Americans should build and buy smaller houses

For several decades starting in about 1950, American families got smaller, while new houses built in the United States got larger. We have started to correct those contradictory trends, with the mean family size stabilizing at about 3.13 people per family since 2012 and the mean new house size decreasing from 2,687 square feet in 2015 to 2,364 square feet in 2024. As a result, the mean new house size per person has decreased from 856 in 2015 to 755 in 2024. However, the mean new house size per person was still 53 percent larger in 2024 than it was in 1974.

Sources: https://www.census.gov/data/tables/time-series/demo/families/households.html, https://www.census.gov/construction/chars/current.html

Of course, as large as the houses represented by these square footages are, they are only the mean-sized new houses each year. Almost half the new houses each year were larger than these mean values, with some being much larger. In 2015, about 11% of new houses were 4,000 square feet or larger, as were about 6% of new houses in 2024.

Among Western countries, only Australia has larger houses, on average, than the United States. Many Western European countries have average houses that are only about half as large as the average U.S. house and the average house in the United Kingdom is 59% smaller than the average U.S. house.

Source: https://worldpopulationreview.com/country-rankings/house-size-by-country

These oversized U.S. houses contribute to many problems. They require more energy and raw materials to build. They require more energy to heat and cool. They encourage people to buy more furniture and other things to fill these large houses, which also require more energy and raw materials to build and often end up taking up space in landfills. They are more expensive to build, maintain, and furnish. And they require more time to clean and maintain.

We can hope that Americans will continue to build and buy smaller houses without any government interventions, as they have since 2015. However, it will help if governments correct several policies that contribute to the overconsumption of housing in the United States. First, energy prices to build, heat, and cool homes are held artificially low through both direct government subsidies to the fossil fuel industry and the failure to include negative externalities from extracting and burning fossil fuels in energy prices. Estimates of the true cost of energy vary but often are about double the current prices paid by consumers.

Second, the federal government and most states allow homeowners to deduct mortgage interest for income taxes, which distorts the housing market in several ways, including by encouraging people to build and buy larger, more expensive homes. The 2017 tax reform lessened these distortions by reducing the cap on deductible mortgage debt from $1 million to $750,000 and by increasing the standard deduction, which reduced the percentage of taxpayers who itemize deductions from about 31 percent to about 9 percent, but there are still incentives to overconsume housing for taxpayers who itemize.

Third, Canadian subsidies that allow companies to harvest timber from government land at less than market cost artificially drive down the cost of lumber in the United States, which encourages the building of larger homes. Ironically, although President Trump almost certainly isn’t concerned about oversized U.S. homes, his tariffs on Canadian lumber may help address this issue by increasing the price of lumber nearer its true cost, just as his 2017 tax reform helped reduce the mortgage deduction distortions.

As noted above, Americans have already been building smaller homes since about 2015. More generally, Americans have been preferring smaller homes, with smaller single-family homes, more demand for condominiums and townhouses, and increased interest in tiny homes under 400 square feet. This trend has been driven by higher interest rates, inflation, smaller family sizes, changing preferences that value quality over quantity, environmental awareness, and economic uncertainty. Although not all the factors driving this trend are desirable, the outcome certainly is. The country will benefit in many ways if Americans continue to build and buy smaller homes.