Economic, social and environmental issues combine to produce the backdrop of the traditional housing market. Consumers that want a nice place to live, in a good area, close to robust infrastructure or a commercial hub will typically be held to a certain price standard.

But let’s stop here a moment, and ask the question, do consumers really need to pay more for these things?

This thinking is based on the traditional consumer habit of upsizing. In the past, people have generally considered bigger as better when it comes to finding new housing. This will lead to ever increasing accommodations costs.

As a number of consumers are finding out, there is another option: downsizing. Not only are small spaces much cheaper to build, buy or rent, they also tend to have lower maintenance costs and utility bills. In addition, the emerging millennial generation has ingrained a certain environmental stewardship – making small footprints appealing given their minimal impact.

The small space movement is pervasive in pop culture as well. The FYI Network hit show “Tiny House Nation” follows a pair of design professionals across the country showcasing tiny house residences along with consultations with couples considering one.

Small space living is all about trading the size of the space we live in for factors such as location, cost, availability and efficiency. K&A has taken a look into how the small spaces phenomenon has taken off in recent years, and the implications it has for building product manufacturers.

The Growing Small Spaces Trend

tiny homes trendEconomic Drivers

The purely economic driver of the small spaces trend is the spiraling cost of accommodation. Housing cost trends from Statista states that in many locations in the USA, the average home price is over $500,000. In San Jose, the average price is a whopping $750,000. This figure means that for many potential home buyers, these particular locations are off the board when it comes to finding a new home. Smaller sized accommodations act as a work around for this problem.

If a potential homeowner cannot afford a traditional living space in their chosen location, small space living poses an interesting option. Whether it’s a major urban city center, or a remote wilderness location, it all comes down to this basic math.

According to Navigant Research, energy-efficient housing solutions are becoming widely available for people of all ages, incomes, and lifestyle preferences. The explosion of the energy-efficient pre-fab market, which is characterized by smaller overall spaces, is an indication that Americans are compromising space for efficiency.

Social Drivers

Family values have slowly shifted across the last fifty years. In the 1960s, many families still lived as a single unit, and this of course, required large residential properties.

These days, when we think of a family living together, we automatically think of parents plus children. In today’s culture, we no longer live as a multi-generation, single family unit. In 2014, most countries in the western hemisphere averaged less than three occupants according to research from TekCarta. This size family typically does not require more than a two bedroom home.

As the Millennial generation joins the ranks of residential property purchasers, the picture changes yet again. This young, driven generation has far different wants and needs when it comes to housing.

A popular Millennial focused website, Micro Lifestyles, found that one of the major draws to micro-housing is, as the adage goes, location, location, location. Especially for millennials on a budget, the proximity to a city’s cultural hubs makes the sacrifice of space worthwhile. The migration of living centers towards urban centers is well documented, particularly in the United States where the Midwest often struggles to retain a millennial workforce skilled in tech jobs.

Millennials face a unique challenge in the current housing market, however. They’re generally more community-focused social groups, combined with the preference to work and live in high density urban areas, meaning that they face a unique set of challenges associated with home buying. A recent statistic uncovered by the NAHB says that three out of four millennials are first time home buyers, and that those who do buy tend to purchase older or smaller properties. Thus, millennials are more prone to small space living. In fact, a recent study by ULI states 24 percent of younger, single people who are currently renting due to financial constraints, usually in some form of shared housing expressed interest in moving in to a self-contained micro unit.

Environmental Drivers

The negative effects our consumption of natural resources such as fossil fuels and water have upon the environment continues to be a popular conversation. Many consumers and manufactures alike have made a committed choice to minimize their environmental footprint. Small space living has the potential to assist with these efforts.

Introduced by the U.S. Government in 2008, the Zero Energy Ready (ZER) standard for new homes is an expansive overhaul to the lauded Energy Star program. Forbes reported that ZER is today’s gold standard for efficient home design. The program boasts over 14,000 energy-efficient homes resulting in millions of dollars in energy savings.

Building large residential properties that conform to ZER standard is problematic at best, due simply to the high volume of living space. Converting existing properties to be compliant is virtually impossible. This poses a budding, and somewhat controversial, issue for the once “McMansion” obsessed buying culture of the American homeowner during the housing boom of the early 2000s. Existing inventories are built for suiting the square footage demand of the era’s buyer.

Small home and housing units, however, lend themselves very well to being built to conform to stringent energy standards such as ZER or Energy Star for two main reasons:

  • Lower interior volume – heating and cooling of small living spaces takes much less energy.
  • Small exterior footprint – the structure is physically smaller so it can be built using alternative materials that are more efficient insulators, or provide some other performance benefit over traditional construction materials.

The small physical size of these homes means that less raw materials are used in their construction. Likewise, waste production is also minimized.

In addition to the benefits gained from a downsized property, appliances that work well for small space dwellers tend to make the best use of space and are more efficient. For example, Blomberg offers compact, stackable laundry appliances that are also incredibly efficient by design. Products like these help save space and energy.

Identifying the Small Spaces Market Gap

Bureau of Labor Statistics show that for most families the cost of housing is the single largest budget segment each month. In2012, households spent the largest share of average annual expenditures (33 percent, or $16,887) on housing. This is a key market statistic that has not changed more than a few points in the last few years. This is because we are now over the original housing boom of the 1950s, and the collapse of the housing marking in 2007. Things have stabilized.

What this means for the small spaces market, is that those people who can afford to pay 33% of their monthly income to purchase their own home in their choice location mostly already have. The traditional property market remains fluctuating despite positive indicators of a recovery.

Now consider the fact that over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years according to Market Watch.

From these two statistics, we can conclude that 52% of Americans cannot afford to spend 33% of their income on housing. These people have only two choices if they want to begin living above their means. They can move to a cheaper and possibly less desirable location, or they can downsize home size.

What are the Benefits of Small Space Living?
Economic Freedom

Research from the NAHB has shown that many homeowners would pay a $6,000 higher price to purchase their homes, if the property itself could lower utility costs by $1,000 a year. Downsizing property size can contribute to lower utility costs.

Alongside these primary cost drivers, we also have many tertiary costs that could potentially be reduced by choosing to move in to a small living space. For example, for people who commute each day, moving to a smaller space, closer to their workplace could deliver considerable savings. With a smaller square footage, monthly payments will obviously be lower as well.

Lifestyle Improvements

Small space living is in many ways all about making a lifestyle choice. It is the trading of space for additional benefits, and after cost, lifestyle improvements are the second largest driver of the small spaces trend according to the FYI Network.

Potential lifestyle improvements to be gained from downsized home size are as followed:

  • More disposable income – from saving on the cost of housing and utilities.
  • Better access to infrastructure – such as being closer to public transportation, shopping malls, hospitals etc.
  • Wider entertainment options – if moving to a smaller space, closer to an urban center.
  • Access to a natural environment – if relocating out to a geolocation outside of a city.
  • Lower commute times – when moving in towards their place of work.
  • Proximity to friends and family – if moving closer to their relatives.

And the list could go on. But the largest lifestyle change of all is having more freedom to choose location with less budget restrictions.

Design Considerations

Manufacturers have an opportunity with small spaces to position their products to accommodate small space6 dwellers’ lifestyle of high functionality.

Generally, this means conforming to a specific set of design aesthetics that are intended to make the small space feel bigger than it already is, and some of these can include:

  • Plenty of exterior view – lots of large windows, so the eye tracks to the horizon instead of the wall.
  • Open design – more focus on creating a large open multi-use living space than one that is compartmentalized in to rooms.
  • Declutter – Keep as much of the space free of superfluous furniture or appliances.
  • High ceilings – Giving the perception of greater space.
  • Micro appliances – switch out large appliances such as full size ovens and dishwashers for smaller units.
  • Outside area – Even a small deck or balcony can help give the allusion of more space

The brands that have perhaps the largest opportunity to profit from the small spaces trend are the storage solution brands. Smart, functional storage is a must have feature in order to keep a space free of clutter and chaos.

WoodTrac is a brand that provide elegant yet functional closet organization solutions that increase storage space. Similarly, Rev A Shelf provides cabinet and drawer storage solutions to help make kitchen and bathroom spaces functional without taking up any extra floor space.

Why Building Material Manufacturers Should Care

As consumers consider small space living in order to save money and have more freedom to choose a location, building product manufacturers have a new trend to tap in to. Brands focused on energy saving and efficiency are able to provide consumers with more economic freedom while storage solution brands cater to the consumers’ need for a functional space. Smart brands remain proactive should they want to remain relevant to their audiences.

As our population continues to age, its imperative manufacturers cater their products to what the next generation of property owners will demand. First-time homeowners in the mid-2000s aren’t concerned with square feet, they care more about footprint. Even more critical is how manufacturers adapt their marketing models to ensure they remain part of the conversation where this new market segment consumes.  That’s where the expertise of our agency can play an integral role.

If you’re curious how Kleber& Associates is working with companies on their small spaces marketing plan, or want to discuss your own, shoot us an email: