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The Demise of the Starter Home—Here’s Why They’re Being Replaced

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New-Home Sales

The Demise of the Starter Home—Here’s Why They’re Being Replaced

Rising land costs and shifting buyer preferences are forcing builders to replace entry level homes with larger, more expensive ones

October 11, 2022
Small white entry level home seen from street curb
Image: Stock.adobe.com

Entry level buyers are finding a nationwide shortage of starter homes in a housing market characterized by soaring home prices and much larger residential construction projects. Not only are homeowners renovating existing starter homes to expand their floor plans, but a growing number of home builders are also pulling entry level houses from their portfolios to appeal to a consumer base looking for additional living space, The New York Times reports.

Also, while the value of land has increased significantly over the last several years, zoning rules in many neighborhoods still prevent home builders from creating new multifamily housing. Instead, single-family homes can only be replaced by new single-family homes, and as land gets more expensive, the houses that sit on top of it also get larger and more expensive.

All of these scenes are in relatively desirable locations, within metro areas with good jobs and rising home prices. In these places, the value of land has increased significantly. That might mean a little two-bedroom house that once sat on dirt worth $10,000 is now sitting on dirt worth $200,000. Most families in the market for a small two-bedroom starter home won’t be able to afford it now. And a developer who buys that same small home will need to replace it with a much, much more expensive one to recover the cost of that expensive land.

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