The starter home is dying. Better.com’s CEO says AI is the only thing that can save it

The traditional American starter home—the quaint, ranch-style two-to-three bedroom home young families once began their journey of wealth creation—is on life support. The U.S. is currently short nearly 4 million homes, according to Goldman Sachs. A number of factors have defeated that essential stepping stone, from sky-high prices to strangling zoning constraints. But for Better.com CEO Vishal Garg, the main barrier lies in the mortgage.

“One of the core reasons why people, even the home builders, don’t build starter homes in America is nobody’s willing to give mortgages for starter homes,” he told Fortune.

His logic: the traditional mortgage industry relies on human loan officers who are typically paid a commission of 1% to 2% of the total mortgage amount. One percent is a much bigger payoff on a loan for a $1 million house than for a $100,000 unit. Because of this structure, loan officers prioritize the largest loans possible to maximize their pay. 

“American consumers who have a mortgage amount less than $300,000, they don’t get treated well at all,” Garg said.

The shortage of starter homes is in part why the median first-time homebuyer age hit a record high of 40 last year, and why first-time buyers now comprise a record-low share of just one-fifth of all buyers, according to the National Association of Realtors. 

Starter homes tend to be smaller,........

© Fortune