Mismatch between the slightly smaller homes millennials want and bigger homes builders want to construct?

Some data from recent years suggests builders and younger homebuyers may not see eye-to-eye on what kinds of homes they want:

A new survey from the National Association of Home Builders suggests that millennials — the demographic that should be the big driver of home buying over the next decade — is growing increasingly pragmatic about size. In 2018, one-third of millennials said they would trade smaller size for greater affordability; in 2007 just one in five millennials found that tradeoff palatable.

Indeed, in its most recent annual report, Harvard’s Joint Center for Housing Studies notes the builder vs. buyer mismatch. “With millions of millennials moving into their prime home-buying years, demand for smaller, more affordable homes seems poised for a surge,” the report stated.

Yet builders aren’t interested in ponying up the supply.

The JCHS says that in 2017 small homes represented just 22% of new homes, compared to an average of 32% between 1999 and 2011. And to be clear, the JCHS is not talking about tiny homes for millennials. It defines small as 1,800 square feet or less. That is still bigger than new homes’ median size a generation ago.

Just how much smaller are the homes that millennials desire? The median new home size decreased last year to around 2,300 square feet. What exactly is the range of home size millennials most desire (and how does this size interact with other important factors such as locations or features of the home)?

On the other side, builders are likely interested in constructing larger homes because they can make more money off each unit. Additionally, there is still some demand for larger homes though this could change in the coming years with more millennials in the housing market alongside older residents who are no longer buying homes or who are looking to sell their own large homes.

All of this is of interest to the housing industry (and other related observers): will millennials kill McMansions? Where are the newly constructed starter houses? On the whole, Americans still have large homes on a global scale and an intertwined set of social and cultural factors that keep that going. There is both money to be made here and new dwellings younger homebuyers would like to explore (if they can afford them).

Looking at “The McMansion Effect:” home satisfaction and size of the homeowners’ home

A new study under review looks at how satisfied owners are with owning some of the largest homes in their area:

This finding, Bellet reasons, has to do with how people compare their houses with others in their neighborhood—particularly the biggest ones. In his paper, which is currently under peer review, he looks closely at the construction of homes that are larger than at least 90 percent of the other houses in the neighborhood. By his calculation, if homes in the 90th percentile were 10 percent bigger, the neighbors would be less pleased with their own homes unless those homes grew 10 percent as well. Moreover, the homeowners most sensitive to such shifts are the ones whose houses are in the second-biggest tier, not the ones whose houses are median-sized.

To be clear, having more space does generally lead to people saying they’re more pleased with their home. The problem is that the satisfaction often doesn’t last if even bigger homes pop up nearby. “If I bought a house to feel like I’m ‘the king of my neighborhood,’ but a new king arises, it makes me feel very bad about my house,” Bellet wrote to me in an email.

The largest houses seem to be the ones that all the other homeowners base their expectations on. In neighborhoods where the biggest houses are more modest, Bellet told me, expanding the size of one’s house can be 10 times as satisfying as undertaking such an expansion in a neighborhood where the biggest homes are palatial.

Bellet sketches out an unfulfilling cycle of one-upmanship, in which the owners of the biggest homes are most satisfied if their home remains among the biggest, and those who rank right below them grow less satisfied as their dwelling looks ever more measly by comparison. He estimates that from 1980 to 2009, the size of the largest 10 percent of houses increased 1.4 times as fast as did the size of the median house. This means that the reference point many people have for what constitutes a big home has shifted further out of reach, just as many other lifestyle reference points have shifted in an age of pronounced wealth inequality.

Read the working paper here.
Three quick thoughts:
  1. The term McMansion in the paper seems to refer simply to the largest homes. At least a few of the homes are not likely McMansions since the term is much more complex than just referring to homes with a large amount of square feet. Is the big home architecturally sound? Is it a teardown replacing a smaller home? Is it less of an issue of the single home and more an issue of sprawl and excessive consumption? Calling all big homes McMansions does not add much to helping understand what exactly is going on with large homes. Not all large homes are made alike or may be as satisfying. It may, however, add sizzle to the title: “The McMansion Effect” sounds good.
  2. I would like to see more research that addresses the issue of homeowners comparing their homes to others around them. This paper suggests satisfaction is linked to nearby comparisons. How far does this geography extend – walking distance? Half a mile? 2 miles? Within the same municipality? Compared to what is seen on TV?
  3. This sounds similar to a recent argument about the “Dream Hoarders,” the group just below the wealthiest people who have status anxiety about keeping up. Here, those just below the biggest homes in the neighborhood can feel worse. Is it the largest houses that are the problem or the people in the next to largest houses who then long to have the biggest house. If only we could control the pesky human tendency to compare ourselves to people who have just a little more than us…

Shrinking new homes, fewer McMansions in Australia

A few years back, Australia passed the United States for largest new homes in the world. Now, new homes in Australia are trending smaller, Australian new are firmly the second largest in the world, and fewer McMansions are under construction:

Australian homes have shrunk to 22-year lows as the “McMansion” fades in popularity and more apartments are built, Australian Bureau of Statistics data reveals.

The average floor size of a new home is now 186.3 square metres, down 1.6 per cent over the past 12 months and the smallest since 1996, according to CommSec’s Home Size Trends Report released on Monday.

More on the longer trends:

The average size of freestanding houses peaked in 2011-12 and has stabilised over the past five years. The average house is 8 per cent bigger than 20 years ago and nearly 30 per cent bigger than 30 years ago in 1987-88.

The standard fit-out is also superior, with higher quality kitchens, bathrooms, floor coverings and inclusions such as air-conditioners.

It is good to have a reminder that new homes can both increase and decrease in size over time. On one hand, smaller new homes would be praised by some as a good move. On the other hand, the long-term shift is still toward larger homes with more expensive features.

It is tempting to consider whether a similar shift could take place in the United States. Could the ever-growing new home in the United States start shrinking as smaller kinds of new housing increase in number? This could happen either two ways: fewer large homes are constructed or more smaller units are constructed (in comparison to each other). I am skeptical this would happen for multiple reasons. Americans still seem to believe in the virtues of having more space and are still willing, to some degree, to tackle the issues that can come with larger houses (i.e., longer commutes, higher taxes, higher maintenance and upkeep costs). Smaller units may be popular in some circles but reasonably-priced apartments, tiny houses, and accessory dwelling units have yet to take off in large numbers. This, of course, could change as households and communities change over the decades, but I do not envision a major reduction in the size new American homes in the near future.

Claim: Americans are giving up McMansions for tiny houses

A story about a tiny house promotion in New York City starts with this claim:

Over the past few years, the tiny home movement has picked up steam, with more and more folks deciding to abandon McMansions to live in small houses, typically less than 500 square feet.

I am skeptical about multiple parts of this claim:

  1. Tiny houses may garner some attention. But is there a tiny house revolution going on? I do not know if there is a single researcher or group tracking this but the number of sales is limited.
  2. The term McMansion is clearly negative. There may be fewer McMansions constructed today in the aftermath of the 2000s burst housing bubble but the percentage of new homes over 3,000 square feet has increased in the last ten years. McMansions are back and/or here to stay (and/or never really left). In contrast, in recent years homes under 1,400 square feet have been 7% or 8% of all new homes.
  3. The stronger part of this claim is that McMansion owners are giving up their homes to live in tiny houses. There may be some cases of this but this is quite a dramatic change. I suspect more tiny house owners are wealthier people who choose a tiny house as a vacation home or second home. Or, tiny houses offer helpful options for those looking for affordable housing or the homeless, not those that already have a large home.

In sum, the evidence suggests McMansions are alive and well and tiny homes are limited.

Suburban family downsizes to 1,000 square feet…and then upsizes 412 days later

Downsizing and tiny houses are supposedly all the rage but they may actually be difficult to pull off as one suburban family attests:

I’d like to say that we had thought about what it would be like to live a tiny life before we downsized from our 4,000-square-foot home, but we fell in love with our little cottage in McKinney, Texas, and had grown tired of living large. Somewhere between the quest for more living space, we lost ourselves in exchange for higher utility bills and weekends spent dusting…

By the standards of tiny living — formally anything under 500 square feet — our move was not a tiny one. But when you consider that we are a family of five (plus a dog), you can see why we called our life “tiny.”…

Every day we learned more about each other and grew less tethered by the norms of privacy. But still, we all secretly longed for a sliver of it, for a private moment where tears could run without an audience, for the chance of living an embarrassing moment on your own, and for conversations that are secret, almost hidden, from the buzz of daily life. It was the togetherness that championed our tiny life, but it was the lack of privacy that also had us questioning it….

All of this joy for 400 extra square feet plus the 12 it takes to house the vacuum. Everyone has a room, everyone has personal space, and no one has to look at the vacuum unless they are using it. We could have added more space, but we purposely kept it small to maintain the togetherness of tiny living and the added bonus of smaller utility bills.

The overriding thought in the decision to add a bit more square footage seems to be privacy: 1,000 square feet was simply not enough. That comes out to about 200 square feet per person but the family desired more. It would be interesting to compare this figure – certainly far below what many Americans have in their dwellings – to global figures as well as to how Americans define and prize privacy. The American Dream with its single-family home is in significant part about having space away from others.

Two other factors in this particular story also strike me as unique. First, the family lives in a warmer climate where being outside is easier. If residents need a little more space, especially kids, going outside is an option. (Granted, being outside in Texas summer may not be pleasant but it is certainly preferable to freezing cold.) Second, the family lives in a suburb that regularly is ranked among the best places to live in the United States. The family does not say much about this in the article but the amenities of such a suburb could ameliorate having a smaller house.

Three major challenges facing tiny homes and their owners

Given that tiny houses have not exactly taken off, here are three possible reasons why:

The concept is appealing, but in truth, people have found it challenging to locate places where they can permanently park their home on wheels. It has become an issue in many communities, as homeowners worry that the character of the mobile homes will diminish their property value. Locating the perfect site can be easier in rural areas.

Another dose of reality has come in the form of human behavior. It turns out that for some of the people appearing on the various HGTV programs devoted to tiny-house living, the strain of living in such tiny quarters has surfaced. As we see with follow-ups, some couples cannot manage to live in 300 square feet together, and one moves out.

Additionally, when compared with the lifestyle of an urban micro-unit, rural or suburban settings are more restrictive. In the city, for example, people can get to a pub, cafe or coffee house in minutes simply by walking out the building’s front entrance and down the block.

These are three important challenges. The first and third discussed above seem related to me: it may take a significant amount of time before communities develop zoning and planning that allows for tiny houses. Current residents might view them as threats not only because are they mobile but also because the homes are also significantly cheaper than many other kinds of housing units. In the best case for tiny homes, communities would allow them to fill in spaces between existing buildings and units. This would increase density and possibly provide more tax revenue. In the worst case, tiny houses will be excluded from many desirable locations, contributing to the third issue above where the advantages of a tiny home and budget may be combined with needing to drive everywhere.

As for the second issue above, Americans like their (1) personal space and (2) space for lots of stuff. Tiny houses do not have much square footage for either. In a perfect world, the tiny house might be located in a vibrant urban or suburban area where the owner(s) could spend a lot of time outside the unit (taking advantage of third and public spaces like coffee shops, parks, and libraries). Without those nearby amenities, a tiny house might simply not offer enough separation from others. Additionally, a tiny house likely requires an owner to do without many things. This could be overcome through a variety of methods – living near family and friends with whom one could share, storage units, or a barter or sharing economy – but this requires more work and resources.

All of these problems might be solved eventually but it will take time.

“[P]eople with tiny house budgets often have McMansion dreams”

The title of this post is part of a larger quote – “On Tiny House Hunters it is painfully transparent that people with tiny house budgets often have McMansion dreams” – as a writer reflects on HGTV’s portrayal of tiny houses:

They too yearn for an open floorplan. They want storage. They want privacy. They want sleek kitchen amenities. They want room to entertain. That desire, to entertain, is the most delusional. In a home built for one, that may, with some dieting and sucking in of the gut, accommodate two, there is no entertaining. When you buy a tiny home, you are also making a commitment to socialize with your friends elsewhere if you hope to keep those friends.

As the reality of tiny living sets in, the hunters often lament how tiny a tiny home actually is. Or they are in complete denial and exclaim that there is just so much space. In one episode of Tiny House Hunters a man sat in the “bathtub” in the tiny bathroom. He looked ridiculous, his knees practically in his mouth as he contorted himself into the improbable space. He, the realtor, and his friend, who were all viewing the property, were nonplussed, as if the goings on were perfectly normal. And there I was, shouting at the television, “What is wrong with you people?”…

Shows like House Hunters and Tiny House Hunters flourish, in part, because even now, after the mortgage crisis and financial collapse, home ownership and the American dream are synonymous. Home ownership represents success and the putting down of roots. Home ensures the stability of the American family. When you own a home, there is always a place where you belong, and where you are the master or mistress of your own domain…

A cheerful television show about homebuying isn’t going to sully itself with a frank examination of economic realities or the fallout from predatory lending practices that made so many people believe they could afford to live beyond their means. Instead, Tiny House Hunters allows people the trappings of a middle-class lifestyle, regardless of their actual economic circumstances. The homes the hunters look at are often stylish, modern reinterpretations of the cookie-cutter prefabricated homes that inspire so much cultural derision. They may not have much space but what space they have is well appointed and chic or quirky. Tiny house hunters can soothe their class anxiety and stay just within reach of what they so very much want but cannot afford to have.

This leads me to two thoughts:

  1. As the piece notes, there is an important connection here to social class. People on this show want to have a middle-class (or higher) lifestyle in a small package. They are often unwilling to give up on certain items just because they are pursuing a smaller house. Additionally, I would argue that this quest to downsize is a largely middle- to upper-class phenomenon. The people on the show are not ones driven to tiny houses solely because of economic necessity. The cost savings may be nice but they also talk about reinforcing familial bonds, being able to move a home around more easily, consuming less, and helping save the environment. As the writer notes, they are not seeking after mobile homes and the class implications associated with them. Instead, they often want customized tiny houses that continue to display their higher than lower-class lifestyle.
  2. Some might applaud these people for realizing they don’t need such a large house. Instead of purchasing a McMansion or even the average size new home (around 2,500 square feet), these people are consuming fewer resources and resisting the strong pull of consumerism. At the same time, they still find something valuable in owning their own home. Why does this interest in home ownership continue? if people truly wanted a more environmentally friendly option, shouldn’t they go move into a small apartment in a dense urban area where they don’t need to drive much? (Many of the tiny houses on HGTV are frequently in more rural settings and still require a lot of driving.) In other words, even having a tiny house still allows these homeowners to participate in the middle-class American Dream which largely revolves around owning your own detached home.

And just as a reminder, there is little evidence that many Americans desire a tiny house. As of now, they largely appeal to a small subset of the population that does not necessarily need them.