Instead I am seeing developers who would rather build an upper-middle class neighborhood, not a starter home one, because they can get a much larger profit for only a little more effort/material-cost.
I suppose when they are finally unable to sell them they'll start addressing starter homes. I have no idea who could still be buying all of these though. (Perhaps people leaving CA like I did after retiring — they're not going to like the property tax rate though.)
Expecting starter homes to be a category of real estate that is newly built seems naive. Starter homes are some combination of older, smaller, bad location which makes them more affordable. Why wouldn't real estate developers satisfy the demand at the high end before moving down market? Seems like the easiest way to turn a profit to me. Rational actors etc
So in the long run, I’d expect that developers are really funneling money into the lower class by overbuilding upper class housing, when they eat the losses on their poor planning.
I’m also fairly positive a 30-year old upper middle class home makes for a fairly good starter home
There are bad actors in all of these (banks caused the financial crisis and agents are probably paid more than they're worth for $1M+ houses in CA), but the biggest root cause that's missing from your comment is NIMBYs blocking new development almost everywhere.