Building Smaller, Selling Smarter

Cost-Conscious Shoppers Are Looking for Less

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.