Nov. 11 (Bloomberg) -- Bloated McMansions, their tile roofs crowded with gables, have become a symbol of wretched housing excess, the American Dream on steroids.

Even before housing began its plunge, 2006 research by Arthur C. Nelson, co-director of the Metropolitan Institute at Virginia Tech, showed that the U.S. already had a years-long oversupply of big houses on big lots. It's one of several reasons that house design will look considerably different after the dust settles from the mortgage crash.

Baby boomers snapped up those behemoths, with their whirlpool-tubbed, marble-tiled master-bedroom suites as big as their parents' starter homes, because the early 21st-century house got turned into an investment vehicle. You traded up as equity built. (Average home size rose to 2,500 square feet in 2006 from a 1950s norm of about 1,000. And that doesn't capture the mania for 20,000-square-foot hedge-fund hideaways.)

Economists applauded the American ``consumer economy'' without noticing just how much it depended on housing expenditures. Now that savings are sacred and borrowing is again sinful, houses must shrink.

Other forces are driving houses to be both smaller and more efficient. Leaping prices for building commodities -- steel, concrete, copper -- help reduce demand. Those prices are all collapsing at the moment, yet the world's appetite for these finite resources has become too large to keep them down.

Less Energy

Americans, leaving their SUVs in the garage and turning heat off in unused rooms, are now reaping the benefit of a 4 percent drop in petroleum use this year, as projected by the U.S. Energy Information Agency -- almost a record in percentage terms.

Americans finally may have understood the relationship of oil supply and demand. If you want fuel to be cheap, you have to use less of it. For all the talk of achieving energy independence through drilling, solar or wind, it's conservation -- even without a concerted, coordinated national effort -- that has proven to be the quickest route.

That's why green-design efforts won't stop, especially in the heating-oil dependent Northeast.

Homes designed today can be much more efficient at low cost. Whether they're high-tech or old-fashioned, houses with awnings, porches and carefully placed windows can harvest natural breezes for cooling. Just shifting the primary orientation from east-west to north-south keeps summer's roasting sun off glass and lets windows grab winter heat. It can knock several percentage points off fuel and lighting bills.

Architects now can make better use of these free energy- saving features because energy-analysis software has moved rapidly in recent years from supercomputers to desktops.

Simple Solutions

Backyard windmills, solar panels and planted ``green'' roofs are chic, yet walls covered with shading vines offer most of the benefits for much lower cost. Floods and droughts are becoming more common, so cisterns, water-sipping plants and driveways that absorb rain will likely go mainstream.

The last housing bust, in the early 1990s, wiped out lax lending by local savings and loans and drove national lending standards that commodified house design and banished innovation.

That's why builders missed the most significant boom trend until it became impossible to ignore: buyers returning to older central cities. Then they rushed product into downtowns once left for dead, from Detroit to Des Moines.

Energy costs and the appeal of urban lifestyles should support that demand. Some of the vinyl-windowed townhouses and faux lofts will suffer, though, because too many units stare at parked cars or the misaligned siding of neighbors 10 feet away. Builders can disguise shoddiness in the suburbs by carefully placing trees and shrubs. In dense urban settings, architecture matters more.

Developers who learn to hide cars and turn the asphalt alleyway into a greenery-swathed courtyard will win.

Close to Jobs, Transit

There's a traditional bias against condos in a downturn, a prophecy often self-fulfilled by corner-cutting multifamily builders. High fuel prices and changing demographics (more childless adults) should at last trump habit, rewarding well- designed apartment buildings close to jobs and transit.

Indeed, neighborhoods well-served by any auto alternative are so rare that they've become quite expensive. That's why so many buyers headed out to less-costly distant suburbs.

The answer is to underwrite more buses and trains. Yes, that's a hard sell when government resources are stretched beyond their limits. Yet investing in transit offers other powerful benefits: reducing traffic and fighting global warming.

In Manhattan, brokers and sellers are panicking since stratospheric housing prices are at last softening. Forgotten is how a costly city like New York loses vital talent every day. It prices out not just policemen, teachers and janitors but young, college-educated entrepreneurs and management breadwinners with families.

Certainly the short term will be painful, yet lower home prices are the silver lining in this mess.

(James S. Russell is Bloomberg's U.S. architecture critic. The opinions expressed are his own.)

To contact the writer on the story: James S. Russell in New York at jamesrussell@earthlink.net.

Last Updated: November 11, 2008 00:01 EST