New houses are getting smaller, but they’re still much bigger than what your grandparents had

The average square footage in new single-family homes has been declining since 2015. Home sizes tend to decline only during recession periods. It occurred from 2008 to 2009, from 2001 to 2002, and from 1990 to 1991.

But even with strong job growth numbers in recent years, it appears demand for historically large housing may have peaked.

According to Census Bureau data, the average size of new homes in 2017 was 2,631 square feet. That’s a decline from the 2015 peak of 2,687.

The 2015 average, by the way, was an all-time high and represented decades of nearly relentless growth in U.S. home sizes since World War II.

In fact, in the fifty years from 1967 to 2017, the average size of new homes increased by two-thirds (67 percent) from 1,570 to 2,631 square feet. At the same time, housing quality also increased substantially in everything from insulation to roofing materials to windows to the size and availability of garages.

Source: Department of Labor, Census Bureau, HUD. 1

Meanwhile, the size of American households during this period decreased by 22%, from 3.28 to 2.54 people. Needless to say, the number of square feet per person has expanded tremendously over the past fifty years. (The square footage in new multifamily construction has also increased .)

And yet, we continue to hear in survey data that Americans are “overworked,” “stressed,” and pushed to the limit when it comes to paying for living space. If that’s the case, why do so many Americans continue to buy new homes that are more than 50% larger than what their parents grew up in?

Part of this is a matter of demonstrated preference versus what they say in polls. The demonstrated behavior of many people is simply that they prefer more homes to less, even if that means more stress on paying the mortgage each month. Another factor is the low-to-low mortgage rates that continue to be available to many borrowers. Sure, that extra 500 square feet beyond what your dad shared with 3 siblings might be a little excessive, but if you can spread the payments over 30 years, why not?

How government policy led to a coding of bigger, more expensive houses

But there are other factors too. In recent decades, local governments have continued to increase mandates for how many units can be built per acre and how big those new homes can be. As The Washington Post reported last month, various government regulations and fees, such as “impact fees,” which are the same regardless of unit size, “incentivize developers to build big.” The Post continues, “If zoning does not allow more than two units per acre, the incentive will be to build the largest and most expensive units possible.”

Additionally, community groups opposed to anything resembling “density” or “zoning change” will use the power of local governments to crush developers’ attempts to build more affordable housing. However, as The Post notes, at least one developer has found that “where his firm has been able to encourage cities to allow smaller buildings, demand has been strong.” “For those building small, demand doesn’t seem to be a problem.”

Many involved in home selling probably won’t be surprised to hear this. In many markets, mid-priced homes sell the fastest. In the Denver metro area, for example, homes priced in the $300,000-400,000 range are adding up quickly. But luxury homes in the $700,000 or $1 million range can languish. The Washington Post article features a Denver-area couple who were thrilled to purchase a new downsized 1,400-square-foot home for $257,000.

As much as homeowners and city planners would love to see nothing but upper-middle-class housing with three-car garages on every street, the fact is that not everyone can afford this type of housing. But that doesn’t mean people in the middle can only afford a shack in a poor neighborhood either, as long as governments allow more basic housing to be built.

Local housing has become as inflexible as a combination of a variety of historical trends that later become almost immobile thanks to government policy. We’ve seen this at work as decades of federal housing policy have worked to encourage ever-increasing debt loads, which in turn leads to larger homes as well. Eventually, this type of housing, and the type of people who live in it, reaches a critical mass politically. People who live in larger homes want to ensure that “neighborhood character” is maintained, by force of law, which ends up excluding new types of more affordable housing. This doesn’t necessarily mean apartment buildings, of course. It can simply mean smaller, simpler single-family homes. However once existing homeowners begin to dominate the local political process, the deck is stacked against new homeowners who can only afford basic housing that veterans don’t want to see.

The result is an ossified housing policy designed to reinforce existing housing while denying new types of housing that are perhaps better suited to smaller households and a more stagnant economic environment.

Eventually, however, something has to give. Either governments persist indefinitely with restrictions on “undesirable” housing, meaning housing costs skyrocket, or local governments finally begin to allow builders to build housing more appropriate to the needs of the middle class.

So far, the results have been irregular. But where developers are allowed to build for a middle-class clientele, there seems to be plenty of demand.

It’s not a downsizing.

The Post article covering this downsizing phenomenon is titled “Downsizing the American Dream,” but this represents nothing that can be called downsizing compared to the supposed Golden Age of the American Dream in postwar America.

After all, by the standards of the 1950s and 1960s, the new “smaller” houses are still large and luxurious by comparison. According to a 1956 U.S. Department of Labor report, “The 2-bedroom, 1-bathroom house, with less than a thousand square feet of floor area… typified new homes in 1950.”

Also, note that the average household size in 1950 was 3.37 (compared to 2.62 in 2000). Those two bedrooms and that bathroom in 1950 say a lot more traffic than would normally be the case today.

Home sizes grew considerably in the 1960s, but even those homes, which were often three-bathroom homes for families with children, sat at about 1,500 square feet well into the 1970s.

Today, the average new home is more than 1,000 square feet larger than a 1960s home, often no more than a couple and their dog.

But do new home buyers need that whole house? It’s hard to know since housing production is caught in a complex web of government financing, government regulation, and neighborhood NIMBYcism.

To know the answer, we would have to allow developers to build less expensive housing, but that would require a vast simplification of the political and regulatory processes that developers must deal with. Housing expectations have changed so much in the last fifty years, that it is difficult to imagine a return to what households of the past would have considered normal middle-class housing.

It would be an interesting experiment, though: Would city planners and neighborhood groups welcome a developer who planned to build a neighborhood of retro-1950s housing? That is to say: new 1,000-square-foot two-bedroom, one-bathroom homes? (They would have to exclude the asbestos cladding typical of the period, and the terrible insulation of the period would have to be replaced with something more modern.