Building Smaller, Selling Smarter
Cost-Conscious Shoppers Are Looking for Less

By Allan Lengel
Washington Post Staff Writer
Saturday, April 26, 2008

Less is getting noticed more.

Some home builders are cutting back on square footage, downgrading fixtures or offering fewer luxuries to keep costs down. The hope is to lure not only people on tight budgets, but also baby boomers with grown children and energy-conscious buyers of all ages.

"We are dealing with realities of the market. Prices have come down somewhat, and some houses are smaller," said Don Knutson, senior regional president for the mid-Atlantic division of Beazer Homes. "I think square-footage reduction has been about 5 percent between 2007 and 2008."

For decades, the average new house size has grown, going from 1,100 square feet in 1950 to 2,500 square feet in 2007, according to the National Association of Home Builders. The result is visible around the country, with suburbs full of what once would have been considered mansions.

However, the rate of increase has slowed in recent years and "won't go up much more" as the growing desire for smaller homes begins to counter the demand for the larger ones, said Gopal Ahluwalia, staff vice president for research for the builders association.

"The consumer is telling us, 'We want more quality features than space,' " Ahluwalia said.

A 2007 national survey conducted by the association found that 42 percent preferred a bigger house with fewer amenities, compared with 58 percent who said they would prefer a smaller house with "high-quality products and amenities."

That represented a change from 2000, when 51 percent wanted a bigger home with fewer amenities.

These are tough times in the building industry. Sales of new single-family houses in March plunged to a 16 1/2-year low while inventory continued to grow, reaching an 11-month supply, according to the Commerce Department. A six-month supply is considered healthy.

Meanwhile, the median price of a new home in March fell to $227,600, down 13.3 percent from March 2007, the biggest year-to-year drop in 38 years.

"It would make sense to me that builders are going to reduce their cost by building smaller homes and by reducing some amenities," said Celia Chen, director of housing economics for Moody's Economy.com.

"Builders are in very weak financial shape. Given the housing market, buyers are not only looking for bargains, but they won't support a price increase. This means builders really have to watch their margins and keep their selling prices low," Chen said.

She said she expects the appetite for smaller homes to grow, particularly as an increasing number of baby boomers become empty nesters.

Bill Gilligan, Washington area regional manager for Toll Brothers, a luxury home builder, said, "In some cases we have introduced slightly smaller homes in some of our communities to attract a greater number of prospective buyers."

These new designs are typically about 10 percent smaller, he said.

Cheryl Carte, an agent with Keller Williams Realty in Leesburg, said some clients who moved into big, sprawling houses are having second thoughts.

"What I've seen is a lot who purchased these big mega-mansions downsizing and looking for a more efficient way to cut down on the heating and air conditioning," she said.

"I just went to three model homes. . . . They've brought the size of the home down. They still have great amenities. The master bedroom is nice but not ridiculously huge. You don't have to take a snack just to go across the room."

The cutbacks appear to have paid off financially, at least for some builders.

In its 2007 annual report, NVR of Reston, one of the nation's largest builders, noted that its smaller home offerings had helped the bottom line. The company has been making money at a time many builders have not, even though profit is sharply lower than in the past few years.

"In many of our markets, we are providing house types at lower sales price points by reducing the square footage of the products offered and by providing fewer upgraded features as standard options," the report said.

"This provides home buyers with a more affordable product and the option to upgrade only those features important to each particular buyer."

To be sure, builders and real estate agents said, there are still plenty of mini-mansions loaded with amenities in the Washington market. And some builders are still offering lots of freebies such as finished basements and stainless-steel appliances to lure buyers and trim inventory.

Beazer said it is trying to offset shrinkage in some homes using what it calls its "Smartdesign," maximizing space in the kitchen, garage, bedrooms and bathrooms with specially designed shelves or closets.

"I would say generally people are realizing bigger is not always better if they can get a smaller home that is affordable," said Knutson of Beazer.

As for luxury touches, he said: "We still offer as many choices as ever to customers; the question is whether it's included in the base price. If perhaps a customer has to pass today on the granite countertops, but it allows them to get into the home, that's a good thing."

At Pulte Homes, Sean Degen, national vice president of architectural services, said the company has downsized some home models, but not always with price in mind.

"We shrunk the homes because the buyers shifted, not necessarily to get the prices down," he said.

Before the downturn, builders loaded up homes in different price ranges with plenty of top-of-the-line fixtures as standard features, including stainless-steel appliances, granite kitchen counters and finished basements.

But Angie Bresnahan, a real estate agent with Realty Resource in Herndon, said some builders are now offering such things as standard in high-end homes only and reducing the quality of certain standard fixtures.

For example, she said, she's seeing cheaper-looking gold-colored chandeliers and faucets in some new homes.

"It's the bottom of the barrel, and now it's back," she said.

As for size, she said, some shoppers have expressed concern about the costs of owning big houses.

"I definitely have clients worried about the energy associated with a large home," she said.

In some instances, the question is: How small is too small?

Angeli A. Escalante, an agent with Long & Foster in Georgetown, said she has seen some new two-bedroom condominiums in the District that are so small, "it isn't livable."

She said: "They'll have granite countertops, they'll have nice appliances, but the livable space in the kitchen and living area is one space, and it's difficult to put a sofa in. What they call a bedroom is too small. Buyers are looking into it and realizing the space isn't day-to-day livable space."

Whatever the case, Ritu Desai, an agent with Samson Realty in Chantilly, said there need to be more alternatives to the big homes to serve a broader spectrum of customers.

"We definitely hope to see smaller homes more," she said.