Houston has the second-largest homes in the country, with a median size of 1,900 square feet, according to 24/7 Wall St. However, new homes and home sites are shrinking in the Bayou City. Amid the oil slump, changing demographics and concerns about affordability, homebuilders are rethinking the conventional wisdom of “bigger is better,” experts said.
Production homebuilders, who in the past didn’t want to offer anything below 1,800 square feet, are now introducing 1,500-square-foot homes in Houston. And developers are introducing smaller lot sizes to accommodate these smaller, patio-style homes.
“We’re definitely seeing some interest in smaller homes and lots to make homes more affordable,” said Lawrence Dean, Houston regional director at Metrostudy, a national housing research firm.
Much of the trend toward smaller, “patio-style” homes in Houston has been fueled by the oil slump, Dean said.
As crude oil prices crashed from more than $100 a barrel in 2014 to around $50 a barrel in 2016, Houston’s housing market has slowed.
In particular, luxury homes — often large homes on large lots — have lost their luster. However, sales of starter and so-called “move-up” homes priced between $150,000 to $500,000 have increased by about 10 percent year-over-year, according to the Houston Association of Realtors.
Patio homes on these smaller lots are selling, according to local housing experts.
In fact, most of the home starts and closings over the past 12 months have been smaller homes sitting on 50-foot lots. About 7,200 homes built on 50-foot lots were sold in Houston over the past year — nearly three times the sales of homes built on 70- and 80-foot lots, according to Metrostudy.
Inner-city townhomes and far suburban entry-level homes are selling the fastest, said Scott Davis, Meyers Research’s senior vice president overseeing Houston. Homes on lots that are 65-feet or larger aren’t selling as quickly, Davis added.
As a result, land developers and homebuilders are now looking to build more affordable homes — which means smaller homes on smaller lots priced between $225,000 and $280,000, Dean said.
Everyone’s trying to get back into the sub-$300,000 price point,” Dean said. “That’s the sweet spot.”
To accommodate an affordable price point, residential developers are shifting their land mix to accommodate smaller home lots. Some developers are looking to replat, or reconfigure, their tracts to fit smaller home lots instead of large home lots, said Steve Spillette, president of Community Development Strategies, a Houston-based real estate research firm.
“Homes between $200,000 and $350,000 are still very much in demand,” Spillette said. “That market is still quite strong.”
Over the past six months, the majority of land developers in Houston have begun to shift their home lot program, Dean said.
Developers are building fewer homes on larger 80-, 90- and 100-foot lots, and often discounting prices on these larger, 70-plus-foot lots, particularly on the west side of Houston.
The average price for a 70- or 80-foot lot in northwest Houston fell between $3,000 and $4,000 between January and July, according to Community Development Strategies’ most recent report. In southwest Houston, the average price for a 70- or 80-foot lot fell as much as $10,000 during the same time frame.
The lower prices for these large lots is reflective of the low oil prices’ effect on the upstream energy sector, Spillette said.
“Demand for expensive homes on large lots is softer, so you’re seeing some price decreases,” Spillette said.
Some developers have tabled plans to build large homes on large lots in their master-planned communities.
Newland Communities opened its latest Houston master-planned community, Elyson, in October with its largest home sites capped at 70 feet. The San Diego-based developer, which plans to build 6,000 homes at its new Katy community, had initially planned to add larger homes on larger lots, but decided against it during the oil slump.
“We decided with the market the way it is not to go with the super large lots right now,” said Heather Gustafson, Newland Communities’ marketing director. “We will do that in the future when the market can bear that.”
Rise of Patio Homes
Instead of building McMansions on large home lots, Houston homebuilders are building patio homes on smaller 50-, 55- and 60-foot lots, and adding a 45-foot lot to their lot mix.
“Nearly all of the master-planned communities in Houston will have a 45-foot program rolled out in 2017,” Dean said.
As a result, the median lot size in Houston will likely shrink 5 to 10 feet to about 50-foot lots, Dean said.
Patio homes on small lots are nothing new in Houston, Dean said. During the housing bubble, thousands of starter homes were built on 45-foot lots to cater to subprime homebuyers. However, after the housing crash of 2008, many homebuilders soured on these small homes and, instead, built large homes for well-heeled oil and gas workers during the energy boom.
Developers and homebuilders are focusing again on patio homes amid the oil slump. However, instead of building cheap homes for unqualified borrowers, homebuilders and developers are keen to build homes with good value, Dean said.
“Developers are very, very focused on trying to get smaller lots in their communities while still maintaining the development quality,” Dean said.
Houston’s changing demographics is further fueling the shift toward patio homes. As Millennials begin to start families, many young adults — born between the mid-1980s and late 1990s — are looking for patio-style homes and smaller yards that are easier to maintain. However, they still want the same high-quality homes, student dorms and apartments that they are accustomed to, Davis said.
“Millennials expect the same high level of finish they had at their homes growing up,” Davis said.
At the same time, Baby Boomers — those born in the aftermath of World War II — are looking for affordable and appealing homes, Dean said. These empty-nesters want to downsize, but not downgrade the quality of their homes, he said.
“While Baby Boomers want to financially capture their home equity to retire, they don’t want a home that has no frills,” Dean said.
Several homebuilders are offering patio homes on smaller lots throughout Houston, including Chesmar Homes, CalAtlantic Homes, Perry Homes and Pulte Homes, Dean said.
Sitterle Homes, which expanded to Houston in 2012, has largely focused on one product: luxury “garden” homes. About 95 percent of the homes that Sitterle builds in Houston are these garden-style homes that are one to one-and-a-half stories tall, spanning 1,600 to 3,000 square feet on 50-, 55- and 60-foot lots. Prices range from the $320,000 to $400,000.
“That’s our niche,” said Steve Von Hofe, partner and Houston division president of Sitterle Homes.
Von Hofe realized there is a demand for smaller, patio homes in Houston as Baby Boomers begin to retire en masse. Many of these empty-nesters are now looking to downsize from their large suburban homes into smaller homes in familiar neighborhoods, Von Hofe said.
“They don’t want the size of the home, but they still want the luxury amenities,” Von Hofe said. “That’s our secret sauce.”
Urban homebuilders are also turning to smaller homes.
Live Oak, a Houston-based homebuilder, is offering two new “efficiency” floor plans at Live Oak Landing, a 70-home community at 1806 Upland Drive in the Spring Branch area.
The smaller homes, which span about 1,125 square feet and start from $289,000, will feature the same exterior and interior finishes as its larger counterparts in the community, but will be built on a smaller footprint. Live Oak plans to deliver its first homes with the efficiency floor plan this spring.
The new efficiency plans will likely cater to young singles who want to live near the Energy Corridor and CityCentre, as well as empty-nesters looking for an easier-to-maintain home a short drive to the Memorial area, said Mark Coerver, a co-founder of Live Oak.
“In a slower market, we’ve seen a flight to affordability,” said Coerver. “I just think there’s a desire for smaller units that are more affordable. We think we’re going to hit a gold mine.”
Big Idea: S hipping container homes hit Houston
Jerry Hartless came up with the idea when he was working in the Middle East in 2008.
The Houston native had a commercial contract with the U.S. military, installing internet service for 65,000 soldiers in Afghanistan and Iraq. As part of his operations, Hartless had miles of cable wire and hundreds of routers shipped from Asia to the Middle East in large shipping containers.
The lack of housing in the desert was a problem for Hartless and his team. So, Hartless created his own man camp — complete with rooms, toilets, showers and kitchens — out of empty shipping containers.
When Hartless returned to Houston, he launched Build A Box Homes in 2013. The Houston-based homebuilder is one of the first homebuilders in the region to use shipping containers to build homes.
“I was doing this before it was cool,” Hartless said. “We just wanted to do something different, something cool and green.”
Build A Box Homes recently put its first shipping container home on the market. The home — 1709 Dan Street, a few blocks north of Interstate 10 in the Greater Fifth Ward — is made out of two 40-foot shipping containers sandwiched between a wooden front porch and back patio. Click here to see a slideshow of the container home.
The 1,280-square-foot home features two bedrooms, two bathrooms, a modern open kitchen with granite countertops and stainless steel appliances, and wood floors throughout. Although the exterior showcases a blue-painted shipping container, the interior features traditional drywall and polyurethane spray insulation, making residents feel like they’re in a regular single-family home, Hartless said.
The Build A Box Home, which hit the market about two months ago, is listed for $174,995 on HAR.com.
Although a shipping container home costs about the same to build as a traditional wooden stick-frame home, Hartless says these metal homes are easier to maintain.
“You don’t have to replace the roof or the siding,” Hartless said. “And no termites.”
Homes and retail centers made out of shipping containers have become more popular in recent years as budget- and earth-conscious homebuyers and shoppers look for more sustainable ways to live and shop.
“I think people have a lot of interest in them,” Hartless said. “It’s cool, trendy and eco-friendly.”
Source: Paul Takahashi Reporter Houston Business Journal