Speaker 1: Starter homes are disappearing from the United States. In the early 1980s, as many as 40% of the new homes built were considered entry-level. By 2023, just 9% fit the criteria.

Speaker 2: Given another 20 years, and literally no young person will be able to afford to purchase a home, period.

Speaker 1: Meanwhile, a slowdown is mounting in the home-building industry, which could contribute to the ongoing decline of the starter home.

Speaker 3: Both housing starts and building permits, which are an indicator of future construction, have slowed down this fall, and it's not just seasonal.

Speaker 1: There are over three million potential first-time homebuyers in the country. They're up against high home prices that keep rising.

Speaker 4: What you're starting to see are mini price bubblettes in markets that are an hour, two to three hours from major metropolitan cities.

Speaker 5: It is such an unusual market because we have an all-time low of first-time homebuyers, but an all-time high of all cash buyers.

Speaker 1: So, where did all the starter homes go? A starter home is typically modest in size and price.

Speaker 3: It's the most affordable home in any market. If you're in the Midwest, maybe it's in the $100,000 range. If you're in California, a starter home might be in the $400,000 range.

Speaker 5: To me, a starter home used to be a smaller condo, a smaller space, and someone would upgrade. Maybe after five years, as they get married or have a family and want to move, but now we're actually seeing that most people are buying their first home as a single-family residence and really planning on staying in place.

Speaker 1: America's homebuilders are making fewer of these kinds of units.

Speaker 4: If you look at the number of single-family starter homes, those defined as being 1,400 square feet or smaller, we used to supply anywhere between 400 and 500,000 units a year.

Speaker 1: Over the past decade, builders have put up less than 100,000 homes each year.

Speaker 4: Really, by far, the number one reason is the increasing difficulty that many builders have in dealing with zoning regulations.

Speaker 1: Zoning laws are set at the local level. These laws can determine the size of each lot in a neighborhood. They can also specify how far a structure is set back from the property line, how tall it is, or how many units are on site. In many cases, these laws create an opportunity for local residents to challenge new development. The residents often raise concerns, like overcrowding of schools and wear and tear on local roads.

Speaker 5: A lot of this has to do with density restrictions within local communities. They may not want a townhouse or a condo community coming in, but they absolutely will welcome a single-family community.

Speaker 1: Zoning codes are found all around the country. The most restrictive ones are often found in major cities.

Speaker 4: Many builders are not leaving money on the table. They are just simply unable to build, or it's become so expensive to build that they can only build high-end single-family and high-end multifamily.

Speaker 3: Given the high price of land, labor, materials, it's very difficult for big home builders to build the entry-level homes. There are a couple who specialize, like D.R. Horton, which has an express homes division, which specializes in starter homes. But for medium-sized builders, it's just very expensive in order to pencil all the costs they have and make it affordable to that lower-end buyer.

Speaker 1: As a result, homebuilders and first-time buyers are targeting further-flung locations.

Speaker 6: We've definitely seen a trend toward purchasing a home further from the urban core. So you do see a lot of new construction in suburbia and exurbia.

Speaker 1: Home values are now rising most rapidly in low-density and rural areas. Experts say that relaxing these codes could lead to higher levels of home building and preserve affordability.

Speaker 4: You know, for example, in San Antonio, there are some builders that are building sub-1,000 square feet single-family detached homes, right, which would have been almost unthinkable just a few years ago. So the market is reacting, but its response mechanism is really limited because of the rules of the game.

Speaker 1: Some areas with less restrictive zoning codes are welcoming many newcomers. For an example, see Metro Atlanta.

Speaker 7: My home is in Atlanta now. I'm currently in Decatur, Georgia, which is right outside of the perimeter, so I have easy access to the city. It gives a little bit more of suburban-ish kind of feel. It's just the culture, the energy, the aesthetic, the environments, a more elevated experience in day-to-day living, honestly.

Speaker 1: Lillian Mantia is a filmmaker and entrepreneur. She was in line to buy a home in the Baltimore area in 2024, but she's had a tough time getting ahold of her own money to get her own film to roll through.

Speaker 7: Since then, she's moved to Atlanta to live with her sister and come up with a new plan. I did grow up in Baltimore. I gave Baltimore a shot in my adulthood with my children, and I did the nine to five and, you know, attempted to buy a house there and everything, but Baltimore wasn't providing the, I don't know, the community that is needed for me to thrive, and Atlanta has been able to kind of just support me more.

Speaker 1: Experts say that more dense forms of housing could have helped first-time buyers, particularly in crowded areas.

Speaker 5: We do know that local communities are trying to address the lack of housing inventory in pretty unique ways, so accessory dwelling units is certainly a popular approach right now. That's one solution, but I think we need to be looking at adaptive reuse as well, so looking at vacant hotel motels, looking at vacant residential malls, and how do we bring residential housing units into those areas?

Speaker 1: Much of the new construction since 2020 is in luxury apartments with units that are not for sale.

Speaker 3: The recent boom in multifamily construction has been on the higher luxury end, but it's easier for multifamily developers to get in and pencil that many apartments because they're renting them, and rents have been very high.

Speaker 1: Finances are a big barrier for first-time buyers. The premium paid to buy a home has increased sharply relative to renting over the past decade. The increases in home prices have also outpaced increases in wages. As a result, home sales are down across many markets, and the median age of the typical first-time home buyer has climbed to 38. That's up from age 29 in 1981. Just thinking about all of the headway

Speaker 5: that a 30-year-old may have, like student loan debt and car loans and credit card debt, and then they have rising rent. And so keeping that all in mind, it's hard to save for a down payment when housing affordability is really out of reach. The problem is you have the most demand

Speaker 3: on the low end of the market because affordability is so rough right now, but you also have the least supply on the low end of the market. The average price of homes has increased rapidly too.

Speaker 1: Nationwide, home prices have climbed over 52% between January 2020 and October 2024. Adding to the burden, mortgage rates have returned to their standard historical range, near 7%. Homeowners with a mortgage are paying 29% more than they would if they rented the same house. Dynamics like that are shutting out all but the highest income Americans out of the market, at least on average. We're seeing first-time home buyers come into the market

Speaker 5: using inheritance, using 401k or stocks, cashing those out, combining all of these resources and actually making an all-cash purchase. Investors are buying homes too,

Speaker 1: but economists saw their shares jump to an all-time high in 2024. Still, they make up a tiny fraction of the overall housing stock. The issue of large-scale investors

Speaker 4: is really not an issue. If you look at their share of the market, it's only 1% to 2%. However, if you look within fast-growing markets, particularly those that are affordable, and in the South, those entities are making a lot of money and those entities are making it a little bit more difficult for buyers to purchase. Having said all that, if there was a normal amount of supply and we didn't have the shortage, this would not be really an issue.

Speaker 1: With elevated prices on the market, today's buyers may need to rely on outside help

Speaker 6: to finance a home. I think it's increasingly difficult to buy that first home if you don't have help. You know, in a more affordable market, it's $400,000. You have to come up with $80,000 in down payment if you assume the typical conventional loan. It's really difficult to come up with that down payment. So we do see in the data increasingly more consumers getting help, whether that's from their parents or from down payment assistance programs.

Speaker 1: There are over 2,400 down payment assistance programs nationwide. Depending on your income and where you live, the aid can be substantial.

Speaker 7: I haven't purchased a home yet, and I've been in the process of purchasing a home, but being in this process, I definitely have more of a optimistic, I guess, perspective with home buying now. And I just talked to a realtor here and she even told me that you are able to purchase a home even with a credit score of 500 and something. So I think it's just a matter of taking the initiative and knowing that you can be a homeowner.

Speaker 1: Regulation at all levels of government affect how homes are built. Experts say they're holding back new construction.

Speaker 8: This crisis is worsened by various factors, including rising construction costs, regulatory burdens, and limited availability of buildable land.

Speaker 6: There's definitely excessive regulation, a lot of inefficient local zoning.

Speaker 4: The zoning codes really originated nearly a century ago, and it made sense at the time. However, since then, there's been an increasing thicket of layers increasingly difficult for builders. This is sort of the concern, unfortunately, with policy, is sometimes you have to think about, in advance, things that can go wrong. Like, so think about zoning. Like, it made sense in the 1900s, it began in New York City. It made sense if you needed meat packing plants to be a little bit away from residential areas, but you take that to an extreme and out of New York City and into, you know, middle America, and then it causes problems.

Speaker 3: Regulation at this point can make up 25% of the builder's cost to build that home, and there is a lot of talk of deregulation, especially under the new Trump administration.

Speaker 1: Until more housing is built, prices are expected to keep marching upward quickly.

Speaker 4: The willingness and desire for homeownership amongst renters, particularly younger renters under the age of 35, is very high. However, the problem is the obstacles are also just as high.