Shortly after Chicagoans Stephanie Arias and Miguel Aguila were married, their thoughts turned to getting a place of their own. Both 28-year-old, first-generation Mexican-Americans who tied the knot in July 2018, they had been living with their respective parents and saving money for a down payment. They decided to focus their search on Humboldt Park, a historically Puerto Rican—and now rapidly gentrifying—neighborhood on Chicago’s West Side where Arias’s family lives.
They weren’t prepared for the sticker shock. Centered on a vast green space that gives the neighborhood its name, Humboldt Park has changed significantly over the past decade as traditional three-flat apartment buildings and brick bungalows make way for condo projects and modern single-family homes. The recently opened 606 linear park has only accelerated the shift: Zillow projects that average home values will hit $316,000 by 2021, twice the average home price in 2012.
“We started looking, and it was impossible to find a home in our price range,” Arias says. “And many of the homes here were full-on, with five bedrooms and three bathrooms, and I don’t think we’d ever need something that big. They build these beautiful homes, but they’re not for us.”
The monthly fees and dues for condos and townhomes they found were prohibitively expensive too. They recently moved into a rental apartment in Humboldt Park and decided to save money and take another look at the market in a year, and, if necessary, look at less expensive neighborhoods, like Portage Park on the city’s northwest side. That magical home that’s the right size, the right price, and in the right neighborhood just didn’t exist.
The big problem with building smaller homes
Arias and Aguila aren’t alone in being shut out of the housing market because of oversized, expensive homes—and that’s making it harder for potential homeowners, especially first-time buyers, to purchase property.
American homes have ballooned, generation by generation. The average U.S. home is roughly 1,600 square feet, and the new homes being built today take up even more space, roughly 2,505 square feet. U.S. homes are roughly 600 to 800 feet larger than those of comparable highly industrialized countries, according to a study by Sonia A. Hirt, professor of landscape architecture and planning at the University of Georgia.
To explain why Americans value larger homes in many cases, Hirt points all the way back to the earliest days of British colonialism in North America. The European settlers who came to the colonies in the late 1600s, leaving behind their more crowded European homes and taking land from those who already lived here, saw North America as a land of “spatial generosity,” she says.
“If you look at the writings from some of the Founding Fathers, you pick up this expectation that there is an American way, and part of that American dream is having your own space for a private household,” she says. As she cites in her book, Zoned in the U.S.A., John Adams wrote that as long as his countrymen lived in less dense arrangements “sprinkled over large tracts of land,” they would be free from “the contagions of madness and folly, which are seen in countries where large numbers live in small places.”
If the desire and expectation for vast personal space has always been there, the pattern of ever-larger homes really took off in the booming economy of the postwar era. U.S. federal housing policy underwrote mortgages (for white Americans), subsidizing the construction of suburbia and larger housing developments. The completion of the interstate highway system and urban renewal connected suburban houses to downtown offices, allowing buyers to live in large homes far from city centers while still having an easy commute.
Ever since this midcentury supersizing of American homes there’s been an “inflation of expectations,” Hirt says, among U.S. homeowners. Success has been defined upward, and every generation needed a slightly larger home—or more recently, McMansion—to show they’ve made it.
“In the ’30s, it was perfectly normal for even an upscale family to have just one bathroom,” says Hirt. “If you had that in a modern home today, you’d never be able to sell it.”
The problem is, that belief—that every homeowner should have a large home and spacious private yard—calcified during a period of rapid expansion, and relatively open, available land near urban centers. Jenny Schuetz, a fellow at the Metropolitan Policy Program who writes about land-use policy and housing, says that the postwar boom was only possible because there were big chunks of cheap land available in places where it was easy to build. Materials too were less expensive than they are today, so builders focused on a highly standardized, lucrative product (think the Levittown suburb or Los Angeles’s one-story bungalows). These were single-family starter units, perfect for vets and their growing families to buy with their GI-Bill subsidized mortgages.
Now, after decades of building homes based loosely on this model, there isn’t land left for affordable single-family home construction anywhere near city centers. And the predominance of zoning rules that only allow the construction of detached single-family homes in vast swaths of urban America, as a New York Times analysis laid bare, creates scarcity in urban neighborhoods, helping to drive up the price of land and homes across the board.
“All of the inputs to the home construction process are more expensive than they were 50 years ago: the cost of land, road, sewer, labor, and infrastructure,” says Schuetz. Furthermore, a full 24 percent of the cost of a new home in the U.S. is eaten up by regulatory burdens, impact fees, taxes, and the cost of delays, according to data from the National Association of Home Builders (NAHB).
“If you’re going to do brand-new construction, you don’t do the bare bones,” she adds. “You expect buyers with higher budgets who want nice finishes.” When a historic bungalow is torn down and replaced by a big, boxy, expensive modern home, as is the case in Chicago’s Humboldt Park, that’s a real-life illustration of these economics at play.
How policy, and risk-averse builders, keep us from building smaller homes
Many neighborhoods are in the midst of this type of transformation, with older, denser housing stock being transformed into larger single-family homes. And today’s builders aren’t creating the slightly denser, more affordable options that were once the hallmark of urban development. Dan Parolek, an architect and founding principal with the Berkeley, California-based firm Opticos, coined a term, “missing middle,” to describe this situation. It’s a reference to the older, vernacular housing styles, like brownstones in Brooklyn or three-flats in Chicago, that he says the building industry just isn’t delivering anymore, despite demand for this type of product.
“The development industry still thinks that people want big, and they’re in a state of denial and don’t want to change their business model,” he says. “We see a tremendous market untapped for high-quality small units, and very few builders see that.”
According to an Urban Land Institute report, builders today are building less and less of the smallest category of homes. Homes under 1,400 square feet have typically represented 16 percent of new construction in the U.S., but since 1999, they’ve only made up 8 percent of new construction. During the same time period, homes measuring 1,800 square feet or less made up just 22 percent of new construction, while they have traditionally been 40 percent of the market. During the last two decades, homes over 2,400 square feet, which in the past represented roughly a third of new homes, now comprise half of the market.
Robert Dietz, senior vice president and chief economist of the NAHB, sees many of these trends play out in his data. For instance, from 2010 to 2014, the size of the average home started going up again after the recession. He surmises that due to the tightening of the credit market and the difficulty in getting a mortgage approved during those years, most buyers were typically wealthier and wanted something larger and more substantial. This is when entry-level construction sharply declined.
“The real challenge is finding those builders who can build entry-level housing for the stereotypical millennial couple or family in their late 20s and early 30s,” says Dietz, something that’s more affordable and 2,000 square feet or less. Adam Ducker, senior managing director at RCLCO, a real estate consultancy, thinks it’s possible, but builders are generally scared of trying a risky new business model.
“The industry assumes the margins on a smaller home are worse. You need to pay the architect and still build a kitchen, and when you make less money on a smaller product, that’s a double economic disincentive,” says Ducker. “But that’s not a fact, that’s a perception. Is it really the same cost per square foot? Maybe if you go from selling a $600,000 house to a $300,000 house, there are things you don’t need to provide, and there’s a new market there at that price point.”
But amid the expansion of U.S. home size, there’s recently been a shift back. Parolek has seen the same slow change in consumer demand, and believes the forces at play will push the industry to embrace new solutions to help couples like Arias and Aguila achieve their ownership dreams.
“We’ve seen a tremendous shift back toward people wanting to live smaller, whether for environmental reasons, or [in hopes of] reducing their consumption and living more sustainably,” he says. “Many buyers are willing to exchange size for walkability and urban living.”
We can do it differently
Sadly, traditional building practices in the U.S. make it challenging to build in ways that help buyers make that trade-off. As Parolek sees it, the system isn’t allowing for small units and more efficient use of limited land. Existing planning regulations will often limit builders to, say, four units on a 50-by-100-foot lot. That means that builders will maximize size and profitability within that lot to make the economics of construction work, discouraging them from building more, smaller units they think might offer affordable housing to potential buyers. There are also fees, both in the form of impact fees and parking requirements, which conspire to keep architects and builders from using space in the most efficient manner, especially if the goal is providing more, smaller, and cheaper housing.
But increasingly, there are signs that buyers, and some builders, want something new. Or more accurately, something old: denser, more walkable, maybe even car-free living.
Peter Crowley, a partner at LandDesign, says that he’s seeing more demand for row houses and townhomes, which create more of a neighborhood feel in urban developments and master-planned communities. Recent LandDesign projects, such as the 300-acre Viridian development in North Arlington, Texas, or the Westford, a 92-acre, mixed-use community in Apex, North Carolina, focus on what he calls “right-sizing homes,” which means building attached homes in a way that combines amenities and green space and helps lower the cost of new homes in these developments. Even modest increases in density can lead to more people sharing nearby public space, increasing chances for social interaction.
“We like the idea of front-porch culture,” he says. “We think of it as camouflaging density. People are on the street, engaged, and we think it creates a safer community and more socialization opportunities.”
In Tempe, Arizona, Parolek and Opticos are engaged in a grander experiment that challenges preconceived notions of the typical American home and lifestyle. Called Culdesac, the 1,000-unit planned development, positioned near a light-rail station, will prioritize car-free living, resulting in a denser collection of smaller homes. Units will be arranged around shared courtyards, great for fostering community and interaction, with on-site grocery stores; access to bike-share and micromobility options, such as electric scooters; as well as public amenity spaces for parties and special events. Parolek says the development, which recently got the green light to build from the city, exemplifies how many Americans are searching for a different type of lifestyle.
“It’s car free, but the better way to position it is that it’s mobility rich,” says Paroek.
He says that it’s always good in this case to define what “small” actually means. Here, the decision to build small—units range from 860 to 1,460 square feet, substantially smaller than what other builders in the market are delivering—means less hassle and better access to amenities and transit, and a more walkable lifestyle.
“This isn’t just small; it’s thoughtful and livable,” he says.
It’s also responding to the demands of a growing segment of the market. Developments that de-emphasize car ownership and increase density, especially by taking advantage of new zoning regulations, can make smaller, more affordable housing not just possible, but desirable.
“There’s a growing percentage of the market that wants small,” he says. “Every couple of years, it grows dramatically. Millennials are having a tremendous impact on this desire for small living, as are boomers, who are aging and looking for a lifestyle that isn’t car-dependent.”
Schuetz agrees, and hopes that as the zoning conversation evolves—with more cities following the lead of places like Minneapolis and prioritizing density—our social perceptions of what a starter home looks like will change as well.
“Considering how much people want to live in and near the city, a starter home should really be a condo—that’s the norm we should be moving toward,” she says. “And considering that our financial system is biased toward single-family homes, and we haven’t updated things since the ’50s, it’s probably time to do that as well.”
Hirt says that there’s increasing pressure to modify our expectations about homes and home size. As the experience of potential homebuyers Arias and Aguila in Chicago have shown, when builders aren’t willing and able to create the affordable units buyers want, it leads many to defer their dreams of homeownership.
“In the decade since the Great Recession, there’s been cultural pressure to modify this trend toward bigger and bigger homes,” she says. “But it’ll take 30 or 40 years to truly cause a cultural shift in this country.”