underwrite new infrastructure and schools and other support services.

Another problem is that many people who in the past would have wanted a typical entry-level or starter home are now looking for something quite different. They are likely to be older and have had to wait before forming a household. They are also likely to spend longer paying down student debt or finding a partner. Now they have good credit ratings they are not willing to settle for something that merely gets them out of paying monthly rental.

These would be buyers are not so interested in a more traditional view which would be purchasing a starter home and using it as a stepping stone towards buying a more permanent family home in the future. In addition, people are living longer and it could be that homes in the future will be built more to accommodate older adults than those just starting their journey on the housing ladder.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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