The Shrinking Home

Is it a trend for the future?

Homes with ornate entry foyers, formal living and dining rooms and large, outdoor kitchen spaces may be a common sight on home and garden television shows.

In reality, though, they are quickly becoming a thing of the past, and it’s a trend that could impact the direction of smart growth in the future.

Results of a National Association of Home Builders (NAHB) study called “New Home 2015” show those spaces will — just like brown linoleum and harvest-gold appliances — fall by the wayside as builders focus on smaller, energy efficient homes with flexible spaces.

As compared to 2,438 square feet in 2009, the expected average square footage of a home in 2015, those responding to the survey said, is 2,152 square feet, begging the question, are small homes the next big thing?

NAHB researcher Rose Quint said builders are responding to Americans’ concerns over high energy costs and the realization that smaller homes cost less to operate. She said that a constricted financing market, where homebuyers are required to bring to the table 20-percent down payments, has played a role in the decision to downsize the square footage of homes.

“It makes it very real for them, how much house they can afford,” Quint said of the tight mortgage underwriting requirements.

The National Association of Home Builders survey was sent out to 3,019 builders, designers, architects, manufacturers and marketing specialists. There were 238 responses, mostly from the builders of single-family homes, from across the nation.

The majority of those responding to Quint’s survey — 74 percent — believed the most likely trend in home construction is smaller spaces. “Green features” was the second highest ranked trend among builders, with 68 percent saying that going green will be important to many future homebuyers.

In addition to addressing future homes, the NAHB survey also takes a snap shot of what is being built today. Just 22 percent of builders who responded to the 2010 survey said they were building new homes between 2,400 and 2,999 square feet. That’s a 19 percent drop from a similar survey the National Association of Home Builders conducted in 2007. 

While the number of builders working on larger homes in 2010 dropped, there was a near corresponding increasing percentage of homebuilders working on new homes in the 2,000 to 2,399 square foot range. According to the survey, 63 percent of those building new homes were building houses between 2,000 and 2,399 square feet.

So, are the tight real estate market and the economic downturn the only reasons for the trend toward building smaller homes? It depends on whom you ask.

NAHB researcher Quint said demographics also area contributing factor. U.S. Census figures show that there will be an additional 13 million people living in the United States by 2015 and that the population as a whole will be older and more diverse.

Twenty-seven percent of the population will be 55 years old or older, with 14 percent of the population 65 years old or older. With children gone and retirement in sight, Quint said, that segment of the home-buying market wants to downsize.

Travis Parman, vice president for corporate communications for the Pulte Group, agrees that an aging population has played a role in the shift toward smaller homes. Pulte builds homes under a handful of brand names, including Pulte, Centex, DiVosta and Del Webb, which specializes in 55-plus retirement communities. Parman said that home size is shrinking across all of those brands, with each offering more floor plans with smaller square footage.

In the last five years, the square footage for Pulte Group homes dropped from 2,300 square feet on average in 2005 to 2,200 square feet in 2010. While it sounds like a small decrease, Parman noted that half of the drop has occurred over the last 18 months, and it’s occurring on a smaller volume of homes being sold.

“That kind of tempers these numbers a little bit,” Parman said.

Not only are the newer homes smaller, they are being designed with more flexible, warm spaces. Separate formal rooms that are used once a year are being replaced with larger, open rooms.

Unlike their parent’s generation, Parman said, today’s retirees and mature homebuyers remain active, spending time entertaining their neighbors or at community centers.

“As they socialize with their friends, the well-planned home uses the same or less space in a smarter way — more open entertainment space with great flow,” said Parman, noting that square footage is less of an issue when you optimize it with more open and functional design. “That’s another thing that augments this trend.” 

While the United States Census shows an increasing maturing population, there also is an influx in homebuyers who are part of “Generation Y,” or “Echo Boomers.” Not only are they buying their first homes, they have an eye on the budget and they want to be energy efficient. 

And while some may be married, they generally don’t have big families and aren’t looking for homes with a lot of square footage.

Designer Marianne Cusato agrees. She said while they are at different stages in their lives, the mature homebuyer and the Generation Y homebuyer have similar needs. The retiree wants to be in a place where they aren’t always required to drive. Twenty-somethings, Cusato said, want to be in a place where the hassle factor is kept at a minimum and they can quickly grab a beer after work.

“They both want to live in places where they can easily walk,” she said noting that “connection to the community” is strongly desired by both groups.

Cusato made her mark in the designing world with Katrina Cottages, initially built for displaced Hurricane Katrina survivors and now sold through Lowe’s. Plans are for as small as 308 square feet and as large as 1,807 square feet.

She also designed the New Economy Home, a four-bedroom, 3.5 bath house that was the Builder magazine Concept Home 2010. The trade magazine annually endorses a house design as a model for the industry. 

While she is associated with the smaller home movement, Cusato said she doesn’t focus on “small homes.” There is no magic about square footage, she said. It’s how a family lives and uses its home and how adaptable the home is to the family’s needs that counts. Finding the square footage “sweet spot,” for livability, she said, is the key.

Cusato notes that during the housing bubble when people were buying large 5,000-square-foot homes in hopes of selling and making huge profits, they were less particular about the homes they bought. Since the goal was to “flip it,” they didn’t focus on what was important to them. With no incentive to build with quality, Cusato said, homes weren’t well built and planned. 

An April 2011 Pew Research survey on homeownership underscores that sentiment. The survey found that nearly a quarter — or 23 percent — of homeowners would not buy their current home again. Those with buyer’s remorse didn’t cite cost as the source of their feeling of regret. Forty-three percent cite the home, itself, while 17 percent said they dislike the location. Only one in three lay the blame on the price tag that came with the home.

Cusato said today’s homebuyer is more concerned about the performance and quality of the home. “Even if somebody has money, they are not so free to part with it. They want to make sure the home performs well. There has been a heightened awareness about performance.”

Not everyone agrees the move to small is something that will last, though. A February 2011 story in Builder magazine written by Jonathan Smoke, senior vice president at Hanley Wood, suggested that larger houses would rebound. Smoke said that since 1973, when the U.S. Census started tracking the information, there always has been an increase in square footage following a recession.

Smoke told On Common Ground that he’s gotten “a lot of reaction” from the article, among a growing nation of believers in smaller houses. But to assume the trend to smaller homes has staying power well into the future turns a blind eye to history, he said.

Smoke said the decline in size and cost is strictly a reflection of who was buying homes. In 2009-10 there was a dip in the average household income among homebuyers. According to Smoke’s article, the average income of the new homebuyer in 2010 was $66,770; a decline of 8.5 percent from 2008.

“The facts suggest that the decline in size and price are less a reflection of a rise in austerity by households, but rather that a substantial change has occurred in the type of households buying new homes,” Smoke said, adding “history suggests that as the economy recovers, new homes will trend larger.”

Smoke said there’s “definitely a demand for homes that are larger than the medium sized-homes that have been reported over the last few years.”

He also said there always will be a segment of society that is going to want more space and land in the country. “There is going to be demand for large homes on larger lots,” he said.

Smoke says the housing crash is just going to require the builders and developers in exurban areas to plan smarter.

Pulte’s Parman agrees with Smoke that when the economy recovers, there will be people who buy more expensive homes. But for him that doesn’t necessarily mean big.

“A certain number of homebuyers, if they can afford more, will buy more. But when you look at the sheer numbers of people and the big trends, on average, the trend is that Generation Y is buying first homes and [baby] boomers are making retirement moves. So I think, on the average, the smaller home is still going to play a big role in offerings. You’re not going to see a swing back to the McMansions.”

Cusato wholeheartedly agrees.

“I can’t imagine a case in which we are ‘recovered’ where we go back to 2005,” she said. “The smaller home isn’t going anywhere.”

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A free, semi-annual magazine published by NAR, On Common Ground presents a wide range of views on smart growth issues, with the goal of encouraging dialog among REALTORS®, elected officials, and other interested citizens.

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