Smaller Lots Make New Homes Affordable

The lots on which most new homes are built have been shrinking steadily for more than 20 years. But what does this trend mean for buyers of today’s newly constructed homes? The question is intriguing, though the answer isn’t entirely clear.

The median lot size for new detached homes shrank to a record low of 8,560 square feet, or about one-fifth of an acre, in 2017, according to a U.S. Census Bureau study. Twenty-five years earlier, in 1992, the median lot size was 10,000 square feet. That’s a loss of 1,500 square feet, enough for a second house on the same lot.

The median doesn’t mean all lots are exactly that size. In fact, most lots are either larger or smaller than the median, which represents the middle of all of the sizes.

Median lot sizes also have dramatic regional variations. A National Association of Home Builders (NAHB) study of detached spec homes started in 2017 found the following approximate median sizes:

• New England — 0.4 acres
• East South Central — 0.3 acres
• Middle Atlantic — 0.3 acres
• East North Central — 0.22 acres
• South Atlantic — 0.21 acres
• West North Central — 0.22 acres
• West South Central — 0.17 acres
• Mountain — 0.17 acres
• Pacific — 0.15 acres

Why Lot Size Matters

Buyers tend to focus on a home’s square footage and how many bedrooms and bathrooms it has. But lot size is important, too. It can affect:

• The home’s square footage
• The amount of outdoor space a home has
• The ratio of a home’s square footage to its outdoor space ( “lot coverage”)
• The home’s purchase price and property value
• The distance from the home’s walls and windows to the walls and windows of neighboring homes

If your dream home has a large lawn, garden, swimming pool, tennis or basketball court, outdoor kitchen, patio, guest house or other amenities that require plenty of land, you’ll need a lot that’s big enough to accommodate those features. Bigger lots also give you more privacy from your neighbors.

Smaller Lots, Same-Size Houses

Smaller lots don’t necessarily comes with smaller homes. The national median size of detached homes increased to 2,436 square feet in the first quarter of 2018, according to the NAHB. Apart from a downward dip in the previous two years, the longer-term trend has been toward larger homes for the past 20 years.

“People don’t want less house [even though] the lots have gotten smaller,” says Jeff Benach, principal at Chicago-area builder Lexington Homes.

The Affordability Factor

Conventional wisdom is that smaller lots make homes more affordable. That means buyers should be able to purchase a larger or nicer home or one in a more desirable neighborhood for a comparable price if the lot is smaller.

Michael Barsky, a real estate broker with Coldwell Banker’s new homes division in Alpharetta, Ga., says new home communities with smaller lots enable buyers to live in more desirable areas with the cultural amenities, walkability and strong schools that they want.

Another possibility is that smaller lots don’t make homes more affordable, but rather more available. That’s because, builders say, many new home developments don’t make economic sense without the smaller lots. If larger lots don’t pencil out with an acceptable profit margin, builders will use smaller lots or they won’t build as many houses.

Benach says 10,000 square-foot lots used to be common in Chicago. Today, builders have to calculate carefully and work with local officials to divide parcels into more lots.
The primary advantage of smaller lots is the lower land acquisition cost for the builder, says Bruce Ailion, a Realtor and attorney at RE/MAX Town and Country, a realty brokerage in Marietta, Ga.

That can tie back to affordability for the buyer.

“Smaller lots are less expensive to develop,” Ailion says. “They reduce the overall cost of the home. They allow a potential homeowner to purchase ‘more house’ and often in a closer-in location than a larger lot would permit.”

Smaller lots are a particular boon for buyers who don’t want to spend a lot of time or money to keep up a large yard or big home full of rarely used rooms. And smaller lots tend to spawn tighter communities with more neighbor-to-neighbor interaction. In older communities, residents tended to spend more time in their own homes or fenced yards.

The Cost-to-Own Question

Buyers might also wonder whether smaller lots are less costly to own than homes built on more land. The answer depends largely on the home—and the homeowner.

A larger home on a smaller lot has less outdoor space. That can mean lower costs to install fences and maintain hardscape such as walkways and driveways. It can also make other chores such as planting, lawn mowing, weeding, tree trimming, brush clearance and snow removal less expensive.

However, if the only outdoor spaces that are landscaped and hardscaped on a larger lot are those closest to the home, with the rest of the lot left in a state of nature, the savings of a smaller lot might not be that significant.

One more feature of smaller lots is that they force builders to get creative about floor plans.

“It’s more of a challenge to design a 3,200 square-foot house with spacious rooms and volume ceilings in a box of 50 x 40 or 50 x 50 than it is when you have an oblong lot that’s 100 x 65 or 100 x 70,” Benach says.

The result is that newer homes tend to be narrower and deeper. They don’t look as big from the front as they feel—and actually are—inside.

The bottom line for buyers may be that smaller lots aren’t better or worse than larger ones. They’re just different.