Shrinkflation Hits the US Housing Market: Paying More for Less
by Jon Crompton
We have all heard the word, 'shrinkflation' and it is becoming increasingly familiar in grocery stores, where products shrink but prices do not, though now this similar trend is making its mark in an unexpected arena—the U.S. housing market. Recent studies indicate that homes across America, especially in the South, are shrinking in size while their prices soar, complicating the dream of homeownership for many.
USA Today along with data from Realtor.com did a recent analysis and it has shed some interesting light on this trend: the median American home has reduced by 128 square feet compared to five years ago yet costs $125,000 more. What is known as shrinkflation, has always been associated with food products shrinking though the cost remaining the same or going up just a bit, its now made its market in the housing industry.
Several factors are the reason for this trend to have entered the housing market, the accompanying price increase is primarily driven by a combination of economic factors. Inflation, rising construction costs, and an ongoing affordability crisis are reshaping the landscape of American real estate. According to Dayna Drake, a researcher at USA TODAY Homefront, "Builders are caught between increased costs and the need to maintain affordability, often choosing to reduce square footage as a compromise."
The impact is most pronounced in the Southern United States, where rapid population growth and limited urban land are pushing builders to maximize the number of units by reducing the square footage of individual homes. Cities like Colorado Springs and Charlotte-Concord-Gastonia have seen some of the most significant reductions in home size, yet prices per square foot have surged dramatically.
The Top 10 Metros Affected:
Colorado Springs, CO: Homes are 21.19% smaller.
Charlotte-Concord-Gastonia, NC-SC: 20.26% reduction in size.
New York-Newark-Jersey City, NY-NJ-PA: Homes shrunk by 19.38%.
Urban Honolulu, HI: Reduction of 18.81% in home size.
Hickory-Lenoir-Morganton, NC: 17.67% smaller homes.
Washington-Arlington-Alexandria, D.C., VA, MD, W. VA: 16.03% smaller.
San Antonio-New Braunfels, TX: 15.97% reduction.
Raleigh-Cary, NC: 15.60% decrease in size.
Winston-Salem, NC: Homes are 15.55% smaller.
While smaller homes theoretically could lower construction costs and thus purchase prices, the reality is more complex. The savings from reduced sizes are not sufficient to offset the skyrocketing prices driven by high demand and costly materials. Many potential buyers find themselves unable to afford a home, as the market dynamics fail to align with the needs of average Americans.As the U.S. housing market experiences its own form of shrinkflation, the dream of homeownership remains elusive for many. With the 2024 election on the horizon and economic indicators in flux, potential homebuyers and industry watchers alike are keenly observing how these trends will evolve. The question remains: how will we address these ongoing challenges to make homeownership accessible and affordable in today's economy?
