A little over 30 years ago along Rt 15 in Selinsgrove, PA, a modular home builder had two model homes on his lot. They were both ranch style homes, 2 or 3 bedrooms, 1 bath models. One was 28’ x 44’ and the other was 28’ x 48’ if memory serves me. The sign said he would put either home on your lot with excavation, foundation, and finish the house for less than $40,000.
He only offered these two models but you could choose your siding color and flooring. He sold a ton of them every year.
Those types of starter homes are basically disappearing. They aren’t being built anymore in most parts of the country. In 1950, the average price was $11,000. For perspective, median income, in real dollars, was about $3,300. The average home was 963 sq. ft. A majority of homes had two bedrooms and one bathroom.
By 1972, prices had jumped to $30,000 while family income was nearly $10,000. Homes, which typically had three bedrooms and at least a bath and a half, now averaged 1,600 sq. ft. That kind of house can comfortably shelter a family with 2.3 children.
Today, families are smaller — from 1970 to 2014, family size shrunk by about half a person, but the average new home is about 2,300 sq. ft. More space, fewer people.
Now homes have central air and finished basements and man caves and spa tubs and, yes, granite countertops. But all those things are useless to young families who have no idea where to find the $500,000 they have to pay to live in a place with decent schools that’s within 50 miles of their workplace.
Today, if a modular home builder could build a home like the one mentioned above that included the excavation, foundation, and finish work for 4 times median income of say $50,000 bringing the completed house in at $200,000, he/she could sell hundreds of them.
Making a $200,000 home work as a homebuilder is junior-high-level arithmetic. Solving for profit — say, 20% — land and building direct costs cannot exceed $160,000. Problem is, a 20% margin on a sub-$200,000 house has become frighteningly elusive in the past decade.
Under $200,000 is now low end and reserved for only the bravest of modular home builders. Do you really think Walmart would be successful if people had the income to support their desired lifestyles? Would the dollar menu at McDonald’s be the best-selling products if people had enough money to buy Big Macs?
The under $200,000 detached single family home is about dead. And if low margins aren’t doing enough to discourage its sales, adding in fee after fee from state and local inspectors and building departments, out of site utility hookups, and taxes will probably be the hammers that drive the stake into the starter home’s heart.
There are still areas of the country where people can buy a starter modular home, buy the land, and put in the utilities for under $200,000, but let’s be honest about it, these are probably areas with fewer jobs and lots of family farms. Commuting from these areas to an area that has high-paying jobs would almost take an all-day drive.
And to add to the problem even more, who are the ones that need starter homes? It certainly isn’t the Millennials. They really don’t want the work or upkeep of owning their own detached single family home. Apartments, townhouses, and even tiny houses near major cities where the good jobs can be found are perfect for them.
Retiring Boomers really don’t want to step back into the under 1,000 sq. ft. home they grew up in. Gen X and some Millennials are the ones moving into the new home market in a big way and are demanding bigger and better homes.
Soon we will see the least expensive new home breaking $300,000 in most parts of the country and they will not be called starter homes any longer but rather “affordable housing.”
Gary Fleisher is a housing veteran, editor/writer of the ModcoachNews blog, and Modular Construction Industry Observer and Information Gatherer. Contact modcoach@gmail.com.