Why buyers are gravitating toward smaller homes 

Editor's note: The United States needs more housing. It's not a new problem, but new solutions are emerging — and some old ones are getting another look. How are they shaping the future of housing? What is showing the most promise?

This series explores a few different approaches and where they might lead.

The price of nearly everything has gone up in recent years, and housing is no exception. Steep construction costs and sky-high existing home prices have pushed many buyers to the sidelines, but some builders have taken note, going smaller with new homes in order to keep costs in check. 

The cost of housing remains a major concern for many Americans, but this "smaller is better" approach to new home construction could be one remedy to the affordability crisis. 

Footprints have been shrinking

The median size of a new single-family home has fallen each year since 2015 — when it was 2,320 square feet — to 2,036 square feet in 2023, according to data from ResiClub and Parcl Labs shared with Real Estate News. And according to a May report from the National Association of Home Builders, the median size of newly constructed single-family homes during the first quarter of 2024 was 2,140 square feet — which NAHB noted as being the lowest figure since the second half of 2009. 

And home sizes will continue to shrink, predicted John Burns Research & Consulting's New Home Trends Institute in a report. In a survey of production residential designers, 43% said they worked on smaller projects last year than the prior year, while only 15% reported working on larger projects. Additionally, 39% of respondents expect that homes designed in 2024 will be smaller than those from last year. 

Revisiting the starter home of a century ago

Smaller homes don't all look alike — some are fairly basic and designed primarily with cost in mind, while others boast an elevated design and new urbanist planning principles to achieve a walkable, denser environment. In some ways, today's smaller home is not so different from the post-war homes built in the newly formed suburbs of the 1950s, or even the mail-order "kit homes" of the early 20th century.

For most buyers, the detached single-family home continues to be the ideal, explained Jenni Nichols, VP of Design for John Burns Research and Consulting. 

"There is something — and maybe it goes back to the Sears Roebuck cottages — about having your own home," Nichols said. "I think there is a preference for detached. People like it. People like not sharing a wall. Even if the home is tiny, there's something special about having your own house — it's a psychological tie to the classic idea of the American Dream."

Some of the newer developments with sub-1,000 square-foot homes skip amenities like garages and bonus rooms to make the homes smaller and more affordable for buyers. For instance, homes in Lennar's Risinger Court in the Fort Worth area feature single-story floor plans that are as small as 763 square feet and priced at $198,000. That's far below the $351,000 median list price for the Fort Worth metro and less than half of the $420,600 national median price for all new home sales in August. 

"Your starter home of today is like your starter home of yesteryear. And I think that we're going to start to see more of that," Nichols said.

Homes and communities 'that make sense for people'

Other developments, such as the "Wee-Cottage" communities in the Denver area and the multi-phase Indigo subdivision in Richmond, Texas, that take a more holistic approach, focusing not just on the homes but also on landscape design, shared amenities, walkability and a vibrant atmosphere. Scott Snodgrass, a founding partner of Meristem Communities and Indigo's master planner, said they're simply meeting the market demand for attainable, yet upscale housing. 

"A home builder's business is to build homes and sell them, but we also need to make sure that we're building homes that make sense for people," Snodgrass told Real Estate News. "The better job you do with that, and the wider of a buyer pool that you can reach with those homes, then the more homes you're actually able to sell and the faster you're able to sell."

Snodgrass said Indigo's smaller "cottages" reflect the demographic shift among buyers in the Houston area (and the U.S. as a whole). "Less than 20% of our family formation are two parents that are married with kids," Snodgrass said, yet Houston developers are "still building 70% or 80% of our homes for that household formation." In many cases, he added, smaller households "would actually much rather buy a smaller home."

Small scale, big demand

It's not just budget-conscious millennial couples or families who want smaller, more affordable homes — Snodgrass said older Gen Xers and empty-nester boomers want a home that compliments their more active lifestyle and desire for less upkeep. And the smaller plans, which are roughly 949 to 1,400 square feet, make it easier for developers "to build them all at the same time," Snodgrass explained. 

Sixteen of the cottages, the smallest of which started at $219,000, were completed — and sold — within a 45-day period, Snodgrass said. Another 60 will be built in the next phase of construction. 

The pace of sales illustrates the very real demand for these smaller homes, he said, adding that "they have hundreds of people on a waitlist."