Necessity is Mother of Invention
Why smaller homes are growing in popularity
John Hunt

In some of the largest Southeastern markets, including Atlanta, exploding development, labor and material costs are pushing new home prices beyond the reach of most consumers. MarketNsight President John Hunt predicts if building continues the way it has for the past 40 years, the new “floor” on retail lot prices will yield a new home that only 15 to 20 percent of all consumers can afford.

According to Hunt, every home builder in the United States is being funneled into price points with fewer and fewer eligible homebuyers, as distressed lot supply disappears –and they simply will not all fit. It is time for the new home industry to begin thinking outside the box.

“We have historically innovated only in the higher price points,” Hunt said. “Today, builders who want to capture increased market share are looking to innovate in the lower price points –townhomes are an obvious answer, but townhomes aren’t the only small or microproduct to consider in today’s ‘New Normal.’”

The square footage of condos, townhomes and single-family homes is shrinking to meet the demand (and pricing) of entry-level and move-down buyers. This is not necessarily bad news for home builders, as it often means a much higher price per square foot. Some of this product sells for as much as $450 per square foot. Cutting-edge microproduct continues to appear ranging from 280-square-foot condos in Birmingham to 11-foot-wide townhomes in Atlanta to tiny homes of various square footages.

“Today’s homebuyers don’t always want to drive until they can buy. Many buyers want to live in hip intown locations where they can walk to restaurants and entertainment options. In these cases, the neighborhood itself is the amenity,” Hunt said. “For many of today’s Duel Income No Kids (DINKs), the major concern is not local schools or how they are ranked. They want to live somewhere convenient to work and lifestyle, where they can easily walk or grab ride share.”

The good news is that the apartment industry has shown us the way. Millennials are paying rent ranging from $1,300 to $1,700 a month in hip areas of Atlanta and other Southeastern cities for as little as 500 square feet! Pioneering builders and developers are taking notice of this and choosing to compete.

According to Hunt, the homebuilding industry is in the early stages of seeing new and innovative product approved, funded and built at square footages never seen before, presented in new ways.

“Evidently, Millennials and others are willing to pay higher prices for smaller spaces in their preferred locations,” Hunt said. “Without innovation, we can’t give them what they want, where they want it, at a price they can afford.”

MarketNSight is focused on helping home builders and developers make smart decisions related to purchasing land and pricing product. Its groundbreaking Feasibility Matrix® systemizes the decision-making process and creates a one-stop-shop for gauging new home community feasibility. To learn more or to schedule a demonstration, visit www.MarketNsight.com.SCBJ