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Today’s new homes are 1,000 square feet larger than in 1973, and the living space per person has doubled over last 40 years

AEIdeas

housing1houses2The Census Bureau recently released data on average and median home sizes for 2013 and those data are displayed in the top chart above. Here are some details:

1. In 2013, the average size of new houses built increased to an all-time high of 2,679 square feet (see blue line in top chart), and the median size new home set a new record of 2,491 square feet (see red line in chart). Over the last 40 years, the average home has increased in size by more than 1,000 square feet, from an average size of 1,660 square feet in 1973 (earliest year available from Census) to 2,679 square feet last year. Likewise, the median-size home has increased in size by almost 1,000 square feet, from 1,525 square feet in 1973 to 2,491 last year. In percentage terms, the average home size has increased by 61.4% since 1973, while the median home size increased by 63.3%.

2. Meanwhile, the average household size has been declining, from 3.01 persons per household on average in 1973 to a new record low of 2.54 persons per household last year, a reduction of almost one-half person per household over the last 40 years (see brown line in top chart).

With the average new house in the US getting larger in size at the same time that American households are getting smaller, the square footage of living space per person in a new home has increased from 506.6 to 980.7 square feet using the median size home, and from 551.5 to 1,054.7 square feet using the average size home. In percentage terms, that’s a 93.6% increase using the median home size and a 91.2% increase using the average home size. In either case, the average amount of living space per person in a new home has almost doubled in just the last forty years – that’s pretty amazing.

3. What about the cost of new homes over the last 40 years? On a per square foot basis using median home prices and median square footage, the inflation-adjusted price of new homes has been relatively stable since 1973 in a range between about $105 and $125 per square foot (see bottom chart above). And the price of just under $106 per square foot for new homes in 2013 was almost 16 below the peak of $125.50 per square foot for a new home in 2004, and also below the cost per square foot in every year during the 1970s and 1980s, and below every year of the 1990s except 1992 and 1993.

Bottom Line: We hear all the time about stagnating household incomes, the decline of the middle class, rising income inequality, and lots of other stories of gloom and doom for Americans. But when it comes to the new homes that Americans are buying and living in, we see a much brighter picture of life in the US. The new homes that today’s generations are buying are larger by 1,000 square feet compared to the average new homes our parents might have purchased in 1973, and are almost double in living size today adjusted for household size compared to 40 years ago.

And of course today’s new homes, compared to those built in the past, are much more energy-efficient; they come with better, bigger and more bathrooms, closets, and garages; they’re equipped with better and more home appliances; and they almost all include modern features like central air conditioning today that might have been expensive options in previous decades like the1970s. We’re paying a little more today for new homes only because the average size is increasing, but on an inflation-adjusted basis, we’re actually paying slightly less today than the cost per square foot in 1973. Overall, the increasing size, improving quality, and relative affordability of new homes today means that living standards continue to gradually, but consistently, improve year after year for most Americans.

Discussion (53 comments)

  1. Benjamin Cole says:

    Church attendance shrinking, the nuclear family torn asunder—yet crime plummeting and living standards soaring.
    Seems like America is doing better than ever.
    But are America’s house too big? Does this reflect the impact of Fannie, Freddie and the home mortgage interest tax deduction? In other words, too much capital is federally firehosed into housing?
    In particular, the homeowner mortgage interest tax deduction encourages people in high marginal tax brackets to “invest” in large housing rather than productive businesses.

    1. Ken says:

      the nuclear family torn asunder—yet crime plummeting

      You sure? Or are you smearing information, by not looking at crime rates of nuclear families vs non-nuclear families.

      In other words, what you’ve done, Benny, is lie with statistics. But that’s just par for the course for someone like you.

      1. Paul says:

        Right on, Ken. Poverty and crime are highest where the nuclear family has been ” torn asunder.”

    2. juandos says:

      Church attendance shrinking, the nuclear family torn asunder“…

      Its all the VA’s fault, right??

      1. morganovich says:

        “In particular, the homeowner mortgage interest tax deduction encourages people in high marginal tax brackets to “invest” in large housing rather than productive businesses.”

        not entirely.

        only the first million in debt is deductible, after that, it makes no difference.

      2. Ron H. says:

        juandos

        Its all the VA’s fault, right??

        Well, what else could it possibly be?

        1. juandos says:

          Well, what else could it possibly be?“…

          Well ron h I thought it might be that new racy YouTube channel courtesy of the constitutional infanticide commandos…

          1. Ron H. says:

            I think that’s a VA website.

  2. Leeds United says:

    Truth is, more people have more money then anytime in history. In the 70s, your parents shared one car, today most houses have 4 or more cars. In the 70s, you probably didn’t have central air. You maybe had 1 26 inch color TV and a few portable black and white ones. Your house probably had 1 maybe 1.5 bathrooms, today’s houses often have 4 or more.

  3. chuck martel says:

    Aren’t American families getting smaller? If that’s so then it would seem that home buyers still consider houses to be investments that will eventually finance their retirement rather than places to live in the here and now.

    1. Benjamin Cole says:

      The U.S. tax code just about forces anybody in higher tax brackets to buy a house…many would say this is an over-allocation of capital to housing…

      1. Lyle says:

        Much less so than 40 years ago when marginal rates were far higher. Note that if you look at Indianapolis the median house price does not yield a mortgage near the amount of the married standard deduction. (Yes it does on the coasts but that is another matter).

        1. Benjamin Cole says:

          Lyle–

          Good point. The marginal tax rate in the 1960s was 90 percent, and then it dropped down into the 70 percent range in the 1970s.

          Still, when you look at the tax code, and you plan to stay put at all, you “should” buy a house. It is nearly inescapable—and I am sure our real estate industry is aware of that!

      2. marque2 says:

        Subsidized loans do that – bit folks are actually penalized for buying a home. You have to beat your standard deduction. What other investment exists where you can not write off all the costs?

        In fact if you and your neighbor swapped houses and rented to each other you would get to deduct all expenses including repairs. Seems to me homeowners are already getting the shaft.

        Note though that I wod also get rid of all the cap gains exceptions as well.

        1. Ron H. says:

          marque

          Subsidized loans do that – bit folks are actually penalized for buying a home. You have to beat your standard deduction. What other investment exists where you can not write off all the costs?

          While I’m in favor of people taking any and all measures to reduce their taxes as much as possible, I question why housing expenses should be deductible at all. You can’t deduct any other living expense like food, clothing, transportation, or medical (unless over a certain high percentage of your income). Why should housing be an exception?

          In fact if you and your neighbor swapped houses and rented to each other you would get to deduct all expenses including repairs.

          I think you will find that the IRS doesn’t allow this type of reciprocal arrangement where the only purpose is to reduce taxes. Any business enterprise must have some possibility of producing a profit every so often, and this scheme doesn’t.

          I’m not sure how easy it would be to get caught, but back taxes, penalties and interest back to the start of this arrangement might be kind of daunting.

          I do applaud your efforts to reduce taxes, though.

          Seems to me homeowners taxpayers are already getting the shaft.

          That looks better, no?

          1. marque2 says:

            Because a house is an investment.

            As for your other crap – it is obvious that you have never rented out property. IRS almost mandates you take a loss because they force you to depreciate the value of the buildings.

          2. Ron H. says:

            marque

            Because a house is an investment.

            Here, let me help you with that misconception. A house MAY be considered an investment, but the one you live in obviously has some other uses as well.

            The term “investment” is frequently misused for things that aren’t investments in the economic or financial sense.

            What the IRS allows or doesn’t allow with regard to home-ownership isn’t related to what you call an “investment”. Property taxes are deductible from income taxes to avoid double taxation, and while the mortgage interest deduction encourages home ownership, it applies to the interest on a mortgage loan, and not to the home itself. No mortgage, no deduction.

            As for your other crap – it is obvious that you have never rented out property. IRS almost mandates you take a loss because they force you to depreciate the value of the buildings.

            What’s obvious is that you don’t know what you’re talking about. the IRS doesn’t *force* you to depreciate, but *allows* you to depreciate a physical asset used in business that loses value over time, and must eventually be replaced.

            What else is obvious, is that you have never owned rental property and then sold it, or you would understand – if you were paying attention – that all that depreciation over the years has reduced your basis, so your taxable gain is greater by the amount of all that depreciation when you sell.

          3. morganovich says:

            what makes a house an investment as opposed to say, a 1963 ferrari 250 gto?

            the gto is WAY more expensive than 99.9% of houses and will appreciate more over time.

            if i finance such a purchase, i will not be allowed to deduct interest costs on my taxes.

            what makes the two qualitatively different?

            how about buying a monet or a degas?

          4. marque2 says:

            If it is not an investment – why can I earn money and treat it as a business when I rent it out.

            You are definitely clueless.

            It is an interesting libertarian principle that folks shouldn’t invest and should live in rentals – but if they an investment in property they are subject to capretious rules just because they choose to rent it to themselves.

            If that is what libertarianism is about then I must be something else.

          5. Ron H. says:

            Marque

            If it is not an investment – why can I earn money and treat it as a business when I rent it out.

            I explained that in my previous comment, , and I will re-paste the applicable sentence, as it appears your reading comprehension is poor. Did you follow the link I gave you for a definition of the word?

            “A house MAY be considered an investment, but the one you live in obviously has some other uses as well.”

            You *cannot* both live in a house as your primary residence AND call it a business. It is one or the other, and the IRS rules are very specific. You can’t rent to yourself any more than you can pay yourself for your own labor and deduct that amount as a business expense.

            There is no tax avoidance scheme you can imagine that hasn’t already been tried by someone else, and the IRS is familiar with all of them.

            You are definitely clueless.

            LOL You, are in no position to call anyone clueless. You ignorance is really shining through on this subject.

            It is an interesting libertarian principle that folks shouldn’t invest and should live in rentals –

            It is? How would that work? Don’t some folks have to OWN those rentals?

            …but if they an investment in property they are subject to capretious capricious rules just because they choose to rent it to themselves.

            “They” can’t rent to themselves, I’m telling you. Check with your tax adviser.

            If that is what libertarianism is about then I must be something else.

            LOL Oh, you are definitely something else. No doubt about that. I’ve seldom encountered anyone who understood less about libertarian principles.

          6. morganovich says:

            marque-

            so, one cannot rent out a renoir to a private collector or an office or a museum to make money?

            i’m just trying to understand your definition of “investment” which you do not seem to understand yourself.

            the rest of your argument is circular.

            you are claiming it gets certain tax treatment because it is an investment and then using the tax treatment it gets to demonstrate that it IS an investment.

            my question is this:

            starting from a blank sheet of paper, why should a van gough painting get different tax treatment that a house?

    2. Mr. Econotarian says:

      In truth, a big new house may have less to do with more space per resident, but instead it may be required to live in a huge expensive house to keep out those who can’t afford a big huge house from the neighborhood & local public schools.

      1. Paul says:

        And there’s nothing wrong with that.

  4. steve says:

    You are only looking at the retail cost. Shouldnt you also be including interest costs to see what people are actually paying?

    Steve

    1. Ron H. says:

      steve

      You are only looking at the retail cost. Shouldnt you also be including interest costs to see what people are actually paying?

      Not really. The interest cost results from borrowing money, and isn’t directly related to price of the house at the time of sale. It would be included in a calculation of periodic housing costs (monthly, yearly), or total cost over the period of the loan, but not in the instantaneous price.

  5. morganovich says:

    this seems like only part of the picture.

    i suspect that fewer americans live in single family homes than in the 70’s as population have moved back to cities and the us has become more urban in terms of population.

    the big trend in apartments is micro apartments intended to provide more units and more affordability in expensive cities.

    http://money.usnews.com/money/personal-finance/articles/2013/11/15/micro-apartments-offer-small-slice-of-city-living

    it seems to me that perhaps “single family home” is not nearly as typical a living arrangement as it was, though i am having trouble finding data on this.

    1. Lyle says:

      Here is a link that says single family homes in the suburbs are still popular based upon census bureau data:
      http://www.businessinsider.com/census-american-migration-data-2014-2. Now if you go by population alone and factor in the single folks the answer might be different but it appears that the traditional family still wants a single family house.
      Of course a second factor is once one retires why not move to a far suburb because you don’t have to fight the rush hour traffic and FedEx/Ups will deliver most stuff.

      1. MikeK says:

        Lyle,

        “Of course a second factor is once one retires why not move to a far suburb because you don’t have to fight the rush hour traffic and FedEx/Ups will deliver most stuff.”

        Interesting. I’ll be doing the exact opposite. Giving up the big suburban home with good schools and a big yard so I can live closer to the cultural amenities I’ve never had the time to enjoy while the kids have lived at home. We love the theatre, symphony, sports etc. and would probably have season passes to one or more of these things now if getting in and out of the city wasn’t such a hassle. Plus, if we want to travel, locking up the condo downtown is much easier than finding a caretaker for the big ol’ house in the suburbs.

      2. morganovich says:

        lyle-

        my suspicion is that those number look quite different if you go all the way back to the 70’s.

        cities were far less safe then and professionals were less anxious to live in them the 90’s saw some big moves there.

        roughly 80% of americans live in “urban areas” with around 60% living in cities of over 200k people.

        it just makes me wonder how representative of the average or median US living situation the single family home is.

  6. musickcd says:

    Awesome post Mark. I see a couple of big keys in the second graph. First, home prices are not in a bubble as prices are near the bottom of the 40 year range per square foot. Second, houses are terrible investments. The price only keeps up with inflation. For this “investment” that keeps up with inflation, you pay property taxes every year. Finally, more people need to work on making a home, not buying a house.

    1. Walt Greenway says:

      A house is an OK investment if you are diversified enough and hold all real estate holdings to less than 10% of your portfolio. Personally, I consider my home to be a liability because the cash flows are all one direction out, and I don’t plan to sell to realize any gain.

      Most people I know only consider their home an asset as an excuse to buy more than they need, more they can afford, and they have too much outflow for alternative investments that will grow actually grow wealth. If they are happy, it’s fine with me.

    2. Ron H. says:

      musikcd

      For this “investment” that keeps up with inflation, you pay property taxes every year. Finally, more people need to work on making a home, not buying a house.

      Another way to look at it is that you can put an amount down on a house, say 20%, and for the amount of the periodic costs – taxes, insurance, maintenance, loan service ( = to renting) your down payment will earn 5 times the rate of inflation.

      1. Lyle says:

        Note that that only applies in the early years of a mortgage, as the mortgage ages, the percentage of the house based on the original price you own goes up. At 10 years on a 30 year mortgage you own 30% of the original price at 15 years 40% at 20 years 53% and at 25years 73%. So the figures cited only hold if you refi very often and keep the equity down.

        1. Ron H. says:

          Lyle

          Note that that only applies in the early years of a mortgage, as the mortgage ages, the percentage of the house based on the original price you own goes up.

          When I buy a house I own 100% of it. If I’ve borrowed money to buy it, lender has a lien on the property as collateral to secure the loan.

          The remaining loan balance after 10, 15, 20, and 25 years depends on the interest rate.

          If I buy a house for $100,000 with 20% down ($20k) the loan payments (P & I) ($80K @ 4% X 30 years = $382/mo) plus taxes, insurance, and maintenance (use whatever numbers you like) will be roughly equal to the amount I would spend to rent something similar. I have to live somewhere and pay monthly for shelter whether I rent or buy.

          After 30 years I’ve paid the full $100K, and if the price of the house has tracked inflation and doubled in 30 years (2.4% inflation), my $20K is now $100K in nominal dollars. A 5X increase nominal or 2.5X real.

          1. Walt Greenway says:

            Ron, you will also pay 3-7% for yearly maintenance and insurance and that’s only if you do the work yourself. On top of that you will pay 7-8% closing costs after waiting 30-90 days to sell at your price or dropping the price drastically for a quick sale. How many other investments cost so much to carry and are as illiquid? Personal homes are essentially a consumable item.

            I think I could make a better case that food is an investment than a house. Stop eating for a few days and see what happens to your earning power and cash flows.

          2. Walt Greenway says:

            There are two lines of thinking here: rent v. buy or how good an investment a house happens to be when compared to other investments. I picked buy less house to have more discretionary income to put in other places where I believe I can grow wealth better. I know my choice worked better over the last 40 years in this area than those who bought as much house as they could afford.

          3. Ron H. says:

            Walt

            Ron, you will also pay 3-7% for yearly maintenance and insurance and that’s only if you do the work yourself.

            Yes. We have had this conversation before. My point is that you must live somewhere, and the costs of renting vs buying, over time, are not much different. What choices a person makes about housing depends entirely on their wants and needs.

            On top of that you will pay 7-8% closing costs after waiting 30-90 days to sell at your price or dropping the price drastically for a quick sale. How many other investments cost so much to carry and are as illiquid?

            No argument there, but how many other investments can you live in for free while you wait for your nest egg to grow?

            Personal homes are essentially a consumable item.

            Yes. There’s one view. Others may have different views.

            There are two lines of thinking here: rent v. buy or how good an investment a house happens to be when compared to other investments. I picked buy less house to have more discretionary income to put in other places where I believe I can grow wealth better.

            There are at LEAST 2 lines of thinking, and the same person may follow a different line at different times in their lives. Choice is great!

            I know my choice worked better over the last 40 years in this area than those who bought as much house as they could afford.

            Your choice worked better for you. Others might not consider building wealth over a lifetime their top priority, but might think living well all those years is more important.

            Still others might regret not having lived better all those years because they are now old and sick and unable to enjoy the rewards of all those years of depriving themselves. They can take comfort in the knowledge that their shiftless, ungrateful children won’t have to live on the streets – quite yet.

        2. Lyle says:

          Perhaps to put it more clearly If you make a 10% gain on a house the first year with an 80% mortgage the leverage (and thus the percentage gain) goes down every year you pay the mortage off. Note that at 10years a 10% gain in price only gives you about a 3x return, at 15 about a 2.5x return etc. Thus unless you refi the effect of the leverage in buying goes down over time.

    3. John Dewey says:

      musickcd: ” For this “investment” that keeps up with inflation, you pay property taxes every year.”

      Not sure what point you’re trying to make about property taxes. Renters also pay property taxes. They just don’t pay them directly. About the only people who aren’t burdened with property taxes are those folks who live in government housing.

      1. Walt Greenway says:

        I just bundle all my housing costs (p & i, property tax, upkeep . . .) and expense them on my monthly personal cash flow statement and then not include my house on my yearly personal balance sheet as an asset. Over time, this gives me a much more realistic gauge of my cash flow needs and how my investments are preforming along with yearly trend lines that are more accurate to what I actually feel is happening and can control (I don’t plan to sell my house and realize any gains or losses there anyhow because I bought the house I wanted to retire in 27 years ago-the Warren Buffet method).

        1. morganovich says:

          as a pure investment, most people lose money on their homes over time.

          between interest, taxes, upkeep, etc you wind up (historically) paying maybe 8% a year. that is far above rates of home market appreciation.

          you can make money if you pay cash.

          so, as a pure investment (as opposed to, say, bonds or equities) housing is not a great class.

          but, unlike those 2, you live in it and it offsets rental costs which is a significant savings.

          whether it makes sense to buy or rent is complex and a function of relative prices, opportunity costs (like not being able to put a downpayment into other investments) etc and can vary a great deal by RE market.

          asking “is a house a good investment?” is actually quite a complex question.

          one of my favorite illustrations is manhattan.

          it was bought for $24 in 1626.

          if you put that into bonds from then until now you’d have $6 trillion which is more than enough to buy it back along with everyhting that was built on it since.

          compound interest is an amazing thing.

          1. chuck martel says:

            Actually it was supposedly purchased with a pile of trinkets that had a value of $24 to the Dutch buyer and who knows what value to the previous owner, who probably couldn’t even grasp the Dutch concept of property ownership and certainly wasn’t in a position to sell it any case.

          2. morganovich says:

            chuck –

            well, given that there was no such thing as a dollar at the time, clearly it was not paid for in dollars.

            i was just illustrating how significantly bonds have outperformed what was probably one of the best long term real estate purchases of all time.

          3. Ron H. says:

            Chuck

            Actually it was supposedly purchased with a pile of trinkets that had a value of $24 to the Dutch buyer and who knows what value to the previous owner…

            It obviously had less value to the previous owner than $24 in trinkets. Both parties to the exchange gained something they valued more than what they paid.

            …who probably couldn’t even grasp the Dutch concept of property ownership…

            They probably understood that they now owned $24 in trinkets in exchange for granting exclusive use of a worthless island to the Dutch.

            …and certainly wasn’t in a position to sell it any case.

            Why don’t you think so? Who “owned” the island? Was it equivalent to offering to sell someone the Brooklyn Bridge?

        2. Ron H. says:

          I just bundle all my housing costs (p & i, property tax, upkeep . . .) and expense them on my monthly personal cash flow statement and then not include my house on my yearly personal balance sheet as an asset.

          Yes, Walt, you’re a renter with a variable payment.

    4. Matt S. says:

      The 2nd graph is price per square foot of new houses, not price per square foot of houses in general, much less a particular house.

      For example, it’s possible that median income can remain unchanged, but for each individual’s income to increase.

      Increase in home value largely comes from increase in value of the dirt beneath it (and, in some places, the permission to have built on it). New homes tend to be built on cheaper dirt.

    5. Ken says:

      you pay property taxes every year

      Do you honestly think renters do not pay property taxes?

  7. Vic Volpe says:

    Excellent points MP.

    Some other considerations:
    Home values are affected by land, not just the building — depends on where you live. Your house value might be 30% or more determined by land value.

    Comparing home building today with 1970 — they were somewhat modular in the ’70s, even more so today. The same ‘cookie cutter’ for S. Calif homes is used in Winnemucca, NV — including the land-spacing around the home.

    You have home builders today that are more national and regional compared to the ’70s — where they tended to be more local/regional. That makes a difference in obtaining building supplies as well as other cost factors.

    And I don’t think building costs have crept up that much since the inflationary ’70s, certainly not since the ’90’s. Home building today is just about 100% non-union (and illegal immigrant workers). You still had some union shops doing home building in the ’70’s.

  8. Matt S. says:

    I don’t think the two populations in the first graph are the same. There’s no reason to assume that the population of households that buy new houses (as opposed to buyers of existing houses or renters) is representative of the overall population of households.

  9. Jon Murphy says:

    What’s interesting in both these graphs is you can clearly see the effect of the housing bubble.

    1. Ron H. says:

      Jon

      What’s interesting in both these graphs is you can clearly see the effect of the housing bubble.

      Yes, including the interesting spike in household size that followed the bursting of that bubble.

  10. Citizen Buddy says:

    ” But when it comes to the new homes that Americans are buying and living in, we see a much brighter picture of life in the US.”

    It is a bright picture that a significant segment of the population can afford to buy bigger, better and more feature rich single family homes.

    The people buying the homes are also more credit worthy and that is also a bright picture for housing stability.

    Single family home buyers are pushing up New Single Family Square Footage. Contrast that with New Multi-family Square Footage 1999-2012:

    New rental unit square footage is up 69 sf but for sale is up 266 sf for the same period.

  11. Zhanelle says:

    Grew up in a 17 room house…since 1989 I have lived in a house that is 987 square feet..raised 2 children in that house, and we still live there with them returning for the summer when they come home from college. We have 13 acres, but I think that’s to the enjoyment of the dogs! I work in education and my husband works 70-80 hours a week, 6 days, sometimes seven days, a week. Absolutely do not believe this report, unless people are relying on credit. Our credit is is excellent and we have less than 800 bucks on credit right now, house is paid off…it’s all about living within your means…don’t think many people do that anymore. Time to go put wood in the stove! 🙂

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