Think tank’s report provides data-driven insights on the challenges Tennessee homebuyers face when seeking smaller, affordable homes
NASHVILLE – According to a new fact sheet from nonpartisan think tank ThinkTennessee, rising land values and construction costs, higher interest rates, and restrictive zoning regulations have significantly reduced the availability of “starter homes” in Tennessee. These trends are pushing many first-time buyers and seniors hoping to downsize out of the housing market. The fact sheet highlights how a new program proposal designed to encourage the construction of smaller, more affordable homes could help more Tennesseans achieve homeownership and remain in the communities they love.
Starter homes – typically smaller homes under 1,500 square feet – are increasingly scarce. According to the report, just 17% of homes sold in 2024 in Tennessee fell below that size threshold. At the same time, home prices have risen sharply, leaving more than two out of three Tennesseans unable to afford the state’s median new-home price of $399,580.
“Tennessee’s housing supply isn’t keeping pace with demand, especially at the lower end of the market,” said Erin Hafkenschiel, president of ThinkTennessee. “Communities need more starter homes so young families can build roots in their hometowns, workers can live near new job opportunities, and older residents can downsize without leaving their neighborhoods.”
To address the shortage, Tennessee policymakers are considering a $30 million Starter Home Revolving Loan Fund, which would be administered by the Tennessee Housing Development Agency (THDA). The fact sheet outlines how the program would work:
- A one-time investment of $30 million creates a self-sustaining program to support the construction of smaller, affordable homes.
- Local financial institutions would provide 0% interest construction loans to builders, with funds repaid after the initial sale so dollars can be reused for more homes.
- Loans support the construction of owner-occupied homes up to 1,500 square feet (single-family detached or small multi-unit homes).
Tennessee’s housing shortage has been estimated to cost the state billions in economic output and tens of thousands of jobs. Incentivizing the construction of affordable starter homes can help more Tennesseans achieve homeownership, reduce housing cost-burden, and strengthen community stability across generations. The full fact sheet, Incentivizing Starter Home Construction Could Help Tennessee Homebuyers, can be found on ThinkTennessee’s website at thinktennessee.org/research/housing.
