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Larger Homes with More Outdoor Amenities are Squeezing into Smaller Lots

There’s a recovery brewing in virtually every housing segment and region

By Kermit Baker, Hon. AIA
AIA Chief Economist

Households continue to show more confidence in the recovering housing market, investing in more outdoor amenities and larger homes despite strained lot sizes. Residential architects report that home sizes have bottomed out and have begun to bounce back. Home layouts continue to favor flexibility in the use of space, as well as open space designs. Accessibility around the home (and into and out of the home) remains a major objective for households. Even though lot sizes show no signs of increasing, households continue to invest in their properties both by adding to their outdoor living areas and by blending indoor and outdoor space.

These are some of the key findings from the AIA’s first-quarter 2013 Home Design Trends Survey covering emerging home characteristics: home sizes, home layout and design issues, and property improvement activities. Improving consumer confidence in the housing market has improved business conditions at residential architecture firms to their strongest growth levels since the middle of the last decade. Project backlogs are growing, and business activity is strong in all regions of the country. Residential architects are reporting improvement for all major residential sectors (with the exception of second and vacation homes), indicating a widespread upturn.

Home sizes recovering

Residential architects reported a dramatic shift in home sizes during the housing downturn. In 2005, after several years of growth, 42 percent of residential architects reported home sizes to be increasing, while only 13 percent reported them to be declining. The share of respondents reporting size increases steadily declined during the downturn. By 2010, less than 3 percent were reporting increased sizes, and almost 57 percent were reporting decreasing home sizes.

Since then, the share reporting increases in home sizes has been slowly but steadily increasing. In the current survey, more than 12 percent are reporting increases. Double this share are reporting that home volumes (e.g., ceiling heights, two-story entryways) are increasing, with less than 10 percent reporting declines (figure 1). Related to the increased use of space in the home, 38 percent of respondents report that finishing attics or basements into living space is increasing in popularity.

The emerging rebound in home sizes is more apparent in some market segments than in others. For upper-end homes, higher shares of respondents are reporting an increase in homes sizes (24 percent) than are reporting declines (22 percent). The same is true for additions and remodels to existing homes. However, this is not the case for entry-level homes where the share reporting increases is only 4 percent, with no gains in recent years (figure 2).

In recent years, home design trends have gravitated toward an open space layout, with partial wall divisions that allow more flexibility in the use of space, and a generally greater sense of informality in the home. Among other things, these home layouts allow more accessible movement throughout the residence. Residential architects again reported accessibility within the home as the trend increasing the most in popularity. Accessibility into and out of the home also was seen as a feature growing in popularity, with over half of respondents indicating that it was increasing. A single-floor design remained a popular option, in part because it enhances accessible movement through the home (figure 3).

Homeowners aren’t spending on lot size, but instead on lot amenities

In contrast to the emerging upturn in home sizes, home lot sizes continue to contract. Only 3 percent of respondents reported that lot sizes were increasing, while over a quarter indicated that they continued to decrease. The percentage of respondents reporting increasing lot sizes has been in single digits since 2005, when the AIA began surveying home design trends (figure 4). Declining lot sizes is a long-term trend fueled by the effort to keep homes affordable, but also likely reflecting emerging locational preferences. In other AIA Home Design Trends Surveys, residential architects have reported the growing trend toward infill housing, emphasizing smaller developments in more desirable locations. Land prices for infill projects are typically higher than for larger developments in exurban locations, thereby encouraging small lots.

Smaller lots, however, have not kept households from investing heavily in this space. Creating outdoor living space (outdoor rooms, covered outdoor space as well as more traditional decks, patios, and porches) continue to be the property enhancement growing the most in popularity, with almost 63 percent of architects reporting increasing consumer interest.

Sustainability also is a strong consideration for outdoor improvements, as low-irrigation landscaping (xeriscaping), rainwater catchment options, and gray water reuse are seen as growing in popularity by a majority of residential architects. However, even with lower levels of residential construction activity in recent years, residential architects report growing difficulties in preparing building lots for construction. Zoning limitations, topography, and soil conditions are some of the factors causing these difficulties, and most residential architects report that this issue is currently increasing as a concern and escalating beyond the levels seen a year ago (figure 5).

Business conditions developing strong momentum

While residential architecture firms have faced a bumpy recovery, recent numbers indicate that improvement is accelerating. The billings index for residential architects during the first quarter was almost 67, indicating the strongest growth for these firms since 2005. New project inquiries were even stronger. These figures are not adjusted for seasonal variation, and the first quarter of the year is traditionally a strong quarter for residential firms. Still, these recent findings are well above the first quarter readings in recent years, indicating that 2013 is shaping up as a strong year for residential architects (figure 6).

Evidence of this growing strength is that backlogs have been steadily increasing. Backlogs measure the amount of active work currently in-house to maintain staff at current billings levels. At 4.2 months now, backlogs have been trending up for the past three years. While well below levels of 2005 and 2006, when backlogs averaged in excess of five months, they are currently at healthy levels by historical standards (figure 7).

The upturn in business conditions has benefited firms in all areas of the country, with billing scores currently above 60 in each of the four major U.S. Census regions. Particularly encouraging are the strong billing scores coming from firms in the South and West. These two regions have historically accounted for a disproportionate share of residential construction activity.

Firms in the Northeast and Midwest are benefitting from a strong home improvement market. These two regions, with their older housing stock and generally slower population growth, tend to see a higher share of residential investment in additions, alterations, and remodels. During this past downturn, home improvement activity has held up better than new residential construction (figure 8).

Upturn has spread to nearly all residential sectors

As is typically the case, this housing upturn is occurring in phases; some sectors improve before others. The first major sector to turn down during this past recession was the first-time buyer/affordable market, mostly because first-time buyers became priced out of the market as home prices soared along with land prices. However, the first-time buyer segment was not the first to recover during this upturn. With tighter underwriting standards limiting credit availability, traditionally younger first-time buyers have had difficulty obtaining financing.

While residential architects report that the affordable home market has been doing better, move-up homes purchased by buyers with generally better credit histories have seen more improvement. The custom/luxury market also has seen some gains. The townhouse/condo segment has turned from generally weakening to generally strengthening over the past year. However, there still are many areas across the country with an excess inventory of condos, which will slow the recovery of this sector.

The second home market is the last major housing sector still reporting uniformly weakening conditions. Second homes and vacation homes are often purchased with investment goals in mind, so the collapse in homes prices during the downturn has been particularly devastating for these dwellings. Market conditions for these homes began to weaken early in the downturn, and they are likely to continue to suffer until there is a stronger recovery in home prices.

At the other extreme, the home improvement market is uniformly healthy, and never saw much weakness during the downturn. Home improvements are often financed with cash, so the credit restrictions have had little effect. This segment has benefitted from the lengthy foreclosure crisis, as many of the homes that have gone through it (an average of a million homes a year recently) often need extensive improvements by the seller before they are put on the market, or by the buyer who has typically purchased the homes at a steep discount because significant improvements are necessary (figure 9).



Recent Related:

Kitchens and Baths Benefit from Broader Housing Recovery, Feature New Functions and Activities
Density and Accessibility, with Growing Interest in Neighborhood Amenities, Define Community Design Trends

Special Function Rooms and Features Fall Away as Housing Market Continues Slow Recovery

Turnaround in Home Sizes, In-Home Amenities, and Property Enhancements


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