California Needs More Starter Homes. Why Aren’t We Building More Condos?

For decades, the idea of a “starter home” was pretty easy to picture.

A young couple bought a small single-family home. Maybe it needed some work. Maybe it only had two bedrooms and one bathroom. They lived there for several years, built equity, earned more money, and eventually moved into something larger.

In much of California, that traditional path has become increasingly difficult.

And that raises an important question:

What if the California starter home isn’t dead? What if it just looks different?

For many buyers today, the first step into homeownership may not be a detached house at all.

It may be a condo.

And strangely enough, California has had a difficult time building them.

California Tried to Make It Easier to Build Condos

A California bill intended to make condominium construction easier failed to make it through the Legislature before the 2026 legislative deadline.

According to CalMatters, the proposal was aimed at addressing some of the legal and financial obstacles developers say have discouraged condo construction in California.

The legislation ultimately died when lawmakers ran out of time to give it a final vote.

That makes for an almost comical headline.

California needs more starter homes. Lawmakers tried to make it easier to build them. Then the bill died because they didn't vote on it in time.

But the bigger issue is much more important than one piece of legislation.

California has a housing shortage, but the number of homes we build isn't the only thing that matters.

The type of housing matters too.

Apartments and Condos Solve Different Problems

California has spent considerable energy trying to increase multifamily housing construction.

That's important.

More apartments can increase rental inventory, add density around jobs and transportation, and provide badly needed housing in communities where building detached houses simply isn't realistic.

But an apartment and a condominium accomplish different things.

An apartment creates another place to rent.

A condominium can create another opportunity to own.

That distinction matters enormously for younger Californians and first-time buyers.

Imagine a new 100-unit building.

If all 100 units are apartments, California added 100 rental homes.

If those units are individually owned condominiums, California potentially created 100 opportunities for households to begin building home equity.

We need rental housing.

But we also need attainable ownership housing.

The California Starter Home Has Changed

The starter home your parents bought may simply not exist anymore in many California communities.

That doesn't necessarily mean homeownership itself is impossible.

It may mean the path has changed.

Instead of:

Small house → bigger house

the modern California housing ladder might look more like:

Condo → townhome → detached house

Or someone may buy a condo and happily stay there for decades.

The important part is getting onto the ownership ladder when doing so makes financial and lifestyle sense.

A first home might be 900 square feet.

It might share walls with neighbors.

It might have an HOA.

It might have one parking space instead of a two-car garage.

It might not have a backyard.

And it might look nothing like the house someone imagined owning when they were 25.

But it is still a home.

And potentially, it's an asset that can build equity over time.

Why Condos Can Make Homeownership More Accessible

Land is extraordinarily expensive in many California markets.

When every homeowner needs their own lot, driveway, roof, exterior walls and yard, the cost of producing housing can become enormous.

Condominiums allow multiple households to share the underlying land and portions of the building.

That can make the individual purchase price considerably lower than nearby detached homes.

Consider someone trying to enter a market where detached houses cost $1 million or more.

Waiting until they can afford that $1 million house isn't their only possible strategy.

They might purchase a substantially less expensive condo, begin paying down a mortgage, participate in potential appreciation, and accumulate equity that could eventually become part of the down payment on their next home.

That's essentially how the traditional starter-home model worked.

The building just looks different now.

But Buying a Condo Requires More Homework

Condos can provide an excellent path into homeownership, but buyers shouldn't evaluate them exactly like detached houses.

When you buy a condominium, you're buying both your individual unit and an ownership interest in a larger community.

That means we need to look at more than the buyer's income, credit and down payment.

Among the things that can matter are:

HOA financial health and reserves

Monthly HOA dues

Pending or recent special assessments

Owner-occupancy levels

Insurance coverage

Litigation involving the HOA

Deferred maintenance

Commercial space within the project

Concentration of ownership

Whether the project meets conventional agency requirements

This is where condo financing can become surprisingly complicated.

A buyer can be perfectly qualified for a mortgage while the condo project itself creates the financing problem.

What Is a Non-Warrantable Condo?

You may hear lenders describe certain projects as non-warrantable condos.

Generally speaking, this means the condominium project doesn't meet certain guidelines required for standard financing through Fannie Mae or Freddie Mac.

That does not automatically mean the condo is bad.

It also doesn't automatically mean it can't be financed.

It means the financing may require a different approach.

Depending on the project and borrower, there may be portfolio or non-warrantable condo financing options available.

This is one reason I strongly prefer reviewing a condo project early rather than discovering a problem a few days before closing.

Our team works with both standard and more complicated condominium projects, so we're used to looking at the project itself in addition to qualifying the borrower.

HOA Dues Need to Be Included in the Real Payment

A $700,000 condo and a $700,000 detached house do not necessarily have the same monthly housing cost.

If the condo has $600 per month in HOA dues, those dues generally need to be included when evaluating the buyer's total housing expense and mortgage qualification.

But HOA dues also shouldn't automatically be viewed as money disappearing into a black hole.

Depending on the community, dues may cover expenses a detached homeowner would otherwise pay separately, such as exterior maintenance, landscaping, roofs, common-area insurance, amenities or other services.

The important thing is understanding what you're paying and what you're getting for it.

Don't Dismiss the Condo Before Running the Numbers

I occasionally hear buyers say:

“I don't want to waste money on a condo. I'll just wait until I can afford a house.”

Sometimes waiting is absolutely the right decision.

But it should be a decision based on the numbers rather than an assumption that a condo isn't a “real” first home.

If detached houses in your preferred area are far outside your budget, it's worth comparing several possibilities:

Continue renting and saving.

Buy farther away.

Buy a smaller detached property.

Buy a condo or townhome closer to where you actually want to live.

There isn't one correct answer for everybody.

The goal isn't simply to buy something.

It's to understand your options well enough to make an informed decision.

California Doesn't Just Need More Housing. It Needs More Paths to Ownership.

That's ultimately why the condo construction debate matters.

California unquestionably needs more housing.

But if virtually all new attainable multifamily housing is rental housing while ownership opportunities remain scarce, we haven't completely solved the affordability problem.

We have to think about the housing ladder too.

For some Californians, that first rung may be a detached house.

For others, it may be a townhome.

And increasingly, it may be a condominium.

The California starter home isn't dead.

It just looks different.

Thinking About Buying a Condo in California?

Before falling in love with a unit, it's worth understanding both sides of the financing equation:

Can you qualify for the mortgage — and does the condo project qualify for the financing?

The Belfor Team at American Pacific Mortgage can review your income, credit, down payment and estimated monthly payment, while also helping evaluate the condominium project and potential financing options.

We handle conventional condos as well as more complicated projects, including certain non-warrantable condominium scenarios.

The goal is simple: figure out what's possible before you write the offer.

Mike Belfor | American Pacific Mortgage | NMLS #264700

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