Today, the median new home sold in the U.S. is 37 percent more expensive per square foot than the median new home sold in 2000, even when adjusted for inflation, according to U.S. Census Bureau data. That same median home is also 10 percent larger. Additionally, new-start condominium and co-op development virtually disappeared following the Great Recession. Taken together, that means that the prototypical “starter home” is harder to find. While there is no strict definition of a starter home, these homes are generally smaller (typically under 2,000 square feet), and attainable to first-time homebuyers with average incomes and credit scores. This lack of new starter homes has coincided with increased prices for the existing housing stock and stricter mortgage lending criteria, meaning that many first-time homebuyers are unable to find and finance a home to purchase, even if they have saved for a downpayment. Indeed, the median existing single-family home sold in the U.S. for $400,000 in 2024, compared to $247,000 in 2000 (even when adjusting for inflation) according to the Joint Center for Housing Studies at Harvard University, with the median home value now nearly six times the median income, and the income required for a starter home now approximately $77,000.
Moderately priced, entry-level homes are an important piece of the housing ecosystem. Small single-family homes, townhouses, and condominiums allow households to build up equity and leverage long-term savings to build household wealth. With fewer starter homes available, the median age of first-time homebuyers has continued to inch upward, reaching 38 years old in 2024, up from 32 in 2000.
In order to increase the supply of starter homes available for purchase by first-time homebuyers, a number of communities have created new sources of funding to incentivize the development and sale of new homes under a certain price point. These new programs mirror the housing production fund created by Montgomery County for the creation of affordable rental housing units but are instead focused on affordable homeownership. In Utah, the state repurposed $300 million originally slated for transportation investments to make available below-market rate loans to developers who build and sell homes for less than $450,000. In Washington County, WI, a suburban county near Milwaukee, the county used over $8 million made possible through America Rescue Plan Act (“ARPA”) funding to create the Next Generation Housing Initiative (NGH). NGH requires the development of homes for owner-occupancy priced between $340,000 and $420,000. These programs demonstrate how creative financing can be used to encourage the private market to build new homes for sale for individuals that otherwise might be priced out.
The Challenge This Tool Solves
In the 21st century, newly built homes have gotten larger and more expensive and the availability of for-sale product type has been reduced by multiple variables. This increase in cost and limited supply leaves first-time homebuyers with few options for affordable, newly built homes. In part, the lack of newly built starter homes stems from the increased cost of construction, increased labor costs, and a smaller pool of new qualifying homebuyers; developers have responded by moving towards larger, more expensive, custom homes, or “build to rent” communities. By creating financial products that encourage the creation of new condominiums or single-family starter homes, public investments in starter home development result in the creation of new homes for purchase by individuals who may otherwise not be able to find new housing that they can afford to buy.
Types of Communities That Could Use This Tool
While scattered-site single family development can be used in conjunction with these financing tools, communities that have large tracts of developable lands for new single-family, townhouse, and missing middle developments of duplexes, triplexes, and small condo-developments under 10 units are best positioned to see returns from economies of scale. This tool can also be paired with other public incentives, such as discounted public land, in order to further drive down the cost of development and increase the amount of affordable housing created within a development. However, some communities — especially communities with depressed housing markets where new homes often appraise for far less than the cost of construction — may struggle to recoup their investments in starter home development, as the subsidy required to make the home affordable may be significant.
Expected Impacts of This Tool
In Washington County, WI, the stated objective of the Next Generation Housing Initiative is to generate 1,000 new owner-occupied housing units by 2032, from a total investment of $8.25 million. The $300 million in the Utah Homes Investment Program cost the state approximately $18 million to subsidize the interest rates offered by the program, and if used to its full potential, could result in 3,000 new homes in the state, a subsidy of only $6,000 per home.