Practicing ArchitecturePracticing Architecture
Declines in Home and Lot Size Easing
Business conditions are beginning to trend up after prolonged weakness
By Kermit Baker, Hon. AIA
AIA Chief Economist
Downsizing has been the dominant theme for the housing market over the past several years. As falling house prices pushed the number of foreclosed properties to record levels, new homes have been getting smaller and more affordable in an effort to compete with these distressed properties. As a result, home designs have not included much in the way of extras. The few options included typically focused on green features (often to improve energy efficiency in an environment of rising energy costs) or accessibility, as our aging population looks for adaptations that allow them to stay in their current homes.
While these basic themes persist, they are becoming less dominant as the housing market indicates the beginning of a thaw. There are indications that the falling home sizes that began during this downturn may be finally hitting bottom. Likewise, lot sizes–which began getting smaller even before the last downturn–may also have seen their bottom, as falling land prices in many markets make larger lot sizes more affordable.
Business conditions at residential architecture firms have been spiraling downward since the middle of 2007. The billings index for residential architecture firms during the first quarter of 2011 was the strongest reading since the middle of 2007. While some of this strength is due to traditional seasonal trends, there is evidence that an emerging upturn can be sustained. Project backlogs (the amount of time current staff can be kept fully employed with design work that is currently in-house) remain weak, but appear to be trending up. Also, except for homes aimed at first-time buyers, homes at all the major price points are seeing more moderate conditions as compared to a year ago. In addition, home improvement projects, which make up a growing share of workloads at many residential architecture firms, are reported as improving by the majority of firms serving these segments.
Declines in home size moderating
During the run-up in housing prices through the middle of this past decade, home sizes increased quite dramatically. In the AIA’s first Home Design Trends Survey for the first quarter of 2005, almost a third of respondents reported home sizes to be increasing, while just 17 percent reported declines. Since 2005, however, a rising share of respondents reporting declining home sizes. By the 2010 first quarter survey, almost 60 percent of respondents reported declining home sizes, while fewer than 3 percent indicated that they were increasing.
However, the 2011 first quarter survey finally suggests that this trend is moderating. Respondents who reported home sizes to be decreasing fell to 52 percent, while 5 percent indicated that sizes are increasing. While this doesn’t suggest that home sizes are suddenly and dramatically increasing, it does indicate that the pace of decline has slowed. Residential architects are reporting a similar trend for the volume of homes, as the share reporting declines fell from 21 percent to 18 percent. Until home prices begin to accelerate, it is unlikely that homes sizes and volumes will show significant gains (Figure 1).
Declines in homes sizes at the upper end of the market appear to be stabilizing ahead of more affordable entry level homes. In most markets across the country, lower price homes have fallen further percentage-wise during the housing recession, and as a result, a high share of distressed properties are at the lower end of the new home price spectrum. Buyers of upper-end custom and luxury homes, therefore, may be a bit less nervous about further price declines. As of the first quarter survey, 8 percent of respondents reported the size of upper-end homes to be increasing, while 40 percent indicated continued decreases. For entry-level homes, only 5 percent reported increasing sizes, while 47 percent reported further declines (Figure 2).
Simplicity extends to home layouts
Reflecting the desire to keep homes affordable in the current weak housing market, home layouts have generally been simpler and floor plans more flexible. The one general exception to this trend is continued interest in accessibility into and around the home. As our population ages and households prefer to age in their current home, accessibility has become a growing concern. As a result, in-home accessibility was observed to be increasing in popularity by 58 percent of residential architect respondents, basically unchanged from a year ago. Accessibility into and out of the home was another design priority seen as growing in popularity by almost half of the respondents. A single-floor design is yet another consideration typically favored by households with accessibility concerns.
An open space layout was another design priority seen as growing in popularity. With more pressure on space in the home, interest has grown in designing homes with more open space that gives the household more programmatic flexibility. Informal space is another lifestyle preference that remains popular (Figure 3).
Property enhancements still popular
Like home sizes, lot sizes have been shrinking during the housing downturn. However, a significant difference is that appreciation in land prices has been a concern predating the 1995 to 2005 housing bubble, so lot sizes have been under pressure for a much longer time. Very few respondents report that lot sizes are increasing. However, because a rather small share (22 percent) reported that lot sizes are decreasing, the long-standing decline in lot sizes may be winding down. Land prices have fallen dramatically in many markets, which would make it less expensive to increase lot sizes. However, given that many households are looking for low maintenance homes and yards, it’s unlikely that lot sizes will be expanding significantly anytime soon (Figure 4).
While scaling back on home spending, households continue to make substantial investments in their properties. Upscale landscaping has dimmed in popularity, but low-maintenance, low-irrigation landscaping (like xeriscaping) is seen as increasing in popularity by almost two-thirds of respondents. Another sustainability trend is rainwater catchment or gray water reuse, which approximately half of the respondents reported as growing in popularity.
Outdoor living continues to be a popular lifestyle preference, and therefore a popular design option. Sixty percent of respondents reported outdoor living spaces (like covered outdoor space, outdoor rooms, and outdoor cooking areas) to be growing in popularity, one of the few items where popularity was reported as accelerating from the survey of a year ago. A related trend, blended indoor/outdoor space, was also reported as growing in popularity (Figure 5).
Business conditions begin to improve
Residential architects have been reporting weak business conditions since mid-2007, with very steep declines in late 2008 and early 2009. Since that time, the pace of decline has slowed, with a jump in the first quarter of 2010 that coincided with the expiration of the federal first-time homebuyer tax credit. Billings finally began showing stronger gains in the first quarter of this year. Inquiries for new projects, likewise, have generally been trending up in recent quarters. However, these reports on business conditions are not adjusted for seasonal variation, and the first quarter of the year is generally a busy quarter for residential architecture firms. By summer, it will be more obvious if the residential design and construction industry is entering into a sustainable recovery (Figure 6).
As workloads at residential architecture firms have evaporated, so have project backlogs. Backlogs were averaging over five months at the peak of the housing boom, but gradually declined through 2007 and 2008, running below three months for most of 2009 and 2010. However, project backlogs may finally be moving out of this downturn. For the first quarter of 2011, backlogs averaged 3.0 months, up from 2.7 months a year ago (Figure 7).
Business conditions are generally trending positively in all regions of the country. Firms in the South and Midwest are reporting relatively healthy growth in billings relative to the fourth quarter of last year. Firms in the West reported stable billings from the fourth quarter of 2010, leaving residential architects in only the Northeast with first quarter declines. Again, it is too early to tell how much of this improvement may be just a seasonal bump, but trends in billings have been positive for most regions over the past year (Figure 8).
In spite of recent signs of improvement, residential architects are still reporting net declines in all of the new construction sectors. However, except for homes oriented to first-time buyers, the pace of decline has eased over the past year, with a smaller share of respondents reporting that conditions in that sector are weakening. The townhouse/condo and second/vacation home sectors are particularly weak at present. For second/vacation homes, over 60 percent of respondents report weakening conditions, compared to only 10 percent reporting improving conditions. For townhouse/condos, the figures are 46 percent reporting weakening conditions and just over 12 percent reporting improving conditions.
In contrast, residential architects are extremely positive about the interest in improving existing homes. Over 60 percent of respondents report that improvements for addition and alteration projects are increasing, with only 10 percent reporting declines. Household interest in kitchen and bath remodeling is reported as even more favorable (Figure 9).
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