New-home sizes continue to contract as entry-level demand grows

Dive Brief:

New, single-family home sizes continue to decrease, a marked shift from the immediate years following the recession when builders honed in on the luxury market, according to the National Association of Home Builders.
The size of new homes is expected to continue to contract as demand in the entry-level market grows. New single-family homes averaged 2,628 square feet during Q1 2017, down from 2,658 square feet the year before.
The average square footage for the category is 10% higher and the median square footage is 14% higher than it was during the latest cycle lows, which aligns with post-recession trends.

Dive Insight:

New, single-family homes are getting smaller in large part because builders are looking to capitalize on the increasing demand for starter-homes. National builders including Meritage Homes, Toll Brothers and D.R. Horton offer home products specifically for this group, complete with smaller plans, fewer features and a lower price-point. Earlier this year, Atlanta-based Ashton Woods said it planned to roll out a brand of entry-level communities in its 12 markets across the Southeast, Texas and Arizona.

Developers are also responding to demand for walkable, medium-density communities across market segments by incorporating townhomes and condominiums into mixed-use projects. Millennials, especially, are helping to boost townhouse construction, with the category seeing a 12.8% jump in starts from 2015 to 2016, according to the NAHB, and snatching a 12.4% share of single-family starts in Q4 2016, nearing its 2008 peak.

For example, in Buffalo, NY, the 13-acre Forge on Broadway mixed-use project is targeting the entry-level segment, specifically millennials. It plans to offer 25 townhomes and 159 apartment units, the latter reserved for households making up to 120% of the area median income for a family of four. In Los Angeles, where rising home prices make homeownership increasingly unaffordable, a new KB Home development featuring 96, three-story townhome condominiums located near public transportation caters to younger, price-sensitive buyers.

Still, facing supply-side headwinds like the lot and labor shortages, builders are struggling to keep up with demand. Starter-home supply fell 8.7% year-over-year in Q1 while the median home price for the category increased 8.3% during the period, according to Trulia.