Shortage of starter homes goes beyond major cities. Corroborating research points to plunge in decades-long shortage of starter homes.

What is Definition of a Starter or Entry-Level Home?

So we’re all on the same page regarding starter or entry-level homes, let’s begin with size.  Freddie Mac defines starter or entry-level homes as homes with up to 1,400 square feet of space.  Both Zillow and Redfin indicate that the median size of a single-family home is in the neighborhood of 1,600 to 1,650 square feet.

Entry-Level Housing Supply

In other words, builders aren’t even building starter or entry-level homes today…and they haven’t been since the 1970’s.

According to Freddie Mac, homeowners in prior generations have had much greater access to smaller homes when they were beginning their financial lives.

– In the late 1970’s, an average of 418,000 new units of entry-level homes were built each year.

– By the time the 2010’s rolled around, an average of 55,000 new entry-level homes were built.

– In 2020, there was an uptick of new entry-level homes at 65,000 entry-level units.

Sam Khater, chief economist and head of Freddie Mac’s Economic and Housing Research division, said, “You can really draw a straight line from the 1940’s down to the most recent years…What was really striking to me was the consistency in the decline in the share of entry-level homes, irrespective of geography…It’s all over the US.  It doesn’t matter where.”

Supply of Starter Homes Hovering Near 50-Year Low

Today’s newly built single-family homes, according to the National Association of Home Builders (NAHB), are significantly larger than the 1,400 square feet defined by Freddie Mac and the median of 1,600-1,650 square feet defined by Redfin and Zillow.  The NAHB indicates that the average square footage for new single-family homes is now 2,475.

Robert Dietz, NAHB chief economist, said, “Going forward, we expect home size to increase once again, given a shift in consumer preferences for more space due to the increased use and roles of homes (for work, for study) in the post-COVID-19 environment.”

Supply Shortage of All and Especially Starter Homes Seen as Challenge to Inclusive Economic Growth

As homeownership is seen as a wealth builder, having this dearth of homes for households just starting their financial lives is a too real obstacle.  Freddie Mac’sKhater said, “As we navigate our way through the year and get beyond the pandemic, we expect the housing supply shortage to continue to be one of the largest obstacles to inclusive economic growth in the US.  Simply put, we must build more single-family entry-level housing to address this shortage, which has strong implications for the wealth, health and stability of American communities.”

Thanks to Freddie Mac, the National Association of Home Builders, Zillow, Redfin and The Wall Street Journal.



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