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June 18, 2010

While Home and Lot Sizes are Still Shrinking, Property Enhancements Remain Popular

Residential architects finally reporting modest gains in business levels after a 30-month downturn

By Kermit Baker, Hon. AIA, AIA Chief Economist



SUMMARY: A severe housing recession, concern over rising home energy costs, and changing lifestyles have all increased interest in smaller homes that are designed to reflect the changing lifestyles of households. According to the AIA’s Home Design Trends Survey for the first quarter of 2010, accessibility around the home and layouts with more flexible designs and informal spaces are emerging as top priorities. As with houses, lot sizes continue to shrink, although this trend began well before the current housing recession.

Even with smaller lots, many households are focusing more attention on their properties. Low maintenance is a key goal for these improvements to the property, with increased outdoor living space continuing as a trend that is reshaping household lifestyles. However, growing attention to the property has not resulted in traditional upscale features. Formal landscaping, decorative water features, and other upscale improvements are all seen by residential architects as declining in popularity.

Business conditions are finally showing signs of improvement at residential architecture firms. In the first quarter, billings showed their first quarterly increase since mid-2007. Firms in all regions are showing progress toward a recovery in residential design activity, with firms in the Midwest reporting healthy levels of growth. Improvement activity on existing homes is showing strong gains. Major construction sectors are still waiting to recover according to residential architects, with entry level homes likely to be the first sector that will rebound. Conditions in the townhouse/condo and second/vacation home sectors remain weak at present.

As occurs in most downturns, new home sizes have been declining during this recession. However, even as market conditions improve, residential architects are reporting that home sizes are continuing to decline. As of our first quarter 2010 survey, fewer than 3% of residential architects were reporting that the square footage of homes was increasing, while almost 57% reported sizes to be declining. Every year since the AIA’s Home Design Trends Survey began in 2005, an increasing share of respondents has reported home sizes to be declining.

Smaller homes are reported across the housing spectrum. Over 41% of respondents reported that sizes of upper-end homes were declining, with only 9% indicating that the size of these homes is increasing. Almost 46% saw entry-level homes as getting smaller, while only about 2% reported them to be increasing in size. The share of respondents reporting declines in home sizes has grown from a comparable survey in the first quarter of 2009.

A shrinking footprint for homes is matched by trends in their volume, which factors in ceiling heights and raised ceiling features. With this survey, almost 21% of respondents report volumes to be decreasing, while fewer than 14% see them as increasing. The share of respondents reporting declining space in homes has been steadily growing since 2005.

Design features emphasize accessibility

With smaller homes, there has been growing emphasis on accessibility into and around the home, as well as flexibility in space layout. In home accessibility is the design feature that residential architects generally mention as having grown the most in popularity over the past few years. Accessibility in and out of the home, as well as single-floor home designs, also have been popular recently according to residential architects for many of the same reasons: our population is aging, and multigenerational households tend to increase in weaker economic times, so easing accessibility through the home for older household members is a growing concern.

Households also are looking for more flexibility in their smaller homes, and as such open space layouts are growing in popularity. Traditional single-function rooms such as formal dining rooms or living rooms are less popular, being replaced by rooms that can serve multiple purposes for the household.



Property enhancements remain popular option

Homes have gotten smaller in recent years, but the shrinking of lot sizes has been in place for many years. Even in 2005 at the height of the housing boom, only 5% of residential architects reported lot sizes to be increasing, while 43% saw them as decreasing. That trend has remained in the subsequent years, and with the first quarter 2010 survey, almost a third of respondents indicated that lot sizes are getting even smaller, while almost two-thirds indicates that lot sizes are holding steady. Hardly any reported increases.

Households are very active in improving these smaller lots, but still are shying away from upscale property expenditures. For example, upscale landscaping has been steadily declining in popularity in recent years. As of the first quarter 2010 survey, over 40% of respondents reported that upscale/formal landscaping was declining in popularity while only 11% saw this as increasing. Likewise, upscale outdoor features (swimming pools, tennis courts, gazebos) and decorative water features are generally seen as declining in popularity. For each of these property improvement categories, over a third of residential architects see them as declining in popularity, while about a 20% see them as increasing.



While some types of property improvements are becoming less popular, others remain very popular enhancements by households. Low maintenance landscaping, outdoor living space (including decks, patios, porches, as well as cooking areas and outdoor “rooms”), rainwater catchment options and greywater reuse, and blended indoor/outdoor space were all seen as growing in popularity by a majority of the residential architects surveyed in the first quarter survey. Exterior/security lighting and green fencing (bushes/trees/hedges) were also seen to be increasing in popularity by a significant share of residential architects, with very few seeing these activities as declining in popularity.



Business conditions show widespread improvement in movement toward recovery

Business conditions at residential architecture firms have been steadily declining since the middle of 2007, with the downturn accelerating through the fourth quarter of 2008. However, in the first quarter of this year residential architects reported a very modest increase in billings over fourth quarter 2009 levels, the first quarterly increase since the second quarter of 2007. Inquiries for new projects showed a very healthy gain, generating hope that firm billings for residential architects will continue to increase in the quarters ahead.



Even with billings increasing, firms are operating with dangerously low levels of project backlogs. Backlogs (the amount of time that current staff will be fully employed given the amount of work in-house and under contract) fell to 2.7 months in the first quarter. Three-quarters of respondents indicated that backlogs were three months or less at their firm.



Residential architecture firms in all regions of the country are seeing positive signs in their business conditions. While only firms in the Midwest reported growth in billings in the first quarter, firms in the other three major census regions are on the edge of increases in business activity. All regions have seen strong gains in the share of firms that reported a significant increase in billings of 5% or more in the first quarter, from 29% of firms in the West to 39% in the Midwest.



As the residential recovery is unfolding, some sectors are closer to recovery than others. Improvements to existing homes–either additions and structural alterations, or kitchen and bath remodeling–continue to see the healthiest business conditions. Home improvement projects often don’t require financing, so the credit problems that have plagued the homebuilding markets are not as severe for home improvements. Also, there is a tremendous inventory overhang of homes on the market caused by years of overbuilding and the growing default and foreclosure problem. This has limited the need for new construction and slowed the recovery of new construction sectors. Home improvement activity was not overbuilt to any significant degree during the housing boom, so it has responded faster to the general improvement in the economy.




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