Monday, May 11, 2015

The Demise of the Modular Starter Home

Builders blame the extinction of starter homes on the rising cost of building homes — local impact fees, cost of materials and labor, hence the growing appeal of manufactured HUD housing.

Here's why the modular starter home is no longer an option:
  • Land costs are high with fewer geared toward entry-level home sites. The cost of developing a housing tract is so high that developers are only adding high priced lots.
  • Lots that once could be used for “starter homes” are now being used for multi-family homes.
  • The higher fees in building entry-level homes means buyers often face significant infrastructure and expanded support service costs. As such, the fees and charges often get inserted into the price of a new home, which could add an extra 20 percent to 25 percent to the cost.
  • The typical "entry-level" buyer may not want a "starter" home any longer as Millennials are waiting longer to form households, pay down student debt, hook up with significant others and now they're not going to settle for a mere “starter home”.
  • Millennials don’t have the same commitments to mowing the grass, planting a garden and shoveling snow as their parents and in more and more cases are moving into multi-family communities where all these things are the responsibility of the homeowner’s association.
The "starter" home itself may be moving toward extinction. To see just how hard it is to service this market, read The ThreeTypes of Modular Homebuilders


Anonymous said...

Starter Homes are still a big chunk of the housing market (at least in the mid west). Systems built housing just can't currently fill that void. Overall cost is to high to compete with tract,slab foundation, code minnimum, "cute" exterior/interior style housing site builders build and sell in record numbers, (most retail systems built style builders have a hard time competing with the mid range to high end market as well).. Is what is.. Our segment of the housing market over builds, therefore prices itself out that portion of the housing market X2. Once all can spend some time figuing that out, (IPO trying to develop and build the next castle some mobile home "dealer" can take a picture of and add to their web page), we'll see a greater share of the overall housing market.... Until then we will be stuck in the current 3% or less rut..... We need to be less $, faster and at least equal in curb appeal and quality to have this type of builder look at what we do as an advantage..

Anonymous said...

Another pressure on the Starter Home market is the REIT's or private investors that are converting starter homes into Single Family Rentals in larger portfolios. Investor focus is different seeking higher ROI and lower costs from builders which cannot be matched by factory outputs particularly with product shipped further distances from the plants.

Older resale homes that can be refurbished based on the used versus new cost differentials are seen as a better value for the starter SFR buyer with minimal savings and student loan debt