'Shrinkflation' is making American homes smaller yet just as expensive

The average new home is getting smaller, but don't expect a discount.
Even though soaring construction costs force builders and architects to employ clever design tactics to maximize space, home prices continue to climb, leaving budget-conscious buyers caught in a squeeze.
According to a July report by John Burns Research & Consulting (JBREC), budget-conscious builders downsized about a quarter of new homes last year. Yet, new home prices jumped 2.5% in 2023, peaking at nearly $441,000 in August.
Experts say this could mark the beginning of the end of the starter home.
"To get a lower-priced home built under $300,000, you'll either have to build a smaller home or homes in a higher-density setting," said Ali Wolf, Zonda's chief economist in an interview earlier this year.
Designers are now four times more likely to plan for smaller homes than larger ones, according to JBREC.
Millennial and boomer preferences shape new builds
Shrinkflation in housing isn't just about costs but also about generational differences. Millennials and boomers, the two largest homebuying cohorts, have vastly different expectations.
"For years, homes designed for millennials ended up attracting boomers, too," the JBREC report notes. "Nowadays, we're trimming down functions to keep only the bare essentials."
But what constitutes "essential" varies dramatically between these generations.
Millennials, often grappling with student debt and entering the market as first-time buyers, are more willing to sacrifice space for affordability. They're adapting to smaller eat-in kitchens, reduced outdoor areas, and multi-purpose rooms.
Boomers, on the other hand, are less inclined to downsize their expectations. Even in smaller homes, they're demanding extra storage and more amenities, such as walk-in closets and spacious outdoor living areas.
This generational split is forcing builders to rethink their designs, potentially leading to a two-tiered new home market.
The "death of the hallway"
Architects are getting creative to address these challenges. One approach is what JBREC dubs "the death of the hallway."
"All that Tetris we played in the '90s has finally paid off," the JBREC report quips. "Instead of shrinking rooms to reduce overall home size, a common tactic among our architectural designers was to eliminate unnecessary circulation space."
"Flex spaces" are also becoming a go-to layout feature in new builds. Think little "nooks and crannies" that could double as an office or a small nursery.
“It is no longer limited to a generic, bedroom-sized room that can double as a dining room or home office,” according to JBREC. “Flex spaces have become hidden gems, particularly in smaller homes.”
At the extreme end of the spectrum, there are also trend-setting tiny homes. However, this affordable housing option isn't as appealing to builders, says Lionel Scharly, an architect and strategic construction adviser with Real Estate Bees."
“The difficult part is convincing builders to do it as it reduces their profit and needs a good capability of sourcing materials,” he said.