Housing economist Tom Lawler illustrates a housing pain point here. It’s an illustration of square footage trends in houses since the 1970s.
His Calculated Risk post says a lot by what it does not say, along with what it does say here in a single sentence:
The number of US single-family homes completed last year that had at least 3,000 square feet of floor area (222,000) was higher than any year in the 20th Century save for the year 2000, when 224,000 of such really large homes were completed.
This data came from 2016, from the Census’ “Annual Characteristics of Housing” report. His commentary, with the picture doing a lot of the work, shows that housing’s new-home market is producing too few small, lower-priced homes, creating a “shortfall” as a result, and causing upward pressure on home prices.
If Tom runs the same table next year, he’s likely to show greater growth in the three bands that account for homes 1,600 to 1,999 sq. ft., 2,000 to 2,399 sq. ft., and 2,400 sq. ft. to 2,999 sq. ft. This is because more volume builders are opening more communities offering more homes priced to be attainable to a pent-up demand pool of first-time, entry-level home buyers.
It doesn’t mean that the absolute number of homes in excess of 3,000 sq. ft. will decline. People who want those new homes tend to be ones with more discretionary ability to move toward what they value in this marketplace, with fewer constraints, a greater number of options, and flexible timing.
Still, the red, yellow, and blue bands of this chart should be the ones that grow more rapidly over the next few years. This will synchronize with builders’ strategies that promise growth, increased inventory turns, and per unit margins achieved through volume, scale, velocity, and sound management of their land acquisition and development processes.
None of these performance outcomes is a given. Better companies will execute and achieve them, and companies that are not as good will stumble, unable to bring lots on line at prices that pencil, or unable to lock in labor crews at rates that deliver promised schedules and margins.
Bigger homes cut builders more slack. Smaller ones are unforgiving, if one expects to make money on them.
But the rewards of doing smaller homes profitably could open the doors to an even greater opportunity, which to build communities–possibly a new home rent-to-own model–that would give prospective buyers a financial and experiential stepping stone toward homeownership. If an organization excels at delivering to customers in today’s lowest price tiers, they could open up entirely new pool of American Dreamers.
Just a thought for the day after the Longest Day of the year.
