Where Have All The New Starter Homes Gone?

The Minneapolis Star Tribune has demonstrated immense interest in the subjects of housing affordability and access over the past several years. One of its most notable projects was its 2021 examination of zoning and its impact on racial segregation in the Twin Cities. (If you missed it, do yourself a favor and please read it). 

18 months after that story, the Star Tribune asks where have all the starter homes gone. This is a timely, if not long overdue, question. Looking at the data, it’s clear that Minnesota has a stater home problem, a problem greater here than in other markets. 

“Twin Cities’ starter houses seem to have never been more expensive. Or elusive.”

Buchta, Jim and Webster, MaryJo. “Looking for an affordable starter home in Twin Cities? Good luck.” Star Tribune. March 10, 2023.

Considering that our housing policies no longer allow for new starter homes in most growing areas of the state, this isn’t really surprising. Nor is the effect on the market. Supply of new starter homes, the home that for generations fueled growth in the area, was flat. As demand increased without an increase in supply, the cost of these homes has risen to a point where existing starter homes are no longer available at entry-level price points 

“Years of record price gains have fueled the demise of the $300,000 starter house. The upward trend has naturally made houses in every price range more expensive. And demand has grown far faster than supply. 

Rising mortgage rates have eroded affordability and scared off would-be sellers at a time when there’s a swell of first-time buyers, deep-pocketed investors and downsizing baby boomers.”

Buchta, Jim and Webster, MaryJo. “Looking for an affordable starter home in Twin Cities? Good luck.” Star Tribune. March 10, 2023.
Minnesota Broken Housing Ecosystem

The Twin Cities has one of the lowest percentages of new homes priced under $300,000 in the nation according to Zonda. Less than 1.7 percent of all homes built in the last 14 months in the Twin Cities are priced under $300,000. Compared to 14.1% in Chicago, 21.1 % in Milwaukee, 8.47% in Nashville and 18.5% in Indianapolis.

Midwest Price Point Distribution

When Housing Affordability Institute first examined midwest new home price distribution in 2019, less than one-third of all homes in the Twin Cities were priced at less than $325,000. Today, the state has roughly the same percentage of homes built under $450,000, as we had homes under $325,000 in 2018. (Source: Price Out, The True Cost of Minnesota’s Broken Housing Market. Housing Affordability Institute. February 2019.) 

As Minnesota has failed to address the causes of its housing crisis, new starter homes have all but disappeared from the Twin Cities. The same has occurred with affordably priced existing starter homes. 

Minnesota’s Missing Middle Housing Problem 

In “Looking for an affordable starter home in Twin Cities? Good luck,” Buchta and Webster point out that the demand for homes priced less than $300,000 far exceeds the supply. The obvious solution would be to build more housing at the sub-$300,000 price points. But that’s easier said than done. 

“At the same time, higher construction costs (land, labor and materials) and regulations (zoning rules, municipal fees and design guidelines) have constrained home builders.”

Buchta, Jim and Webster, MaryJo. “Looking for an affordable starter home in Twin Cities? Good luck.” Star Tribune. March 10, 2023.

When looking at new home prices under $300,000 in major U.S. markets, the Twin Cities is grouped with large cities in coastal regions, where these homes barely register as a data point. This is unlike most of middle America where these homes are plentiful. 

Homebuying and affordability resemble a pyramid. The largest pool of homebuyers is at the lower price points and as home prices decrease, fewer and fewer buyers can afford a home at that price. 

They’re being built in Milwaukee, Chicago, Indianapolis and Nashville. But not here. 

According to Minneapolis Federal Reserve Bank COO Ron Feldman, there is concern that the high cost of housing in MSP will have an adverse impact on population growth. Feldman told the Star Tribune:

“If this becomes a higher-cost place to live and has negative amenities because of the weather,” [Feldman] said, “it’s hard to see how that pushes us forward as a region with a dynamic economy.”

Buchta, Jim and Webster, MaryJo. “Looking for an affordable starter home in Twin Cities? Good luck.” Star Tribune. March 10, 2023.
What’s Holding Minnesota Back?

Is it political will, a lack of understanding of the issues, or prioritization of everything above housing? These certainly all play a role. 

I think it is more basic that that. 

The largest hurdle to addressing our state’s housing crisis is Minnesota exceptionalism. We’re rightfully proud of what we’ve built here, but perhaps a little too proud. To us, Minnesota belongs near the of every list of every “Best Of” list. Any list that doesn’t have us at the top doesn’t count.

Far too many Minnesotans compare themselves to the good people living in Indianapolis, Chicago, Nashville, or Milwaukee. This goes against what it means to be a Minnesotan. But the data tells us that these communities do housing better than us. 

Frankly, most states do. And it is time that we acknowledge this. 

Long Road to Here

Over the past 30 years, concerns about housing in this state have been raised, only for these warnings to get ignored. 

We have largely ignored our housing issue, even when the data is irrefutable. As a whole, it is easier to deny we have a problem than admit that many of the housing-related policy decisions made have not worked. 

Where major reforms have been presented, they have failed to advance, and the status quo of current housing policies has prevailed.  

We’ve kicked the can down the road long enough. 

Across the country, we know that where state and local policies allow new starter homes, they are built, and in large quantities. Maintaining the status has not worked for our housing market.  Perhaps it’s time we give missing middle housing a shot. 

Nick Erickson is the executive director of Housing Affordability Institute.