Starter Homes Have Become Unaffordable
October 19, 2023

Apple’s newly launched 15 pro series which comes with a titanium construction and is probably bulletproof will cost an average person an arm, a leg and perhaps several other organs. Most people won’t be able to afford it, but other good quality smartphones which function satisfactorily can be purchased at a much lower and affordable rate. While most people may not have the financial requirements to buy a Tesla there are always alternatives that will not have you compulsively chewing your fingers off. The bottom line is that there will always be an option for people to turn to. But why not for housing, which is in fact one of the most basic and unavoidable needs?

A wise person once said, ‘everything happens in stages’. Life. Success. Failure. Apparently even buying a house. One’s trajectory of buying a home could go from ‘starter’ homes which is often a smaller, more affordable home that catches the eye of debut-home-buyers to ‘forever’ homes, which is the place where you root yourself until you are grey and old. However, the tables have turned. And clearly not for the good. Because people do not have the liberty to opt for starter homes anymore. 

Why are starter homes now a thing of the past? 

The notion of the “starter home” also known as entry-level homes, emerged in the United States following World War II, driven by the aspirations of young families to attain the American Dream of homeownership. These homes took various forms throughout the years, reflecting the changing preferences and needs of the homebuyers. Initially, they included modest dwellings such as mill workers’ cottages, shotgun homes, bungalows, and split-level houses. However, as time passed, some buyers opted for more substantial options like brick row houses or duplexes for their inaugural home purchase. The concept of the starter home remains rooted in the idea that it serves as a stepping stone towards more substantial and permanent housing as families grow and financial stability increases.

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A quick recap of the past few years, including the year in which the pandemic had the world in a chokehold, presents the viewers with a crystal clear image of the pandemic housing boom. Even though it felt like an outstretched nightmare back then, in retrospect, it now feels like a short-lived period of notably low mortgage rates and a wobbly era of remote work that resulted in a surge in housing demand. This unfortunate series of events led to an increase in housing prices on a global level. 

In the USA especially, the early stages of the COVID-19 pandemic saw a substantial government stimulus package coupled with historically low mortgage interest rates. This combination triggered one of the most significant home-buying frenzies in the history of the U.S. This buying surge drove home prices to reach unprecedented levels and exacerbated the country’s ongoing housing shortage and wealth inequality. Housing prices rose by a whopping 41%. Additionally, a major challenge contributing to the housing crisis is the inadequate construction of affordable homes by builders. But the problems do not end there. There is also a shortage of existing homes available for sale. To highlight the gravity of the complication, data from the US Census Bureau revealed that in November 2022, not a single newly built home in the US was sold for less than $200,000. This stark statistic underscores the near disappearance of starter homes from the U.S. real estate market.

London is not faring well either. As Greg Pitcher puts it across in his article “London first-time buyers: average cost of starter home up £50,000 in five years” house prices that first-time buyers had to incur had swelled by a fifth in some areas of London in a short time span of five years. According to data compiled by the Land Registry, the final quarter of 2022 witnessed that people were paying an average of 21.9% more to get to the starting point of the property ladder in Barking and Dagenham, in comparison to the final quarter of 2017. Realistically, in London, first-time buyers need to have nearly £50,000 in their pockets if they were even to be considered prospective buyers that belonged to the housing market.

Canada is experiencing a similar fate as well. Data published in Point2Homes show how 75% of renters residing in 36 of Canada’s largest cities are grappling with their inability to secure a starter home. Entry-level homes which were priced at around  $200,000, only a few years ago, now cost more than $500,000 and in a few cities it has even exceeded $700,000. In 12 cities across Ontario, renters face a significant income gap when it comes to affording a starter home. Specifically, renters in places like Richmond Hill, Oakville, Markham, and Vaughan earn an average annual income of approximately $70,000. However, in these same cities, the cost of purchasing a starter home is estimated to be between $160,000 to $170,000, which is significantly higher than what renters in these areas earn. The income disparity highlights the considerable financial challenges renters in these cities face when trying to enter the housing market as homeowners.  

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‘Starter’ homes are the new ‘forever’ homes

It may have initially entered the market under the label of ‘starter’ homes, but it is no longer that. While they were originally positioned as a stepping stone towards more permanent and upscale properties, they now hold a strong appeal for a wide range of buyers. The driving force behind this shift in perception is fundamentally the widespread shortage of housing paired with unaffordable housing. These homes which were once transitional are now an attractive option for buyers regardless of their background or financial situation. The reason is that they allow buyers to gradually build equity in real estate, which can then be used to move up to a nicer or newer property in the future. This evolution in the housing market reflects the changing dynamics and challenges of the present-day housing landscape, where affordable and accessible housing options are in high demand. 

One thing that is made crystal clear by this situation is that while the bane of the pandemic’s existence never ceased to be, the present-day scenario is even worse than how it was back then. Mortgage rates are still high and so are the prices. And being able to afford housing of any sort is slowly becoming a near impossibility for many. Therefore, it is not that people do not want starter homes, it is just that they can’t have them. The options range from less to none and first-time home buyers can’t take a breather. Not even if their life depended on it. Housing affordability has become a pressing issue for people of all backgrounds, but it has hit first-time homebuyers, particularly millennials and Gen Z, really hard. And to everyone’s dismay, including their own, many of these prospective homeowners are losing hope of ever being able to purchase a house, let alone a starter home. Against a backdrop such as this, the question of “why doesn’t housing have more options” still stands. 

(Sandunlekha Ekanayake)

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