The Downsizing Trend in Modern Home Construction

Following World War II, home developers were faced with a challenge — a good one at that. With the Great Depression in the rearview mirror — America utterly triumphant in both European and Asian theaters — GIs returned home in massive numbers. Given the nation’s global economic primacy as key competitors were mired in rebuilding, homebuilders were about to encounter a crescendo of demand.

Households formed quickly as people returned from war, the number of families with children exploded, and there was a desire to raise those children beyond the boundaries of crowded cities lacking proximate open space, newly constructed schools, and opportunities for ownership. Demand for single-family homes skyrocketed as suburbs were formed in every major region of the nation. America was amid a homebuilding boom.

From time immemorial, Americans have craved space, sometimes referred to as elbow room. This additional space was another element of the suburban promise, not just outside of the home with its backyard and newly construction school playground, but also inside the home. In other words, Americans love square footage. Accordingly, as the nation grew more prosperous during the 1950s and 1960 and then again during the 1980s and 1990s, the average newly constructed home tended to be larger than its predecessors.

Indeed, average home size has historically moved neatly with national prosperity. According to the U.S. Census Bureau, as the Roaring Twenties came to a close, the average size of a newly constructed single-family home was 1,129 square feet. But then the deprivation of the 1930s and a nation at war quickly caused rationing resources to set in. By the end of World War II, the average size of a newly constructed American home had declined to 797 square feet.

America’s path back toward larger homes started slowly. Communities such as Levittown in New York become a template for future development. Abraham Levitt built the planned community for World War II veterans in a hamlet on Long Island, offering affordable, small homes for soldiers and their families. The streets of Levittown were lined with identical homes that became a model for a considerable fraction of suburban development thereafter. Among the big differences was that average home sizes expanded along with burgeoning prosperity and the increasingly ubiquity of the automobile, which allowed people to move further and further away from center cities, purchasing homes that offered both larger lots and structures in the process.

But as history has demonstrated, nothing moves in a straight line. The housing collapse that began during the initial decade of the current millennium and ended with a foreclosure crisis that lasted well into the next one diminished both the allure of homeownership and the credit available to finance it. After a period of dramatic housing construction, a slower pace set in, one that persists in some measure.

Qualifying for a mortgage became more difficult, but that also meant that those who received mortgages were on average associated with higher incomes and credit scores. In many cases, these fortunate Americans moved to the South, where land prices were lower than their prior homes in New York, Connecticut, Illinois, or California. Accordingly, they were able to afford more square footage in their new locales. In 2015, America set a record in terms of the average size of the newly built home, which peaked at approximately 2,470 square feet.

Fast forward to 2024 and a totally new pattern has set in. While the American home remains the American dream, some things have changed, but many of those things would suggest that average new home sizes should be expanding. For instance, more people are working from home. While the pandemic is increasingly fading into history, remote work isn’t. According to the Pew Research Center, approximately 22 million employed adults (ages 18 and over) work from home in America, equivalent to roughly 14% of all employed adults. At the turn of the Millennium, only a bit more than 4 million Americans worked from home. This trajectory translates into more time at home and demand for space for home offices, each of which should be placing upward pressure on average new home sizes.

According to U.S. Census Bureau data, Colorado leads the nation in terms of the highest proportion of remote workers (21%), followed by Washington, Arizona, and Oregon. The lowest proportions are in North Dakota (<8%) followed by Louisiana. These happen to be natural resource intensive states rendering them less susceptible to remote work.

Despite factors that would suggest that average new home sizes should be rising, the opposite is happening. The Washington Post recently reported that the median size of a newly built single-family house has fallen to a 13-year low in 2023, down to 2,179 square feet. This was nearly 300 square feet smaller than the peak attained eight years earlier, equivalent to two nicely sized rooms. Except for 2021, home sizes have generally been trending lower since.

There are undoubtedly several factors at work, and perhaps the most important is rooted in American demography. Each day, 11,200 Americans turn 65 years of age. It’s a staggering number and also implicates a growing desire to downsize, in part to avoid annoyances like staircases, lawn maintenance, and in certain instances, high taxes.

Meanwhile, the next generation of homeowners, the Millennials, America’s largest generation and one that is entering its 30s and 40s, has come of homebuying age. Many of these younger Americans have never purchased a home before and accordingly have no equity. They have struggled to amass 20% downpayments in the era of the student debt crisis. They are also facing much higher home prices, elevated construction input and labor costs (as of April 2024, inputs to construction were 42.1% higher than they were in February 2020, the month before the pandemic), and elevated mortgage rate by their standards (approximately 7% of a 30-year fixed mortgage as of this writing). 

In short, they can’t afford a significant amount of square footage. At the same time, homebuilders want to address this large and growing market, and they often do that by building smaller homes with fewer windows and other amenities, keeping sales prices lower than they would otherwise be.

The previously mentioned Washington Post article detailed the buying experience of a 29-year old working professional in Frederick County, VA. Though her initial wish list included a standalone home, an attached garage, and a yard for her pet, she eventually settled on a newly constructed townhouse. It fulfilled everything she wanted, though on a smaller scale. Moreover, it fell well under her initial budget. She states in the article, “I looked at so many houses, but so many of them were too big and too expensive… The one I got — yes, it’s smaller and doesn’t have everything — but it’s enough.”

Last year, D.R. Horton, one of the nation’s largest homebuilders, sold a bit more than 80,000 homes, with their offerings starting at around 900 square feet. Jessica Hansen, Senior Vice President of Communications at the company, said in a Washington Post article, “We are continuing to shift… to more and more of our smaller floor plans to address affordability issues in the market.”

In a similar vein, Toll Brothers is anticipating a greater shift in sales toward first-time homebuyers, especially amongst Millennials. Toll Brothers' Chief Executive Douglas Yearley stated, “With 75 million millennials out there, we were not going to wait for them to hit their 40s and buy their move-up home.” The company, which typically sells high-end homes, has shifted focus to provide more affordable options, with their “affordable luxury” models starting at around $400,000.

But one can expect the new trend to reverse itself once again. As stated by Andy Winkler, Director of Housing and Infrastructure at the Bipartisan Policy Center in Washington, D.C., “Smaller homes are cheaper at the moment, for both builders and buyers, but it’s hard for me to fathom this becoming a long-term trend… Americans haven’t become suddenly enamored with small houses. They just can’t afford anything else.”