Building Big, Selling High: Why New Homes Miss the Mark
The shift in new home construction over the past generation has fundamentally changed who can afford to buy or rent. Builders have shifted their focus from producing smaller, entry-level homes to larger, higher-priced properties.
Just twenty years ago, nearly half of new homes fell into the “starter” category—compact, affordable, and accessible for first-time buyers. Today, that share has dropped to only about 18%, with most new single-family homes measuring well over 2,100 square feet. In 2024, the median new single-family home size reached 2,162 square feet, while even new rental apartments now average more than 1,000 square feet. The result is that smaller, less expensive homes have become rare in new construction, pushing many entry-level buyers and renters out of the market.
The price gap has only grown wider. In 2000, the median new-home price was $170,000, compared to a median household income of $42,100. By the end of 2024, the median new-home price had soared to $423,000, while the median household income reached $80,600. Over that same period, the price-to-income ratio jumped from about 4.0 to 5.3, meaning home prices have grown much faster than earnings. For households hoping to buy their first home, this widening gap has made ownership less and less attainable.
This isn’t just about bigger homes being more expensive at the point of sale. Larger properties cost more to maintain, heat, cool, and insure. For families with limited budgets, these ongoing expenses add up quickly. When builders focus on larger, pricier homes, it doesn’t just leave out entry-level buyers—it also drives up competition for the limited supply of smaller, more affordable existing homes and rentals. This increased demand for a shrinking pool of affordable options pushes prices even higher, making it harder for moderate-income households to find a place to live.
A significant part of why this trend persists is due to NIMBYism, local zoning, and development rules. Strict lot sizes and minimum square-foot requirements make it nearly impossible to build small, affordable homes in many areas. Impact fees and regulations often push builders toward larger, more expensive projects, since the costs of compliance and development are easier to absorb on higher-priced homes. That means first-time buyers and moderate-income renters simply have fewer new options. Builders respond to these incentives by prioritizing bigger homes with luxury features, because that’s where the profit margins are best. The result is a market that systematically underproduces the kinds of homes most needed by people just starting out or working within a budget.
Even if overall construction were to ramp up, the mix of what’s being built matters just as much as the total number. Without more affordable, appropriately sized homes, the housing crisis will persist for millions of people. The current approach leaves too many households locked out, with little chance to access new housing that fits their needs or budgets.
So, how do we reset production and product mix? Let’s wrap up with the roadmap for real change.
