Affordable Starter Homes Prove Increasingly Elusive

Builders pull back from entry-level housing as business shifts following market bust

At Paradise at Ironwood Crossing, a 2,100-home master-planned community southeast of Phoenix, new houses starting as low as $170,000 are snapped up within weeks of hitting the market.

The starter homes in this suburban enclave are among the most affordable in the metro area, said Dennis Webb, vice president of operations at builder Fulton Homes, and are among the company’s top sellers.

But escalating land prices and local development fees mean that continuing to build new homes in that price range is no longer viable, Mr. Webb said.

“There’s not enough profit to be made on that entry-level house,” he said.

Across the U.S., new-home construction has remained at historical lows throughout the housing recovery of the last five years, but the share of starter homes priced below $200,000 has dwindled more than any other segment, according to U.S. Census data.

New homes under $200,000 made up 19% of U.S. sales last year, down from 38% four years earlier. By contrast, homes sold between $300,000 and $500,000 accounted for 34% of new home sales last year, up from 22% in 2011.

“Having a first-time home buyer market is very, very important,” said Pat Hamill, chief executive of Oakwood Homes in the Denver area, because it allows buyers to progress upward through the system, building equity along the way that can be used to purchase a larger or more desirable home.

“I don’t know what happens when you take that segment out of the marketplace.”

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