New Construction Is Shrinking – But Do Buyers Really Want Less Space?

Smaller homes are becoming the new norm, but are buyers ready to downsize their expectations?

Recent data indicates a trend toward smaller new single-family homes in the U.S. The median size of these homes peaked at 2,466 square feet in 2015 but decreased to 2,177 square feet by 2023.

Despite this reduction, homebuyers still express a desire for slightly larger spaces than their current residences. In 2023, the median size of homes that buyers owned was 1,802 square feet, while the median size of homes they purchased was 2,067 square feet. This difference of about 265 square feet is roughly the size of a 14-by-14 bedroom.

Several factors contribute to the preference for smaller homes. High property and land costs, along with the desire to reduce heating and cooling expenses, play significant roles. Additionally, 35% of buyers are open to choosing a smaller home if it offers a better price, often compromising on spaces like home offices or dining rooms.

Demographic shifts also influence this trend. There's an increase in single-person households, with about a third of recent homebuyers being single individuals. Furthermore, the number of households with children has reached an all-time low, reducing the demand for larger homes. Builders are responding by constructing smaller properties to meet these changing needs.

It's noteworthy that older adults aren't significantly downsizing. Individuals aged 55 to 74 are reducing their home size by only about 100 square feet, and those 75 and older by approximately 200 square feet. This suggests that the trend toward smaller homes is more pronounced among younger buyers.

Regional factors also play a part. In the western U.S., new home sizes peaked in 2014 and decreased by 370 square feet by 2023. Local regulations, such as tree preservation and setback requirements, have led to smaller buildable areas, compelling builders to design smaller homes. However, this doesn't necessarily align with market demand, as many buyers still prefer larger homes within their budget.

Existing homes purchased in 2024 had a median size of about 1,800 square feet, which is smaller than new constructions. This is expected, given that many existing homes were built in earlier decades when average home sizes were smaller.

While square footage is a standard measure, uncounted spaces like unfinished basements, garages, and outdoor areas also contribute to a home's livability. During the COVID-19 pandemic, many homeowners valued private outdoor spaces, enhancing their living experience without increasing indoor square footage.

In summary, the trend toward smaller new homes reflects a combination of economic factors, demographic changes, and evolving buyer preferences. Builders and buyers alike are adapting to these shifts in the housing market.

Source: National Association of Realtors