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.