- Smaller Budgets, Smaller Houses

Smaller Budgets, Smaller Houses
Builders Scale Back As Buyers Look For Long-Term Savings
By ELIZABETH RAZZI | Special to The Washington Post
March 01, 2009
Frugality is finally showing up in new home developments.

Although the number of new single-family houses sold nationwide this year will probably be down about 68 percent from the peak of almost 1.3 million sold in 2005, there will still be about 420,000 households buying new homes this year, according to the National Association of Home Builders.

But recession-chastened house hunters are looking for different things than the boom-era buyers who snapped up homes that grew bigger, fancier and pricier by the month.

Because they aren't held back by the need to sell an old home, first-time buyers now make up a greater share of the market. They're trying to stretch their dollars at every turn, and many are concerned about the cost of heating and cooling, especially after having experienced the surge in fuel costs last summer.

Builders say buyers are judging a home in terms of how comfortable it will be as a living space for the long term, rather than as an investment they can flip for a profit after a couple of years.

"People are realizing that to control the cost, especially of new construction, that they are opting for less square footage," said Greg Ugalde, president of T&M Building Co., based in Torrington. "People are much more conservative now in their selections, of both the style and the options they are putting into their homes."

Ugalde said the company is once again offering new homes as small as 1,800 square feet in each of its five current developments under construction, a size that failed to grab much attention a few years ago.

'A Starting Point'

"We are giving people a starting point that may fit more into their budget," he said. "And I think the trend coming this spring is that people are going to opt back to some unfinished space. You can get rooms over the garage and unfinished basements, and add to that later when it fits into your budget."

Such consumer choices are just starting to appear in statistics.

In the July-September quarter of 2008, the average size of a house under construction fell 7.3 percent, to 2,438 square feet from 2,629 square feet in the previous quarter, said Gopal Ahluwalia, vice president for research at NAHB. "This is the first time we have seen such a significant decline," he said.

It may be only one quarter's worth of data, but Ahluwalia has other reasons to think the drop may be more than a fluke. He surveyed builders in early January, and 90 percent reported that they were building smaller homes. Eighty-nine percent said they were building lower-priced homes.

Until recently, builders have focused mostly on grand houses larded with upgraded countertops, flooring, cabinets and bath fixtures.

Heading into the spring, which is usually peak season for home sales, many builders are calling attention to the ways their homes save money and energy. Smaller size is one way they're trimming the cost.

For example, Atlanta-based Beazer Homes recently started to shrink its designs. Diana Van Stone, vice president of sales and marketing, said their high-end houses, which used to be about 3,600 to 3,700 square feet, now average about 3,000 square feet. "On the higher end, we've whittled away at that quite a bit," she said.

In Connecticut, permits for new home construction plunged 25 percent in 2008, marking the fourth straight year of declines. There were 4,910 housing permits issued in 2008 in the 128 towns that the state monitors monthly. That compares with 6,619 permits in 2007, according to the state Department of Economic and Community Development report. The permits are issued for all new residential construction.

Energy Conservation

Van Stone said Beazer is also paying more attention to energy-conserving and environmentally friendly features such as efficient appliances, programmable thermostats, compact fluorescent lights and paints that emit less toxic fumes, all of which are now standard features.

"Our homes are offering what we feel the public is moving toward," she said. "I think people's priorities have changed. Now it's not only about living in the home with my family, but whether I can afford it in the long run — being able to truly afford it."

Brookfield Homes, based in Fairfax, Va., may be taking the smaller-and-greener trend the furthest. The company recently set up an "energy lab" in one of its model homes in the Snowden Bridge development near Winchester, Va.

The house has a small wind turbine and solar photovoltaic panels on the roof, both of which generate electricity. There also are solar collection tubes on the roof to heat the home's water supply, and a geothermal heat pump to provide heat and air conditioning.

The features are already available as options on Brookfield's models, and the company will be collecting information this year on how the technologies perform compared with traditional sources of energy.

The energy lab is on display in one of the smallest detached houses available in the builder's Village series of detached houses, which range from 1,250 square feet to more than 1,600 square feet — basically the size of many townhouses. Optional garages and extra rooms can be added.

These smaller houses accounted for about 65 percent of sales over the past six months, sales manager David Poole said.

"It's an easy buy to get into that house just because of the circumstances of the economy," he said. "People aren't buying big, huge homes with no yard."

The smaller homes also happen to be more efficient — and less expensive — to build. That's no small matter for builders struggling through the worst market of their lifetimes.

If you were to add all the renewable-energy technologies to the Snowden Bridge test house, it would boost the price by about $25,000. A la carte, they cost more.

The geothermal heating/cooling unit is most expensive, at $12,000. The technology takes advantage of the consistent 55-degree temperature that the earth maintains just a few feet below the surface, all year, to heat the air in winter and cool it in summer. The only machinery visible is what looks like a traditional forced-air furnace in the basement. There's no need for a noisy air-conditioning or heat pump unit that drowns out conversation in the back yard.

Three electricity-generating photovoltaic panels mounted on the roof cost $10,000.

A package of liquid-filled tubes on the roof — it somewhat resembles a car radiator — collects solar heat that is then transferred to the hot water tank. That unit costs $7,000.

The roof-mounted wind turbine to generate electricity is no more obtrusive than a large weathervane. It costs $2,500.

Buyers can qualify for federal tax credits of up to $2,000 for each of the geothermal and solar hot water systems. The tax credit for the photovoltaic panels can cover 30 percent of the cost, and the wind turbine may qualify for a tax credit covering 30 percent of the cost. Poole said the company estimates that a home using all four technologies would cut energy costs by about 70 percent.

The homes may be the size of an entry-level townhouse, but with windows on all four sides and the option of having a main-level attached garage behind the house, they have the convenience and feel of larger houses.