by Eric Souza
For generations, starter homes have helped families put down roots and build savings. These modest, affordable homes have no official definition, but opportunities to buy them are disappearing.
That decline is the focus of “The Next Playbook: Bringing Back the Starter Home,” a new brief published by the Center for Affordable Housing Lending (CAHL) and the National Association of Affordable Housing Lenders (NAAHL).
The policy brief identifies why starter homes are vanishing and outlines five steps the federal government could take to bring them back. It was written by Julia Gordon on behalf of CAHL and Aaron Shroyer, director of policy and advocacy at NAAHL.
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Gordon, the former assistant secretary for housing and federal housing commissioner at the Department of Housing and Urban Development during the Biden administration, spoke with Scotsman Guide about the importance of the brief.
“We wanted to break it down in language that someone new to this issue area could understand, and say, this is how the housing market used to work,” said Gordon. “That’s not really how it’s working right now.”
The first rung on the homeownership ladder
The brief generally describes starter homes as those between 750 to 1,800 square feet, priced in the lowest quarter or third of the local market. They can take several forms, including single-family houses, townhomes and row houses, manufactured and modular homes, small multifamily buildings with two to four units or condominiums and housing cooperatives.
Starter homes not only help families build equity, but they also boost the economy at the community level.
Today’s homebuyers are a historically large generation looking for entry-level homes, the brief states. The starter-home shortage is attributed to five main factors: insufficient construction of starter homes; existing homes aging and needing repairs; existing homeowners staying in homes longer; families competing with investors; and large numbers of younger households generating a greater share of demand for limited supply.
By some estimates, the oldest homeowners in the U.S. own more than half its starter homes.
“Are we going to build more 3,500-square-foot single-family homes that people can’t afford? Those often are the types of homes that get built because they provide the greatest return for the builder,” Gordon said.
The brief cites U.S. Census Bureau data showing single-family completions of homes less than 1,400 square feet accounted for roughly 40% of new construction in 1980. That share fell to roughly 12% by the 2000s and has slipped even lower to around 9% today.
“But public policymakers need to think about, ‘What do the citizens need? What do the residents of this country need to be able to get their foot on that first rung of the homeownership ladder?’” added Gordon. “They need smaller homes.”
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Gordon, who announced a return to the public sector on Monday as senior vice president of homeownership and community development at New York State Homes and Community Renewal, pointed to a variety of options for smaller homes, including row houses, duplexes or triplexes, small multifamily or cottage courts, garden apartments, condos and co-ops.
“All of those different home types have historically been where families started,” Gordon said. “They’re increasingly difficult to find, and they appear largely to be of decreasing interest to our builders.”
Keeping existing homes viable
One way to get builders to prioritize starter homes is through public policy, Gordon said, noting that it’s missing from the overall tax incentive structure. She has been actively working on legislation with bipartisan support called the Neighborhood Homes Investment Act, which would create a federal tax credit for building and rehabilitating affordable single-family homes.
Half the U.S. housing stock is more than 40 years old, according to American Community Survey data analyzed by the National Association of Home Builders. In some parts of the Northeast and Midwest, most of the stock is more than 80 years old.
“These homes need reinvestment. They need that repair, rehab, for people who are in a home that is aging,” Gordon said, noting that homeowners have different demands of homes today than they did 80 years ago. “It’s important to help them keep that home maintained while they’re in the home, because little problems in houses turn into big problems.”
Additional challenges have arisen in recent years as aging homeowners with starter homes from decades ago have fallen behind on repairs and maintenance in the wake of large increases in property taxes, insurance premiums and utility bills.
Some of these homes simply cannot find a buyer, effectively trapping aging homeowners in their homes. For first-time homebuyers especially, buying an as-is property and making repairs before moving in is rarely an option. Some old starter homes are so obsolete it simply does not make financial sense to repair or rehab them.
The brief outlines a range of other policy suggestions, such as incentivizing localities to reduce minimum lot sizes and allow for a range of home types alongside single-family homes.
Some proposals would incentivize older homeowners to sell their homes to a new wave of buyers. Government agencies could provide “a first look for owner-occupants” and incentive sellers, including real estate investors, to sell to new owner-occupants.
“Homeownership has been such an important part of what grew the middle class in this country — the disappearing middle class, I might add,” Gordon said, calling it a critical piece of how ordinary families benefit from the financial system using a leveraged product.
The issue is personal for Gordon.
“We have kids, we have to think about this stuff,” she said. “My daughter and all of her friends, they think homeownership is like going to the moon.”