Home builders are making new homes smaller to keep prices down. In Southern California, where land is scarce and housing is expensive, buyers are turning to small pre-war homes or ADUs.
After years of expanding footprints, new single family homes are shrinking again. Low housing inventory and higher demand are driving home prices up to historic levels — and that’s before you take into account the recent spike in interest rates. Much like in the past, as buyers and developers alike seek out creative solutions, smaller homes are emerging as one of the few options available.
In March, the national median sale price for existing homes rose to $393,500, a near 5% increase from the same time last year. And in some urban areas of the U.S., like Los Angeles County — a longtime case study in housing trends, including the move towards smaller homes — this upward trend is even more pronounced, with median prices for existing single-family homes going all the way up to $805,100.
In states with more land available for new construction, home builders are shrinking the footprint of new homes to keep prices down.
This uptick in smaller construction has brought down the median size of new single-family homes by 4% in the past year. Prior to this, homes had been getting bigger in recent years, not smaller, especially recently with the pandemic, which accelerated demand for larger homes with people stuck at home looking for more space.
Some of the markets seeing the greatest shrinking of new homes over the past five years include Seattle, Raleigh, Charlotte, Minneapolis and San Antonio. These last three areas saw the average size of newly constructed homes shrink by 14% in that time frame. Modular construction — where a home is fabricated off-site and its parts are then assembled on the building site — is also a popular choice among builders to reduce construction costs and increase affordability, though it still represents a small percentage of the housing market.
In Southern California, where land is scarce and housing is at a premium, buyers are often turning to original, smaller pre-war properties or considering accessory dwelling units, known as ADUs.
The trend toward smaller properties “is primarily driven by the fact that there’s just such a shortage of housing in general, that people are gravitating to what they can afford. And that is typically going to be smaller,” said Derek Leavitt, Director of Housing at EYRC Architects in Culver City.
This is especially true for younger buyers for whom homeownership is becoming increasingly difficult to achieve.
Michael Robleto, a residential real estate agent based in Pasadena who specializes in historic homes, believes there’s also a general shift in materialism happening these days, especially with younger buyers.
“They kind of really have this mindset of a smaller footprint,” said Robleto. “Whether that is for a cost of living strategy, or how consumerism affects the earth, I think a couple of those things are at play.”
Trying to find smaller homes that are affordable is not new. Builders offered smaller homes to house families after both world wars.
After World War I, the U.S. saw a growing middle class seeking affordable housing and embracing suburban living. Bungalows and mail-order catalog homes became wildly popular in the 1920s, especially in LA, where the growing demand for housing near the city center necessitated smaller builds. These models, typically priced at just a few thousand dollars, offered practicality and ease of upkeep with their compact size and open floor plans.
Those same homes, now priced much higher, remain an architectural hallmark of the city, and are again an appealing option for homebuyers.
“The taking of older houses and preserving them and updating them, is probably more feasible for a young buyer than brand new construction. Even if it’s a small footprint,” Robleto said.
These smaller pre-war homes — which were built before 1940 and are less than 1,500 square feet — vary widely in price based on location, size and condition. Neighborhoods in South and East L.A. tend to have the greatest percentage of pre-war homes, says Robleto. In these areas, price per square foot can range from $300-800 in South LA and from $500-$1,200 in East LA.
He points out a two-bedroom, one-bathroom 726-square-foot home in Pasadena that was built in 1923 and sold for $800,000 in November, as well as a two-bedroom, 1.5-bathroom Spanish-style property in El Sereno, built in 1925 and just under 1,000 square feet, that sold for $755,000 in January. Both of which sold for relatively affordable prices for the area, Robleto says. (It bears out: a Zillow search of current two-bedroom homes on the market in Pasadena yielded results ranging from $825,000 on the low end, up to $1.3 million).
These are hefty price tags, but these smaller pre-war homes remain comparatively more affordable than larger single-family homes in the area. As of March, the median sale price for a single-family home in L.A. is nearly $1.2 million. And that’s just what the market is like in LA, because downsizing doesn’t always mean a huge drop in price, says Frances Anderton, author of “Common Ground: Multifamily Housing in Los Angeles.” Pre-war homes are affordable, relatively speaking, but like many other things, they’re just not as affordable as they were a century ago.
ADUs — either attached to the main house, converted from existing structures like garages, or built as standalone units in the backyard — are another popular, cost-effective and smaller alternative to traditional single-family homes. ADUs also help to increase overall housing density.
And in a lot of cases they’re cheaper than buying a smaller home. When Leavitt at EYRC was still in the ADU business, construction costs for his former company’s two bedroom unit were about $200,000 to $250,000. He says that’s pretty typical for building ADUs in LA.
Whether flipping or renovating those pre-war homes, or building ADUs, the costs today can still be more prohibitive. Construction costs a hundred years ago were lower, and building as well as planning regulations were less stringent, says Joan Ling. Ling was an affordable housing developer for 20 years, and taught real estate development at UCLA for another 10 years.
But while small homes were also popular 100 years ago, that’s another difference between the small homes market of the 2020s versus the 1920s: it’s all more expensive. The U.S. is a more economically polarized country today, and the economics of small houses, historic or otherwise, remain a strain on the budgets of first-time homebuyers (or would-be homebuyers).
Another challenge facing homebuyers: the corporate financialization of single-family homes, says Ling. This is when a company buys up a bunch of houses and rents them out, treating homes like financial assets over places to live. By reducing the supply of housing that is available for sale to buyers, that increases the price of other available properties.
“For each corporately owned single-family home, is a family who cannot afford or cannot buy that house,” said Ling. “People who want to have some sort of security of housing, it’s getting tougher and tougher.”
While smaller, single-family homes aren’t creating a surplus in the market today, Robleto believes they will continue to be a popular choice.
“I still think and I’m hoping there’s a market to kind of recreate the bungalow courts of the past,” said Leavitt. He sees smaller homes and rentals as models that should be replicated and scaled up in LA, especially in neighborhoods with proximity to walkable amenities and transit.
He stresses that for these smaller development projects to work in a city like LA, there needs to be a reduction in onsite parking.
“It’s the number one housing killer out there, that prevents you from being able to build units at a cheaper price,” said Leavitt. “In many ways, we’ve spent so much time housing cars instead of people in the city. So I would love to see a reverse of that trend.”
The full impact of this interest in smaller homes on the market remains to be seen, and is just one trend in a large and complicated housing market. Joan Ling says today’s interest in smaller homes is a niche trend, and not a second market movement comparable to what was seen a century ago.
“I think that it is a solution, and it should be encouraged and fostered. But it is a solution,” she said. “In the end, I think that encouraging more multifamily apartment living, and building more multifamily apartments, is a more efficient way and another solution to addressing the shortage of housing and the affordability crisis.”
