The market for new “starter homes” is drying up, mostly on the supply side. As credit markets recover, there are more and more people who could be buying their first homes … if only builders could build them. But for a host of reasons, they can’t:
- Materials costs have risen.
- They lost a lot of their labor force during the economic downturn.
- Communities entitled large lots during the boom, and now they won’t zone them for smaller parcels.
- Cash-strapped local governments have raised permitting and other fees.
- Building codes and other requirements make it harder to build cheap.
This makes it extremely difficult to build a house for less than $200,000 in many places, which is a hefty multiple of local median incomes.
Three quick responses:
1. I know this doesn’t get much discussion in many industries but when they say it is difficult to build for less than $200k, what exactly does this mean? A home at that price won’t meet their profit goals? What kinds of profits do developers and builders make at the lower end of the housing market as opposed to the higher end? Builders can’t make any money off new started homes or they can’t make enough money for them to see it as worth their time?
2. As noted, communities have some influence on this process. How many are really willing to zone for starter homes and/or have different guidelines for starter homes?
3. Isn’t this an opportunity to construct homes more efficiently? It sounds like there is some turmoil in costs – material, more uncertain labor, higher fees and requirements – but this is where the housing industry could find some new solutions.