My home is my starter castle.

Photographer: Robert A. Reeder/Washington Post/Getty Images

House Rich, Land Poor

Jonathan Miller writes about the housing economy and other aspects of real estate. He began a real estate blog, the Matrix, in 2005, and has written a column for Curbed.com. He is co-founder of Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
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The living space in newly built U.S. homes is on a tear: Since 1982, the size of a new single-family house has increased by almost 1,000 square feet -- which was the size of the average U.S. house in 1950.  

The rate of increase has been pretty steady except for a few stutter steps during the financial crisis. The reason for the brief decline in square footage was a combination of federal government breaks for first-time buyers and record-low mortgage rates. That drew first-time buyers into the market, pulling down the size of the average new home by 2.3 percent. 

But that surge of novice buyers was short-lived. By the end of 2013, square footage in new homes had a 10-year increase of 15 percent. 

What's more, since the financial crisis, those larger homes have been built on shrinking lots, which have fallen more than 16 percent in size. Not since a plunge of almost 19 percent after the 1987 stock market crash has the average lot size fallen so much. 

This isn't too surprising: The higher end of the housing market is doing better than the rest of the market. Yet smaller lot sizes can help keep prices in check, making homes affordable to a larger pool of prospects. Smaller lots also let builders maintain their profit margins by keeping costs down, since bigger houses tend to sell for less per square foot than homes of more modest in size. A rapid rise in land prices also accounts for the move to smaller lots, since in many of the most expensive markets land makes up a large share of the total home price.

It's pretty clear that many builders are targeting the same niche. However, until mortgage-lending standards ease and the economy improves, relatively few first-time and middle-class buyers will enter the market for new homes. That almost ensures that demand for starter castles will keep skewing the size of new U.S. homes.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan J Miller at jmiller@millersamuel.com

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net