Tuesday, June 7, 2016

Bigger is Better When It Comes to New Home Size

An article by Mark J Perry of the American Enterprise Institute

New US homes today are 1,000 square feet larger than in 1973 and living space per person has nearly doubled

The Census Bureau recently released its annual report on “Characteristics of New Housing,” with more than 700 pages of detailed data on the characteristics of new single-family houses and multifamily buildings in 2015. Here are some interesting details of new single-family houses built last year

1. Average/Median House Size. In 2015, the average size of new houses built in the US increased to an all-time high of 2,687 square feet (see dark blue line in top chart above), and the median size new house set a new record of 2,467 square feet (see light blue line in top chart). Over the last 42 years, the average new US house has increased in size by more than 1,000 square feet, from an average size of 1,660 square feet in 1973 (earliest year available from the Census Bureau) to 2,687 square feet last year. Likewise, the median-size house has increased in size by almost 1,000 square feet, from 1,525 square feet in 1973 to 2,467 last year. In percentage terms, both the average and median size of new US houses have increased by 62% since 1973.

2. Living Space per Person. While the average size of new US houses has increased over the last 42 years, the average household size has been declining over that period, from 3.01 persons per household on average in 1973 to a new record low of 2.54 persons per household in the last three years (2013, 2014 and 2015), a reduction of almost one-half persons per household over the last 42 years (see brown line in top chart).

With the average new house in the US getting larger in size at the same time that American households are getting smaller, the square footage of living space per person in a new US house has increased from 507 to 971 square feet using the median size house, and from 551 to 1,058 square feet using the average size house. In percentage terms, that’s a 92% increase for both the median or average house size per person. Amazingly, the average amount of living space per person in a new house has nearly doubled in just the last 42 years!

3. New Housing Construction Costs. What about the cost of new houses over the last 42 years? On a per square foot basis using median house sales prices and median square footage, the inflation-adjusted price per square foot for new houses (in 2015 dollars) has been relatively stable since 1973 in a range between about $107 and $128 per square foot at an average of about $116 (see bottom chart above). The price of just more than $120 per square foot for new houses sold in 2015 was 8.5% below the peak of $131.29 (in 2015 dollars) per square foot for a new house in 2005.

Bottom Line: We hear all the time about stagnating wages and household incomes, the decline/demise/disappearance of the middle class, rising income inequality, and lots of other narratives of gloom and doom for the average American. But when it comes to the new houses that Americans are buying and living in, we see a much brighter picture of life in the US. The new houses that today’s generation of homeowners are buying are larger by 1,000 square feet compared to the average new houses our parents or grandparents might have purchased in the 1970s, and have almost twice the living space per person compared to the new houses built 42 years ago.

And today’s new houses, compared to those built in the past, are much more energy-efficient; they come with better, bigger and more bathrooms, closets, fireplaces, and garages; they’re equipped with better and more home appliances; and they almost all include modern features like central air conditioning today (93% in 2015) that were expensive luxury options in previous decades like the 1970s (fewer than half the houses built in each year between 1973 and 1976 had air conditioning).

Americans are paying about 70% more today for a median-priced new house on an inflation-adjusted basis compared to a 1973 house, largely because the size of the median house today is larger by almost 1,000 square feet and by 62%. So on an inflation-adjusted basis, Americans are actually paying only slightly more today for a new house on a per square-foot basis ($120) than in 1973 ($114.42), for homes that are of higher quality and more energy-efficient with more features like air conditioning, fireplaces and multiple garages. Overall, the increasing amount of living space (especially when adjusted for declining household size), the improvements in housing quality, the increased number of features, and relative affordability of new houses today means that living standards continue to gradually, but consistently, improve year after year for millions of Americans.

1 comment:

Anonymous said...

Mark Perry made a huge wrong assumption when he wrote this article in regard to the fact that the inflation adjusted price of a 1973 new home is almost identical to today's new home price.

Both the 1973 home and 2015 home have a kitchen and between one and a half baths to two and a half is all they have in common. The 1,000 sq foot difference is almost entirely open space which has very little cost in comparison.

All things being equal, the 1973 houses with an extra 1,000 sq feet of open space would probably be in the $65 a sq foot range.

The extra cost for today's new homes comes almost exclusively from additional codes and regulations from both the state and local code offices as well as outrageous national building code requirements.

One of Coach's articles recently said that about $100,000 in additional costs occur today because of these codes and regulations.

If somebody knows Mark Perry, maybe you can have him look into this and write a new article about how today's new home buyer is actually getting screwed over. That is something I could read.