Just Enough Living Space

Has America's love affair with bigger homes cooled off? A new report from the National Association of Home Builders (NAHB) based on Census Bureau data shows that in 1994 the average new single-family home had 2,100 square feet of living space. This marks the fifth straight year that the size of new homes has not changed, in sharp contrast to the 21% increase in square footage in the 1980s and the 15% hike in the 1970s.

If the size of new homes stays level, this could have implications for individual finances and the overall health of the economy. The increase in new-home sizes in the 1980s put tremendous pressure on household budgets, since housing and related costs account for a third of all consumer spending. Besides costing more, bigger houses mean more spending on furniture, repairs and maintenance, and heating and cooling. If Americans are willing to give up the added space a bigger house brings, they will have more money to spend on other items, even if incomes remain stagnant.

A slowdown in home-size increases could also boost U.S. competitiveness. During the 1980s, Americans put much of their savings into their homes. Residential capital stock per person rose by 16%, sucking away funds that could have been used for business investment.

But not everyone believes that Americans have given up on bigger homes. Gopal Ahluwalia, director of research for NAHB, expects that new-home size will rise by 100 square feet over the next three to five years, as baby boomers hit their prime earning years and trade up. In addition, the trend of working at home will mean more people looking for homes with offices. But with housing markets still weak, there's no evidence yet of a resurgence of larger homes.

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