As the economy continues to struggle, the private sector is reorganizing old business models to make housing development more affordable. The recent housing boom saw a trend toward bigger and more luxurious homes, making it difficult for first-time homebuyers to break into the real estate market. According to the U.S. Census Bureau, in the past 20 years the median sized single-family home increased 617 square feet, while household size has steadily decreased since the 1940s. Today, the public is getting back to basics and looking to purchase only what we need. This article will discuss how two developers are building smaller, functional, and more affordable homes to remain competitive in a slowing real estate market.

Building for Today

In March 2009, KB Home, one of the nation's largest homebuilders, announced Open Series — a new line of homes engineered with cost-saving solutions to compete with foreclosures and resale properties. The new line offers buyers more flexibility in customizing floor plans to accommodate their needs, tastes, and budget. "With The Open Series, we are going beyond offering our buyers choices on design elements such as flooring and countertops to giving them a say in the floor plan layout itself. The result is a line of beautiful, functional homes that give buyers exactly what they want and can afford in a new home, and nothing they do not need," said Jeffrey Mezger, president and chief executive officer of KB Home. Starting at approximately 880 square feet, the homes are designed with money savings in mind; with back-to-back bathrooms to minimize copper piping costs and built to ENERGY STAR standards, making them 45 percent more efficient than homes built only 10 years ago. Open Series is being offered in 30 communities across several states, including California, North Carolina, Arizona, Florida, and Texas. Sale prices for these homes vary depending on size and location; in Tucson, Arizona a 1,500 square-foot home starts at $89,999 and in Houston, Texas an 880 square-foot home starts at $64,000.

Another national developer, Meritage Homes, is also addressing the market change by reducing the size of new homes. Last summer, Meritage introduced 52 new models in California, Arizona, Nevada, Colorado, Texas, and Florida, wherein home sizes were reduced by up to 40 percent and sales prices cut nearly in half. The smaller homes are designed to accommodate more living space and eliminate square footage that is not commonly utilized, such as the formal living and dining rooms. To reduce costs, the developer hired one architect to design the homes. This process streamlines plans from state-to-state, making them more efficient to build. It’s still too early to determine the final outcome of this new strategy, but the company is encouraged by an early increase in sales.

Conclusion

Today, homes may appear to be moderately priced when compared to the peak of the market in 2006, but prices continue to be somewhat inflated. The median price per square foot grew a whopping 62 percent from 1992 to 2007 ($52.31 and $84.71 respectively). Housing prices are adding to sluggish new home sales and forcing developers to adopt new building designs and technology to reduce the cost of housing. The results are houses that are smaller, grouped in higher densities, sustainable, and more affordable.

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