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Industry Trends5 min

Solutions for the Starter Home Shortage

The supply of modestly priced starter homes continues to drop nationwide. A recent report by Realtor.com found that the number of homes priced above $750,000 grew 11 percent last year, while the number of starter homes priced under $200,000 fell by 8 percent. 

Home values and rent continue to increase, but average salaries across the United States are not increasing at the same percentage. Consider that the average home value in 1950 was $7,400 and the household median income was $2,990. In 2010, however, the median home value was $221,800 (an increase of nearly 2900%) while the household median income was $49,445, which is an increase of only 1554% (source: U.S. Census Bureau via Curbed). That disparity is one of the reasons that the American starter home is out of reach for many entry-level buyers.

But designing and building starter homes doesn’t have to be restrictive in order to keep costs at bay. Rather, smart design and smart product selection can help buyers achieve the American dream without sacrificing quality.

Some of the challenges when building starter homes:

  • Narrower, smaller—even subdivided—lots
  • Designing a home that can be remodeled and/or grow as the family grows or can financially afford to add on
  • Clever use of space to maximize square footage, particularly mindful of Millennial first-time homebuyers
  • Integrating design, structural and sustainability elements that defend the build

KB Home, who partners with LP, takes advantage of LP® TechShield® Radiant Barrier, an easy, low cost energy efficient upgrade, and is at the forefront of companies trying to boost the supply of affordable entry-level homes. In KB Home’s Q1 earnings call, Chairman/CEO Jeffrey Mezger said that “offering more affordable products within our communities is also key. Our efforts to address affordability concerns by expanding the choice of square footages available to homebuyers are well underway, and we expect to continue to introduce lower square footage plans in select communities in the months ahead. A good example is our new Autumn Winds community in Riverside County, California. We added 1,400 and 1,500 square-foot plans to complement our initially planned lineup for this community, which had ranged from 1,600 to 2,400 square feet. Since the opening, these two small plans have generated about 25 percent of this community’s net orders. 

Nationwide, smaller metro areas continue to be the most affordable entry points for first-time homebuyers. A recent U.S. News and World Report found that would-be buyers in Huntsville, Alabama, and Ft. Wayne, Indiana, only needed to earmark 19 percent of their income toward housing – far less than the percentage needed in the top 20 markets in the U.S.

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