Goodbye Bathtub and Living Room. America’s Homes Are Shrinking.
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Goodbye Bathtub and Living Room. America’s Homes Are Shrinking.

Faced with high mortgage rates, cost-constrained Americans are embracing smaller homes

By MAGGIE EASTLAND
Wed, Aug 23, 2023 8:20amGrey Clock 3 min

For many Americans, homeownership may be attainable only if they give up a dining room.

Home prices are near record highs, frustrating millions of potential buyers who feel priced out of the housing market. Home builders are having to find ways to make their product more affordable to increase their pool of customers.

Shrinking the size of a new single-family home is an increasingly popular way to do it. Smaller homes can help cost-constrained buyers facing high mortgage rates. They also boost the bottom line for builders who are contending with spiralling labour and construction costs.

Since 2018, the average unit size for new housing starts has decreased 10% nationally to 2,420 square feet, according to Livabl by Zonda, a listing platform for new construction homes. Construction starts for new single-family homes declined in 2022. But starts for homes with fewer than three bedrooms increased 9.5% over the same period, according to a Zillow report.

Home sizes are shrinking the most in some of the hotter markets of previous years. The Seattle area, where the size of newly built homes is 18% smaller than it was five years ago, tops the list. New homes in Charlotte, N.C., and San Antonio shrank by 14%, Livabl by Zonda said.

Most builders and architects follow the same basic playbook to produce tighter, more efficient living spaces. They are axing dining areas, bathtubs and separate living rooms. Secondary bedrooms and loft spaces are shrinking and sometimes disappearing.

At the same time, they are increasing the size of multiuse rooms like kitchens and great rooms. Shared spaces like bunk rooms and jack-and-jill bathrooms, which are located between and shared by two bedrooms, are on the rise. In some cases, the kitchen island has become the only eating area in the home.

Estridge Homes, a semi-custom new-home builder that operates near Indianapolis, recently launched a new neighbourhood concept with detached homes 300 to 500 square feet smaller and $50,000 to $75,000 cheaper than it typically builds.

The builder is slashing some bedrooms and bathrooms and trading some indoor living space for outdoor space. Lots in the neighbourhood are smaller too, but the builder is working with limited acreage by landscaping to create privacy.

Home buyers began moving in earlier this year, and demand has been strong from both entry-level buyers and empty-nesters.

Those two groups “are both big demographics,” said Clint Mitchell, chief executive at Estridge. “They kind of want the same thing.”

In December, Brad and Julie Redman downsized from their more-than 7,000 square-foot custom-built home to a 3,400 square-foot semi-custom model in Westfield, Ind., after their children left home.

Despite the smaller house and yard in a denser neighbourhood, the couple is happy with the decision. They gave up a formal dining area when they moved, but their new eating area easily converts to space for entertaining guests.

“We can use the same space for more than one thing,” Julie Redman said.

Shrinking homes are also beginning to reshape the furniture market. Companies like Bob’s Discount Furniture are creating designs suited to tighter spaces. Demand has increased for items with multiple functions, from kitchen islands with drawers and wine racks to sleeper sofas and smaller, drop-leaf dining tables, said Carol Glaser, executive vice president of merchandising at Bob’s Discount Furniture.

“If they are in smaller homes,” she said of her customers, “they need their furniture to work harder.”

Still, even smaller homes won’t make a big enough dent in the purchase price for most entry-level buyers or provide an answer to the nation’s severe housing shortage. Estridge’s semi-custom homes and townhomes, for example, still range in price between $400,000 and $800,000.

The share of new home projects priced below $400,000 has declined in nearly every major home-building metro since 2018, according to Livabl by Zonda. For entry-level buyers across the nation, the cost of owning a home increased 72% from February 2020 to May 2023, according to an analysis by John Burns Research and Consulting that estimates monthly payments, maintenance and other costs of ownership.

And the smaller floor plans usually mean that buyers are getting less space for their dollar. Lower list prices might make the overall price cheaper, but buyers are still paying more a square foot, according to the U.S. Census Bureau. Inflation-adjusted cost a square foot increased about 2.5% on average between 2012 and 2020. In both 2021 and 2022, it increased nearly 4%, according to John Burns Research and Consulting.

Builders have also ramped up activity for other cost-saving methods, like starting home construction off-site and building more attached homes. In Lexington, S.C., buyers are willing to share a wall with a neighbor when it saves thousands and makes homeownership more attainable.

Sonia Mendez, a real-estate agent in the area, said she has seen builders increase construction of 1,500 to 1,700 square-foot townhomes.

“They are being bought just as fast as the single family home,” Mendez said. “The first-time home buyers are excited. They don’t see a small home. They see it as a dream come true.”



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Strong consumer spending and tight supply have driven retail to the top of commercial property, but signs of pressure are starting to emerge.

By Jeni O'Dowd
Mon, May 4, 2026 2 min

Australia’s retail property sector entered 2026 as the strongest performing commercial asset class, but rising geopolitical risks and cost pressures are beginning to test its resilience, according to new research from Knight Frank.

The latest Australian Retail Review shows the sector rode a wave of consumer spending and constrained supply through 2025, delivering total returns of 9.2 per cent and driving transaction volumes up 43 per cent year-on-year to $14.4 billion.

That momentum carried into early 2026, with around $3.6 billion in deals recorded in the first quarter alone.

“Retail clearly emerged as the standout commercial property performer in 2025,” said Knight Frank Senior Economist, Research & Consulting Alistair Read.

“Improving household spending, limited new supply and stronger leasing fundamentals combined to drive better income growth and renewed investor confidence in the sector.”

Spending rebound drives retail strength

A lift in household spending has been central to the sector’s performance. Consumer spending rose 4.6 per cent year-on-year to February 2026, supported by easing inflation and improving real incomes.

That shift flowed directly into retailer performance, with average EBIT margins across major retailers rising to 8.9 per cent in the first half of 2026, their strongest level in several years.

“Stronger consumer spending was critical in restoring momentum to the retail sector,” Mr Read said.

“Retailers have generally been better able to absorb costs, rebuild margins and support sustainable rental outcomes, particularly in higher-quality centres.”

Improved trading conditions also pushed leasing spreads up 4.2 per cent in 2025, reinforcing income growth and supporting capital values.

Geopolitical tensions begin to bite

But the outlook has become more complicated. The report warns that escalating conflict in the Middle East and its impact on fuel prices, supply chains and interest rates could weigh heavily on consumer spending.

“Higher fuel prices, flow-on cost pressures across supply chains, and recent interest rate increases are collectively squeezing household budgets, and early consumer sentiment data suggests confidence is already softening,” Mr Read said.

“While household balance sheets remain generally resilient, heightened uncertainty over future costs is likely to weigh on spending — particularly in discretionary categories — in the months ahead.”

The impact is already being felt in investment activity. While the year began strongly, transaction volumes slowed in March as investors paused amid the uncertainty.

“Early indicators suggest elevated uncertainty has already begun to affect the market. While retail investment enjoyed its strongest start to a year in a decade, with nearly $3 billion transacted by the end of February, activity stalled in March, as investors took a pause amid elevated uncertainty,” Mr Read said.

Solid foundations support medium-term outlook

Despite the near-term headwinds, Knight Frank maintains that the sector’s underlying fundamentals remain strong. Limited new supply, high construction costs and population growth are expected to continue supporting rental growth over the medium term.

“Retail has entered this period of uncertainty from a position of strength,” Mr Read said.

“Supply-side constraints, population growth and improving income fundamentals remain powerful structural supports for the sector.”

The report highlights several trends shaping the year ahead, including steady yields as interest rates rise, mounting pressure on tenant margins, continued outperformance of prime centres, the growing need for logistics integration, and risks linked to underinvestment in capital expenditure.

For now, retail remains a sector with momentum, but one increasingly at the mercy of forces far beyond the shopping centre.

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