Curators at the Smithsonian Institution in Washington, D.C. are out looking for an owner of an original, late 1940s model, unmodified Levittown, N.Y. home to sell it to them. They want to disassemble it and reconstruct the 66-or-so year-old house in the National Museum of American History as an icon of post World War II social development. What about all that a Levitt home stood for and stands for in our minds today? What about housing for a tidal wave of Eisenhower Generation young adults, many of them returning servicemen and women, whose means in the late 1940s and early 1950s were unclear, or meager, or worse. All they had was an outlook that shone bright, as earners, as neighbors and community builders, as the future of American society, economics, and culture?
Is that all history now too?
The sons of Abraham Levitt invented the concept of a new “starter” house, whose homeownership promise extended to those who could pay $57 a month to own one, the same as most people then would owe in monthly rent payments.
We take the cookie-cutter, one-every-16-minute, two-and-a-half-times-median-income starter home for granted today. What we may forget is that, to do them took innovation. Not just in the production-line construction labor process Bill Levitt introduced, but in land acquisition and development and zoning, political deal-making, design, materials science, etc. Not to mention getting couples with so little money to believe they could and should have one of them.
Still, what the Levitt homes didn’t have to build in or on were layer upon layer of code and compliance costs, local impact fee shenanigans, corporate red-tape, etc., nor was there much choice for those post-war buyers to go looking elsewhere.
Two-and-a-half times median U.S. income right now is right about $160,000. New home median price right now is north of $300,000. Existing home median prices are in the neighborhood just south of the $200s. Something’s got to give. That something appears to be the new home built for starters, the ones who could conceivably pay $160K, but couldn’t think about paying $300,000.
However you look at it, new home median prices—as they are now--are either $140,000 or $100,000 too rich for new comer buyers, either depending on their household wages or compared with resale median prices.
Without overthinking it, jot a few numbers on the back of an envelope under seven headings.
- LOT PRICE RIGIDITY: approximate the premium you are paying to acquire home sites in competition with other strategic and financial bidders for those same lots. The solution? Acquire lots at either a greater distance from job centers or downtown areas, or greater density in design.
- LOCAL FEES AND OBLIGATIONS: a ballpark figure of the amount you must pay, above and beyond what might be considered customary and reasonable permitting and entitlement costs. The solution? Negotiate.
- ENERGY AND BUILDING CODE COMPLIANCE: a guess at the price you’re paying for features, materials, etc. to make homes that don’t fail, are safer, more durable, and healthier indoors. A solution? Integrate building science at a strategic and operational level, rather than relegating it to post-construction inspections.
- OPERATIONAL SCALE AT THE HIGHER-VOLUME, lower-price range: go ahead, estimate what it’s going to take to reboot your operational capacity to even-flow starter homes at a pace you can do for even high single-digit margins. Solution? Velocity is not a switch to flip, nor an on-again off-again program; it’s a way of doing business you’re either in or not.
- MATERIALS COSTS: a model for price increases, based on shift and factory additions, shipping and logistics; SKU variability, supply chain dislocation (like port closings) and, finally inflationary pressures catching up to the real world. Solution? Build less square footage.
- CREDIT ACCESS ISSUES: factor in time and money costs for what it takes to repair or solidify credit ratings, secure pre-approvals, etc. Solution? Sales associate training and management.
And what if conventional wisdom continues to hammer home the claim that would-be home buyer preference is actually not to be a buyer at all, but a renter, with greater flexibility over time and optionality on whether an urban, rural, or exurban lifestyle is what floats his or her boat? Solution: Persuasion. Your homes are better, dollar for dollar, and the communities you’re building are where lives can grow, prosper, be safe and healthy, and thrive. Resale or rental alternatives? Not so much.
Maybe, too, because millennial buyers are waiting, and baby boom buyers are going to live longer, the focus should be on "exit-level" homes.
The only issue is, prices. They’re going to need to get down, minimally, to that $200,000 threshold in order to be viable entry-level entrants in this market. Don’t let the new starter home become a piece of history.