Should home builders be building smaller?

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The talk about minimum wage got me wondering about something.

I live in the Cleveland, OH area and admittedly it's a cheap place to live. The average inner-ring suburb home is often between $80,000 to $120,000 and the average suburban home is $150,000 to $250,000. Sadly the way the work world seems to be going, and adding to this the phenomenal amount of college grads (44% I think?) who are working jobs that don't need a degree - we, and I'm sure the whole country even more so on their housing costs - have a big mismatch between price of homes and incomes.

What I'm wondering about is whether builders really should look back into building small brick ranches, single floor, maybe two or three bed one bath, and get back to basics. Up through the 1950's that's the way it seemed to be. The century homes people had in the Victorian era were often multifamily and thus really didn't work out to be any one person's castle.

My main question - do you think we'll hit an equilibrium in the next few decades at all between where wages are going and the housing market to where more people than not will be able to have a house that matches their wage? Or, do you think the banks will be knocking more and more houses down as they become permanent vacancies or couples are forced to raise families from apartments?

People seem willing to invest a larger % of their income in their home rather than doing other things with the money. Until they stop doing that, or can't, I guess it won't change. What I don't like about larger homes is the feeling that you don't know what's going on in other parts of them. Spooky. And the increased heating and cooling.

I think like a lot of areas in US life there will be an increasing divide. Larger homes will continue to serve the appropriately employed and their prices will continue to rise more steeply. But even in new construction you still see a range of sizes to some degree. They are still making a lot of 1600 foot homes anyway. But yeah, 1950s style 1000 sf ranches are missing. And 800 sf 1920s bungalows are dodo birds.

this won't happen under the current system. In the past builders built for the customers that exist. This is no longer the case, they build for the highest profit consumers only. If you have the choice to build a house with a higher margin (and thus a higher payout for you), why would you ever build a smaller one?

On top of that consumers won't buy the smaller houses. I forget who said this but an unfortunately accurate description of Americans is that we view ourselves as "temporarily embarrassed millionaires." People buy homes wayyy our of their pay grade all the time, like the illegal immigrant family that moved into the 3 story McMansion a few blocks away. They were foreclosed on within a year but the builder made a boatload of money. Despite being three stories tall it had no insulation (in chicago) and was altogether not particularly well put together... except on the facade/ exterior walls and appearances.

On top of that the valuation of house + property in a lot of areas right now is at or just over the value of the lot, regardless of the quality of the home. Therefore in order to attract a buyer they need to have a more flashy house.

Furthermore workers are no longer the market for homes. Very few homes are purchased by individuals or families anymore, instead the main market driver are hedge funds and major mortgagers who are converting hundreds of thousands of properties into rental properties, in some cases buying up entire cities or towns. Within the next 50 years buying a home will no longer be an option for consumers if this trend continues. Part of the motivation for mortgagers is that they need to artificially reduce federal statistics for foreclosure rates to avoid political backlash, it's mostly a PR campaign. IDK if you know what "quantitative easing" is but basically the fed has been "loaning" interest free money to major institutions. To explain, the "Dow jones industrial index" is measured in blocks of 100K$, or points. At the hight of the recession the dow dropped to 8000 (from 12K), but it is currently around 16000. Around 4000 points, or 4 trillion dollars, is money that the fed gave these institutions to spend. They had a limited opportunity (the cash spigot stopped earlier this/last month) but had no idea what to spend the money on because the market was so sh***y, so they invested in physical assets like real estate that tends to hold it's value (and was undervalued at the time). This is also why home prices are going up right now because there is 4 trillion dollars of artificial demand for housing.

edit: btw, you may notice there is another 4000 points unaccounted for: that is speculation, i.e. a brand new stock market bubble brimming and waiting to burst. You my have noticed everyone freaking out about a dip in the market, that was caused by the end of quantitative easing. In a day almost 1000pts, i.e. 1trillion dollars went poof, because the projections (not even the real value) but the projected value of major institutions dropped once they were subject to interest rates. No one got that trillion dollars, it is just gone and in fact never existed in the first place.

McMansions with 17' vaulted foyer ceilings used to appear dramatic. Now they appear terribly energy inefficient, and will be difficult to sell in the future. Smaller homes where craftsmanship and energy efficiency were emphasized, rather than sheer scale will always be in demand. However the only way to achieve this is through a custom builder or DIY.

Well there is definitely a movement to herd people into high density urban multifamily dwellings but I don't think you'll ever see a significant number of smaller custom single family homes be built again. Most of the new houses I see being built even now are suburban tract houses which can be pretty huge.

This is the sort of house people should be building...
http://www.rocioromero.com/about.html

Rocio Romero's kit houses are economical, compact, efficient, and beautiful. If I ever get done with school and get my health issues sorted, I'd like to build one of her LV series homes.

[youtube]http://www.youtube.com/watch?v=6tpVD9ONE2Q[/youtube]

I notice a trend where I live in people sharing houses with family or tenants. It's just too expensive for a single family to buy and maintain on their own.
Also there has been an increase in the number of highrise apartment buildings being constructed. I think the future is vertical - there just isn't space to keep moving away from the city core forever.

The giant new houses usually don't have much yard,I'd rather have a small house on a big lot,than a giant energy gobbler on a small lot.And just look at all that extra area you have to clean.No thank you.Theres's no reason to have giant bed rooms,that's where you sleep,a big family room would be a better use of space.

I agree that a lot of people are dense enough to beat their faces into reality over the course of multiple bankrupcies. There still comes an eventual cultural waking up point, even if it takes an embarrassing amount of time. Builders need reimbursement and if they get to where no one is buying their product they have 100% of nothing rather than 50% or 60% of something. I can't see it not getting there eventually; unless we want to keep the banks propped up on making outrageous loans and keep financing their adventures and irresponsibility with money borrowed from China. If that keeps happening, I'm sorry, we'd deserve to be picking cotton for them.

Smaller homes could be heated more cheaply than larger homes. That could become a selling point.

OR

We could achieve a technology that would make energy less expensive.

Of the two I prefer the latter to the former.

ruveyn

It's really just a matter of what the market demands. If big houses sell then that's what will be built.
With such a varying economy, I personally prefer smaller houses so as not to have too much money committed. I buy used cars for that same reason.

I concur. I have owned only one new car in the past 35 years.

ruveyn

The chief problem is one of easy credit.

It used to be you could only borrow what the banks believed you could repay. Many laws passed in the last couple decades buggered that up by forcing banks to make loans to people, and then you had efforts to keep interest rates low. Couple that with the selling idea of "how much can you afford to pay each month" and not "how much home can you afford," and it was very easy to create a market where everyone could buy a "McMansion" on a pauper's salary.

This has proven to be a disaster. When the economy shifts, all those people are now in homes they can't afford. More so, those who want to buy what they can afford find nothing on the market. Builders had no problem selling the "McMansion," so, they kept building more of them. There was no incentive to build low-income housing for people with low incomes.

You are ignoring securitization. The builder does get paid because the buyer gets a mortgage. The bank normally wouldn't issue the mortgage because if the buyer cant afford it they lose money, Butttt.... The bank can sell that mortgage to someone else. So now the buyer has a mortgage, the builder gets paid, the bank get's paid and there is a AAA rated mortgage backed security sold to some poor retiree's pension fund/401k etc. No one will find out until they try and cash out the pension and find that it's worthless 5-10-20 years hence.

It's the exact system that caused the bubble and meltdown in 2008 and the only thing that has changed is it takes 4 times as much paperwork to produce a mortgage than it did pre-crash. (I worked in the field briefly). the house has repeatedly filibustered attempts to prevent, limit, or regulate these securites and even cut the budgets of the agencies that already have jurisdiction by 1/3 in 5 consecutive budgets. In addition the supreme court struck down several regulations and agencies further deregulating the industry.

Probably not. It sounds like you're saying it'll infinitely suspend the learning curve, I'd argue it'll just delay it.

Builders will build what people will pay them the most money to build. It's the markets choice, really.

Personally, I've always preferred a larger homes. I'm a mite claustrophobic, so I like having large rooms with high ceilings. If I could afford to have a house custom built, there would probably only only one room on the bottom floor and a few bedrooms/bathrooms as an upper floor.