There are many reasons for the high cost of home construction, including expensive land, planning and zoning regulations that discourage density, and rising material and labor costs. Another problem, according to some housing experts, is an outdated mindset among home builders.
After the Great Recession, the higher-end home market was the first to bounce back, so many developers focused their attention there. Years later, a lack of affordable projects has created pent-up demand for modest, starter homes that is just waiting to be tapped.
Though larger homes fetch more profit per unit, there are strategies that can be use to profit while making smaller homes. For instance, there may be features common to larger homes that can be omitted from plans for smaller homes making them more profitable for builders. Substituting shared courtyards for individual back yards is one cost-reduction strategy employed by some developers. The assumption that smaller homes cost the same per square foot to build may be erroneous, some housing observers say.