Where are the Starter Homes?

Throughout 2023, national outlets and the real estate media eulogized the death of the Starter Home in the United States.

Demand for houses geared towards first-time homebuyers has never been higher, but three primary (and interconnected) factors have placed the Starter Home on the endangered species list: Affordability, Inventory, and Incentives.

• Affordability In 2019, the national median existing-home price for all housing types was $274,500. Four and a half years after that calculation by the National Association of Realtors (NAR), today’s median existing-home sales price is $410,200. Along with a 50% increase in raw purchase price, the cost of capital has gone up by 200% or more over the same period, with prime interest rates in the mid-3% ballooning to today’s 7.25% average.All of that adds up to an unattainable downpayment figure and an unworkable monthly carrying cost for most first time home buyers across the country.?In a balanced real estate market, according to the NAR, middle-income families in the US should be able to afford roughly 50% of all homes available for sale. Today, the median household income in the U.S. is about $80,000, an income figure that renders only 23% of all homes currently available attainable. Of those units, most would be a stretch to describe as a “home.”
• Inventory Today, the market is short about 320,000 listings valued at the affordable range for middle-income homebuyers. That deficit is growing larger with each quarterly report. And, it’s accelerating as investors and funds target this rare commodity - the existing starter home - for purchase and utilization as rental properties.?

• Incentives If the demand is there and the market is clamoring for more accessible starter homes, why isn’t someone making them??Some interesting legislation has come out from several municipalities and states. Rezoning for ADUs. First-time homebuyer downpayment assistance. Rent-to-buy programs. For the most part, however, these initiatives create paths to purchase homes, but don’t actually create net-new housing units to buy.?Traditional developers have almost zero incentive to address inventory scarcity, and fill the gap.Rising land acquisition and construction costs disincentivize the creation of smaller, more affordable homes. With the heavy upfront costs, speculative and tract developers must look for the highest sale price against the lowest build cost. That will almost always lead them to pursue larger homes, built with so-so construction and materials, and market them with luxury price tags.

At HUTS, we often say we’re in the “Get House” business. Today, there’s a huge swath of the population that “wants house” but can’t “get house.” They have jobs, money available, but the houses just don’t exist.

So, do we have a role to play? I think we do.

The key to HUTS's ability to introduce more starter homes into the market lies in our business model for all of our home design and development projects. Our model diverges from the traditional capital risk and high-return expectation of conventional home developers. By operating as a service-based fee developer, we’re somewhat indifferent to the project's budget size: whether it’s a $200,000 or $2,000,000 house, HUTS is going to perform the same services, sherpa-ing our clients through the design and development process from end-to-end.

This flexibility enables the company to focus on delivering properties that are scale- and budget-appropriate, opening up new possibilities for first-time homeownership that were previously unattainable under the traditional development model.

As HUTS moves forward in its exploration of starter homes and our role in defining and delivering them, it invites a broader discussion on what features these homes should include to meet the evolving needs of modern first-time homebuyers. Beyond the essential criteria of affordability and accessibility, what else will be standard to the starter home of the future? Potential considerations could include the ease of adding extensions or upgrades over time (e.g., designing for expansion and phased construction), the choice of initial finishes with ease of upgrades later, or the incorporation of accessory dwelling units (ADUs) from the get-go to offset mortgage costs through rental income.

What, exactly, should a starter home include? As HUTS continues to explore our role in servicing first-time homebuyers, the insights and preferences of our community will play a crucial role in shaping the homes of the future. Expect to see us solicit your thoughts.