Housing Shortage
Where have all the starter homes gone? long time passing . . .
Where have all the starter homes gone? long time ago ….
The ‘starter’ home, a single-family house usually less than 1500 sq ft, hit peak production as the staple of residential housing in late 1970s. The US construction sector was building 418,000 new ‘starter’ homes a year. That peak coincided with homeownership rates peaking, which suggests that an entry-level housing supply has a connection to homeownership. Then during the 1980s, mortgage rates increased from 8.9% to 12.7% leading to a decrease in production of only 314,000 units a year. In the 1990s, mortgage rates dropped, and production surged for single family homes. However, the houses being build were not starter homes. Entry level/starter home production dropped to 207,000 a year. This downward spiral of production of entry-level/starter homes continued over the next two decades until in 2020 only 65,000 starter homes were built in the whole US – while single family housing production total hit 909,000. The median single-family home built in 2020 has 2300 sq ft. More square footage equals increased costs for production and higher entry level cost for homeownership. According to realtor.com and Elana Cox, a median listing price for starter homes (in US) reached $260,000 in October 2021. This price was about 11% higher than the same time a year ago. Home prices have skyrocketed for all types of housing in the last five years, but entry level homes are 64% more expensive in 2021 than they were in 2016. All this information explains why many millennials and young families are still renting apartments or are experiencing housing cost burdening at increasing levels for homeownership.
So – what does entry level homeownership have to do with affordable rental housing? A lot! The issue is not just about housing that is affordable for low-income households. The issue is that the overall stock of housing units, single family units and multifamily units, in the United States are at the lowest level since the 1970s. (Business Insider, 5 /2021). According to recent analysis of housing data by Fannie Mae, there is a housing shortage everywhere the US. The analysis explored the housing supply in 75 largest metro areas and compared the supply with the housing needs of the population living at 60% AMI or below. The findings from the analysis demonstrated that although there is a shortage of housing everywhere, the housing needs are different for locality. The analysis suggests that some areas need more preservation, others need more multifamily units and others need single family units. The research did show two needs regardless of metro area – increasing housing production and increasing housing density. Affordable housing is not just about income levels. The amount of diverse housing units available in an area determines the level of competition lower income households have for the units they can afford. When millennials and young families do not have options for home ownership – like starter homes, they stay in the rental market longer which either increase competition for present ‘affordable’ rental units or shifts the rental market with ‘gentrification’ increasing overall rents. If those millennials and young families do move into homeownership at the cost of a larger homes, then those households often join the ranks of cost burdened. We have a growing number of homeowners experiencing housing cost burden – paying more than 30% of income for housing.
Lexington MSA was not an area of study for this research, but we need to take the information that was learned and begin to apply it to our situation as our community discusses Lexington’s Comprehensive Plan over the next year. Questions like “what kind of housing is lacking in Lexington?” and “Do the projects supported by our ‘affordable housing’ monies (HUD funds, AFT money, LIHTC) actually meet the needs of our housing market?” We hope to explore these questions and offer some facts over the next several newsletters. In the meantime, check out the link below to learn more about Lexington’s Comprehensive plan.
References for article by link:
Business Insider - Affordability and Wall Street
Business Insider - Housing Shortage...