Typical Americans have a hard time feeling inflation, even if it appears to be mostly under control on paper. It also came to the real estate market, just in form shrinking inflation. Houses are getting smaller—and more expensive.
In fact, they are reaching levels not seen since 2009 and 2010, after the Great Recession. According to analysis from research firm Apollo, the average new-build single-family home is about 2,150 square feet, down 12% from the 2016 peak of 2,500 square feet.
All this time, prices are 1.5 times higher than in 2016. According to data from the US Department of Housing and Urban Developmentthe average price of a new single-family home in the US was $288,400 in 2016, and today it is a whopping $437,300. But why is that so?
Construction costs and the pain of the pandemic
First of all, there is an increased price of building materials.
Consider an apartment building company BVM contracting: the company has seen a 20% increase in total material costs since COVID, said Ryan Meagher, head of business development at BVM and co-founder of the Future of Housing Alliance Wealth. When determining the prices of projects before COVID, which were then postponed due to the pandemic, they had to be quoted again, and many were about 25% higher than before, he said.
“We’ve seen a significant increase in our home construction costs when comparing pre- and post-Covid, especially with commodities like lumber,” Meagher said. “Labor costs remained about the same, but material costs showed the biggest change.”
Overall, about a quarter of new homes were downsized to cut costs, as of July report per John Burns Research and Consulting. Matt Saunders, senior vice president of building products research at John Burns, last year told Wealth that almost every real estate market in the country was overvalued because of how much home prices rose during the pandemic followed by a rise in mortgage rates, and builders tried to compensate by reducing home square footage.
Open concept: an illusion for creating space in smaller homes
Still, it appears to be a $300,000 starter home dies out. “To build a lower-priced house under $300,000, you’re going to have to build either a smaller house or houses in a densely populated area,” said Ali Wolf, Zonda’s chief economist. Wealth last year. She later explained that the first is the lever pulled by the builders. “They’re trying to reduce the overall size of the home to reduce the overall cost of the home,” she said told Wealth.
Because of this, builders and architects had to be creative with less material and space to work with. One way they have done this is through inclusion fewer hallways in the new home design.
“All that Tetris we played in the 90s finally paid off. Instead of reducing rooms to reduce the overall size of the house, a common tactic among our architectural designers has been to eliminate unnecessary circulation space,” JBREC wrote in its report on American Residential Architecture and Design. “Essentially, we play Tetris together across functional rooms, avoiding wasting squares on non-functional areas such as corridors.”
They cut dead space and rely on illusion.
“The ‘open plan’ has the perception of being larger because it is open and light travels through the house creating the optical illusion of making the house appear larger than it is,”
Jeff Lichtenstein, CEO of the company Echo Fine properties in Palm Beach Gardens, Florida, the story Wealth. “And that’s what the consumer wants.”
