On occasion, I write on subjects far afield from my typical interests. The following is a comprehensive look at the future of smaller housing as the economy shifts into recovery mode. The article was published in the spring edition of the Piedmont Business Journal.

Beginning in 2007, the U.S. experienced the greatest housing collapse since the Great Depression, posting a nationwide 30 percent drop in housing prices. After six years under that shadow, it now appears there is light at the end the tunnel – and it’s not a freight train.

Last month, the Fiserv Case-Shiller index projected home prices to grow 3.7 percent between the third quarter of this year and  the third quarter of 2014. Further, the firm said the trends point to a return to a normal housing market over the next five years, with prices projected to grow at an annualized rate of 3.3 percent from the third quarter of 2012 to the third quarter of 2017. That’s bright news, given the wrenching six years of withered home sales nationally.

Assuming a sustained housing recovery continues, will the industry leap back into the construction of large homes? Or will the rebound signal a reset of the type and location of the next generation’s housing needs?

Preliminary signals are mixed, but buyers might want to adjust their view of what constitutes the American Dream. And builders need to be prepared to respond to an emerging market if demand for smaller homes on smaller lots, in fact, materializes.

Historically, small houses have been the norm in the Unites States. In 1950, the average home was 983 square feet. But as prosperity accelerated in the latter half of the 20th century, homes grew.

The Census Bureau reports the average U.S. home rose to 2,480 square feet in 2011, up from 2,392 square feet the previous year and seemed to defy the inherent economies of owing a smaller home in a tough economy.

One industry observer, Jack McCabe, CEO of Florida-based McCabe Research and Consulting, told Bloomberg last July that large home sales were rebounding. “It’s about opportunity, it’s about interest rates. And it’s about short memories,” he said.

A similar market reaction occurs when gas prices drop for an extended period; sales of larger vehicles begin to accelerate. Pain, indeed, has no memory.

What housing patterns are emerging in Prince William, Fauquier and Culpeper counties? And, as importantly, should local governments be developing policies that drive the recovering market toward smaller residential dwellings for the overall benefits of their residents?

Industry analysis
Concerned Culpeper Citizens was formed in 2001 to assess county growth planning. CCC publishes its findings and opinions for public information and testifies before public boards and commissions.

Perry Cabot, director of operations for the organization, sees a changing mentality in home buyers. “Today’s fluctuating fuel costs, younger couples opting to live closer to work, boomerang children moving in with parents for extended periods and older parents opting to live with their children, are driving demand for different housing options,” he said.

“In some cases, these forces are changing the demand from larger homes to smaller ones and to condos, townhouses and multi-family construction in our region. Even a shift of 10 percent can affect tens of thousands of units. Distance, location and density are driving this new demand. But I would not yet call the movement a surge.”

His observations mirror the reports of other experts. The real estate research firm Trulia found that in 2010 the median “ideal home size” for Americans had declined to 2,100 square feet. More than a third of its survey respondents said their ideal preference was below 2,000 square feet.

Yet a sustained pattern of building homes of this size is not easily discernible in the Piedmont. Even a modest economic recovery in the years ahead could stall any significant shift to smaller housing.

Keller Williams real estate agent Brian Hagarty (Disclaimer: Brian is my son) agrees that buyers are downsizing, but that price is the No. 1 motivator. Older, smaller homes, even those in need of some renovations, are attracting buyers.

“It’s driven by economics,” he said. “I don’t see the market wanting smaller homes per se, but [buyers] do want to reduce mortgages and taxes.  A secondary driver is the desire to shorten commuting time.

“The combined benefits of smaller mortgage payments, taxes and faster commutes are the motivators we are seeing a lot in Prince William County,” he said. “We’re hearing a lot of people say, ‘We don’t want to struggle with our payments.’”

Tom Campbell with Long & Foster in Fauquier County agrees. “People are downsizing for multiple reasons, including first-time buyers who do not want to mortgage their lifestyle for a large home,” Campbell said. “Buyers are foregoing formal living rooms and extra bedrooms when their salaries are better spent on more modest dwellings that offer a better lifestyle.”

It’s not just young home buyers. As the Baby Boom generation — people born between 1946 and 1964 — heads into its later years, there will be an avalanche of older Americans seeking smaller homes and alternatives to conventional assisted-living facilities .

The economic impact from the wave of retirees will put pressure on entitlement programs and health care, to be sure, but housing will also be affected. Consider that the first baby boomers reached retirement age in 2011. There are about 76 million adults in this cohort representing 29 percent of the U.S. population.

The movement
The dialogue on smaller homes began in earnest in 1997 with publication of “The Not So Big House” by Sarah Susanka. The book sold nearly half a million copies and is widely recognized as the essential treatise on home design emphasizing “build-better-not-bigger.” Susanka, an architect, believes today’s homes place far too much emphasis on square footage rather than lifestyle needs.

She wrote on making the kitchen the focal point of a home and creating the illusion of space through the creative use of storage, lighting and furniture arrangement. The objective of such design is to make a smaller living space a comfortable and inviting alternative to large and often under-utilized conventional homes.

Another important book, “Pocket Neighborhoods: Creating Small-Scale Community in a Large-Scale World,” written by Ross Chapin and published in 2011, highlights the move toward smaller homes gathered around common, park-like settings.

Buyers of such homes are often young families, empty-nesters and single homeowners — major population segments inclined to seek homes on a scale that matches their needs.

Such living arrangements foster closer social bonding among residents, their adherents say, enhancing a sense of community.

After decades of suburban sprawl, there is an emerging demographic which is ready to turn elsewhere for its housing needs. With natural resources shrinking, the green movement on the ascent and people feeling increasingly isolated from one another, the smaller-home movement offers a more rewarding, budget-conscious lifestyle enhanced by deeper connections with neighbors.

Jim Carson, president of Carson/Ashley, a land-use consulting and engineering firm located in Warrenton, agrees with the need for a new paradigm in housing. “Natural land-planning standards for the last 50 years have been that we segregate uses,” he said in the January 2013 issue of a local lifestyle magazine. “We live here, we work there, we shop over there, so we’re always in our cars and there’s no community. Mixed-use communities are walkable, live-work type of environments which is what most land planners these days are saying is ideal.”

Builders’ perspective
Just as fine dining blossoms when an experienced chef is in the kitchen, so smaller housing becomes a reality when home builders are incentivized to build them. For builders, finding the profit in smaller structures has been the challenge. “The last two years have been as tough as I’ve seen it in home construction,” said Larry Aylor, a custom home builder in Culpeper.

Aylor’s 39-year career has included construction of very large homes, and he said that while he’s “been labeled as ‘he only does the big ones’, today I’m into remodeling, repairs, and whatever business I can get. I’ll even remodel your garage.”

From his perspective, building smaller homes is clearly profitable. There are many elements to making money in homes with shrunken floor space. One key is getting buyers qualified for a loan by reining in their desire for more living space.

“I do think the market is pushing smaller homes, but it’s all about affordability and price point,” Aylor said. “In Culpeper, the housing market is starting to clear of foreclosures, and it’s getting better every day.”

Retirees are a customer segment Aylor sees as holding great promise. “They are moving down from their 3,500-square-foot-plus homes and looking for little jewels that are one level, on smaller lots and easy to care for,” he said. “But I do not carry an inventory of building lots to always meet that need.”

Finding land is a challenge for small-home builders. Moreover, deed restrictions and covenants in existing subdivisions can prohibit smaller homes because of minimum square foot requirements.

Local governments’ role
Given the mixed demand for smaller housing, local governments play an important role in either fostering or discouraging the trend, particularly in view of the housing industry’s modest interest in building such units.

Kim Johnson, zoning administrator for Fauquier  County, underscores builders’ general lack of interest, saying, “We haven’t seen developers coming in wanting to build smaller homes. Typically, it’s the individual property owner who is seeking a special exception, such as an auxiliary dwelling unit up to 800 square feet for an aging parent or in-law.”

With respect to pocket neighborhoods — homes fronting on a common area without street frontage — Johnson said county zoning does permit such dwellings when clustered on smaller sites in some planned residential districts. But there are still no recognizable pocket neighborhoods in Fauquier County.

Where an applicant wanting to build such a neighborhood runs into problems is with regulations that “require homes to have frontage on a public street,” Johnson said — a costly expense for builders considering such an option, and one that likely makes building a community of smaller homes economically unattractive, perhaps even economically unfeasible.

“We are editing our Transportation Design Manual and asking ourselves do we always need frontage on a public street?” Johnson noted when she was interviewed last year. Amending the current regulation might open the opportunity for builders to build smaller homes and still make sufficient profit to make the project attractive.

In summing up the slow pace of small housing projects in the county, Johnson said that “Part of the reason people move to Fauquier is the idea of owning a nice piece of land with a house. I know the smaller home movement is happening around the country, but I don’t know if it’s come to Fauquier County yet.

“But certain segments of our population would be well served if smaller homes were available,” she mused. “Young people who grew up here and who’d like to stay but can’t afford the bigger homes are a good example of one of those groups.”

Prince William Zoning Administrator Nick Evers said “Generally, I think there is an interest in smaller homes here. People are downsizing. I’m not sure what percentage overall. But homes are getting smaller and developers are looking to put as many homes as they can on a development parcel.”

Perhaps one reason for the interest is population density. While Prince William County is slightly smaller than Culpeper County and only about half as big as Fauquier, its population is nearly nine times that of Culpeper and seven times Fauquier’s population.

The shrinking availability of land close to work centers and arterial highways may be driving greater housing density in Prince William.

Concerning Pocket Neighborhoods, Evers said, “We have cluster development standards. We have what we call ‘pipestem lots’ that allow a builder to place homes off private drives, enabling builders to maximize the number of building sites in a given subdivision.”

However, Ray Utz, the county’s long-range division chief, cautions that any such development as a pocket neighborhood would have to meet zoning requirements. Those requirements often include the deal killer – minimum road frontage. “My perception is everyone needs to get a driveway to their house,” Utz said.

“Generally, there is some sort of vehicular access to the front of a residence. Prince William offers quite a bit of flexibility in allowing private road access to some, or in certain cases, all of the homes in a development. We usually encourage and support a range of housing types.”

From here to where?
In assessing the movement toward smaller housing in the tri-county area, a mixed picture emerges. While demand exists, it does not appear to have reached the critical mass that would drive builders to respond.

Until they can discern a sustained movement away from the traditional-size single-family home and townhouse, they are likely to pursue business as usual.

It can be argued that local government policy could be the strongest catalyst for such change, and that government should take the lead — especially to the benefit of those who are ill-equipped to buy or don’t need or want a traditional-sized home.

Additional benefits include housing that helps preserve open space and the natural beauty of a region, does not place undue demands on taxpayers for infrastructure, and enhances community and overall lifestyle. Increasingly, that includes people who cannot find affordable housing, such as middle-income families, individuals and retirees.

Except for the retired, these are people who often hold jobs in local essential services – trade, manufacturing and government — and are forced into long commutes.

While local government often has little control over many factors that affect housing cost and size, that does not mean it is powerless.

In setting local land-use and development regulations, specifically in the areas of land acquisition, site development and location, local planning commissions and boards of supervisors hold the key to change.

It’s not the purpose of this review to address in-depth actions local governing bodies might undertake. Nonetheless, there are some ideas on how local leaders could respond to the movement for smaller housing that needs its support and regulatory action.

• Comprehensive Plan. The comprehensive plan sets out the broad outlines of the community’s plans and goals governing land use. While comprehensive plans establish the broad policies and goals which guide the land development process, a community’s zoning and subdivision regulations provide the detailed means for achieving those goals.

• Zoning regulations. Zoning ordinances govern such matters as density — the number of housing units per acre of land — lot sizes, setbacks, frontage requirements, and the placement and mix of residential, commercial, and industrial uses.

Density standards in particular have been identified as having a direct relationship to land values. Land values, in turn, are a central component of housing costs.

According to a study by the U.S. Department of Housing and Urban Development, the cost of raw land can range from 8 to 25 percent of the cost of a new housing unit, depending upon the local market.

Where density standards are unduly restrictive, land prices per housing unit are likely to be high.

Reducing land costs through increased density is generally the largest single factor in achieving smaller and more affordable homes.

• Subdivision Regulations. Subdivision regulations set standards for street widths and construction, sidewalks, parking, drainage and other site-development requirements.

Site planning and development represent major areas of potential cost savings for housing developers. These costs may make up 10 to 20 percent of the cost of a new single-family home.

A number of communities are reviewing the development standards in their subdivision ordinances to determine where they can be modified to enhance housing affordability.

Successful approaches to affordable housing require more efficient utilization of land than has often characterized American home-building practices in the past.
Many towns and cities are employing new approaches to encourage development of smaller housing, either by providing incentives to developers to include such housing in new developments, or by giving developers greater flexibility in design and site development, or a combination of both.

Other approaches seek to make more efficient use of existing housing resources by removing regulatory barriers or by encouraging the adaptive reuse of existing buildings.

Upzoning, or higher use application, is a basic and effective strategy for promoting rational house size and affordability.

It involves the selective rezoning of residential land to allow greater density, as measured by the number of housing units that can be placed on a parcel of land. Higher density can include both multi-family and single-family housing.

Municipalities that allow higher densities may also enact special design requirements to ensure that new higher-density developments are compatible with existing housing in the community.

A single-family home on a half-acre lot uses 12.5 times as much land per household as a garden apartment of 25 units per acre.

At the extreme, a steel-and-concrete high-rise of 80 units per acre holds 400 times as many households per acre as a five-acre lot development of single-family homes.

Many communities have developed programs that offer developers “density bonuses” in exchange for the inclusion of smaller units within a proposed residential project. A density bonus allows a developer to build more units within a project than would otherwise be permitted under normal density limits. Both zoning and subdivision regulations can be modified to allow density bonuses.

Density bonus programs must be designed on the basis of a thorough understanding of the real estate market to determine feasibility and to develop appropriate regulations. If current zoning allows enough density to satisfy current market demand, developers may have no interest in using a density bonus.

Additional strategies include, performance/impact zoning, planned unit development, cluster subdivisions, small-lot subdivisions, infill development, adaptive reuse, mixed-use development, office-housing linkage, impact fee exceptions and a host of other approaches.

Perhaps none other than the 14th-century Italian Renaissance polymath Leonardo da Vinci summed up the ultimate marker of smaller housing: ”Small rooms or dwellings discipline the mind, large ones weaken it.”

It will be interesting to see what size homes Americans will embrace as the economy strengthens over the next few years.

Not so fast
Not everyone is sold on the idea that smaller homes are the wave of the future.

Warrenton Long & Foster Realtor Charles Ebbets, who works closely with builders of larger homes in FauquierCounty, sees little indication the housing industry will scale back the size of units it intends to build as the economy picks up steam.

“There is pent-up demand for housing in the 2,500- to 3,500-square-foot range,” he said. “There is almost no inventory of these existing homes. The demand for housing this year — both old and new — will go crazy, but it will be for the conventional-sized single-family home that we’ve seen in the past.”

To underscore his point, Ebbets lamented his lack of progress in launching a development in Warrenton within walking distance of the Warrenton Aquatic and Recreation Facility (WARF) that would feature seventeen  2,000-square-foot homes for buyers over 55 years old.

His market research demonstrated the demand was strong, but he could not find a single builder who was interested in the project. “One of the reasons the builders cited was the lengthy time it takes to get a site plan approved by the county,” Ebbets said.

But builders and Realtors should do well this year, Ebbets predicts. “This year and next will be a slam dunk,” he said. “The housing industry is going to go crazy; prices will jump 25 percent to 35 percent over today’s prices. No spec houses have been built in the last three years. Demand will be great. The young married couple with an infant six years ago now has two growing children. They will be looking to move further out to a larger home, especially with the attractive interest rates available.”

The larger builders are still focused on the conventional size family home. The $325,000 to $400,000 homes are their bread and butter, Ebbets said. “What I don’t see is much interest in the McMansions with more than 4,500 square feet,” he said.

Last August, Toll Brothers, the No. 1 luxury home builder in the U.S., reported its highest revenue since the recession, sending its shares to a five-year high. In Prince William County, Toll Brothers Group President for Virginia John Elcano confirmed the market for larger homes in his Dominion Valley project is making a strong comeback.

“We think the American Dream is still the American Dream and buyers want large, luxury homes,” Elcano said. “Now that interest rates are at an all-time low, people can afford a lot more house. Around the Beltway, we are seeing prices growing 5 percent to 11 percent this year, and that creates equity sellers can use to move up.”

He cites Toll Brothers experience with its Villages Collection of homes that are 2,500 square feet. “When we first introduced that collection, they were smaller homes, but we found buyers wanted more space, so we made them larger.”

As a result, Elcano does not think there is a growing market for smaller homes and reinforces the premise that as the economy grows, the memory of hard times will fade.

“Buyers have been sitting on the sidelines waiting for the equity in their homes to rebound,” he said. “In December, we had one of our best months in years selling our estate homes that range in size from 4,000 square feet to 6,000 square feet. When people are starting their families, they want room; a bedroom for every child, and, hopefully, a bathroom for every one of their children. The market for large homes seems to have returned.”

Jim Epstein is chairman of his family’s investment firm based in D.C. and has been involved in a number of diverse ventures, including a project called Blue Ridge Produce that markets locally grown produce from artesinal farms. That venture, still being planned at the time, was featured in Piedmont Business Journal in the Winter 2011 issue.

In 1978, his father purchased 125 acres in northern Culpeper County known as Clevenger’s Corner. Epstein saw an opportunity to develop the property using “new urbanism,” design concepts that came to the fore in the 1980s and which promote mixed-use, pedestrian-friendly communities containing a range of housing and business options. “I made an effort to use those concepts at Clevenger’s Corner,” he said. “My efforts didn’t get very far. There were all kinds of issues. Then and now, people aren’t ready for something new and different.”

Last July, Epstein pulled his application for Clevenger’s Corner, saying he would return to the project in six months. As this was being written in January, the county had not heard from the applicant. It could well be he’s waiting for a stronger housing market to emerge in Culpeper County before proceeding. Epstein successfully developed BelmontBay in Woodbridge, a 325-acre community that will ultimately have 1,600 homes.

The town center is 80 acres of condos and businesses built by Epstein and embodying the principles of new urbanism. Other builders constructed the community’s remaining conventional single-family homes. “People love living there,” he said.

His project reinforces the idea there are successful alternatives to sprawling subdivisions with large homes where the automobile rules. “There is definitely a growing interest in smaller, more compact houses,” Epstein said.

Growing interest…maybe.

In Prince William, long-range planning chief Ray Utz cited “two over two” housing as an example, perhaps, of a contrary signal for the housing market. These are four-story townhouses with two separate entrances. One of the residents would access his or her home by climbing two flights of stairs.

“While we have such homes in the county, some builders who thought it was a good product later found out the market had moved away from the concept,” Utz said. “Those builders came back asking for modifications to allow other types of housing.”

Other alternatives
Last November, The Washington Post wrote about a high-tech cottage dubbed the “Granny Pod” and marketed by a Blacksburg company called MedCottage that could revolutionize the way Americans take care of mom and dad in the later stages of their lives. Several other companies sell similar “auxiliary dwelling units.”

The prefabricated mini-homes are placed on existing home sites by crane; utilities are connected directly to the primary residence. The Pods are designed with a kitchenette, bedroom and bathroom and monitor the inhabitant’s vital signs, filter contaminants from the air and permit communication with the main house.

The average cost of an assisted-living facility is about $45,000 a year, and full nursing-home care costs more than $83,000 annually; prefabricated Pod housing, ranging in size from 288 to 605 square feet and costing up to $125,000, including installation, is an attractive option to a traditional elder-care facility.

Three years ago, Virginia passed legislation requiring all localities to allow auxiliary dwelling units for relatives requiring temporary assistance. However, the units cannot remain in place after that family no longer needs the dwelling.

And that, some observers believe, kills any chance that such structures will make many inroads. It is, they say, simply too expensive to bring in the small structures, then take them out. If they could stay in for other family members, perhaps….

At the extreme end of small housing concepts is the tiny house. One firm marketing such building plans is the Tumbleweed Tiny House Company based in Santa Rosa, CA. It exemplifies the smallest of small homes that are available.

The firm sells design plans for homes ranging in size from 50 square feet – -that’s not a typo — up to 847 square feet. It does not offer turnkey finished dwellings, but rather a host of plans a construction firm or individual would use to build a house, typically for $20,000 to $50,000.

The smallest of the houses are crafted to look like traditional homes but Lilliputian in size and built on a trailer bed similar to a mobile home. They range in size up to 150 square feet. The plans are sold under its “House To Go” category.

The next level of homes is dubbed “Cottages” and offers floor plans up to 847 square feet. They are not mobile and a typical reaction on seeing such a home is, “How cute!” The exterior designs mimic classic home styles, including front porches.

Jay Shafer founded Tumbleweed in 2000 and has sold more than 1,500 sets of plans so don’t look for subdivisions of his tiny homes sprouting up anytime soon.

While these are radical living options for singles and adventuresome couples, such micro-housing offers relatively low-cost home ownership in lieu of renting.

A group of tiny home advocates calling themselves Boneyard Studios erected three tiny homes in an empty lot off an alley in Washington, D.C. late last year to demonstrate an urban affordable housing alternative.

“Although the diminutive homes are made of high-quality materials, they are priced for a flagging economy,” The Washington Post reported. “They sell for…less than the down payment on a two-bedroom condo in a trendy D.C. neighborhood.”

As with more traditional smaller homes, local government has a role to play if these housing options are going to get a foothold in the Piedmont.

Divide and conquer
Piedmont Business Journal interviewed Crissy and Daniel Southard of J&D Handyman Services for another article in this issue. More than handy, both Southards have Class A building licenses and do, indeed, build some homes from the ground up.

During our interview, the Southards noted, in passing, that McMansions are still popular in the Piedmont, though oftentimes for reasons that have changed substantially since their original construction.

“McMansions are holding their own because parents are now living with the kids,” Crissy Southard said. “Five, six bedrooms is not uncommon – people need them because so many more of these homes are housing multiple generations.”

Many of those families, likely, would consider making changes to the structures themselves to make living together more comfortable. Many, likely, would like to divide their McMansion, to duplex or even triplex the building. If so, they better be prepared to hoe a long, tough row.

In Fauquier, that would “typically require a special exception and the home needs to be on a larger site,” Zoning Administrator Kim Johnson said. The general consensus is that builders don’t want to get involved in such projects because at least some of them perceive it’s a lengthy process to get special exceptions approved in the county.

“Over the last five years, we have had two or three controversial applications that took a very long time,” Johnson said. “But, on average, they don’t take long at all. The majority of applications hit the mark within the 90-day process. It may be the perception that the process in lengthy, but the record doesn’t reflect it.”

In Prince William, Ray Utz, the county’s long-range division chief, also views duplexing as problematic.

“We don’t allow more than one dwelling unit per lot,” he said. “To turn a single-family home into a duplex, you would need to subdivide the property. You would have to be in a situation that allowed land subdividing and that would be unlikely. It would also involve creating multiple drain fields and other issues,” he said.

Another alternative which doesn’t seem to be moving forward in the PBJ readership counties has to do with allowing the construction of “backyard cottages” in already existing neighborhoods. “In many cities, growing populations are putting a stress on existing housing options,” apartment therapy.com noted in an article two years ago.

“Instead of building new condos and apartments, one creative solution is to increase the density of existing single-family neighborhoods by allowing ‘backyard cottages.’ These small dwelling units can be rented out for supplemental income or serve as a living space for extended family. (Some homeowners are even deciding to downsize to the cottage and rent out the primary home).

“Cities like Seattle have recently changed their zoning code to allow these detached accessory dwelling units (nicknamed “DADU’s”) and local architects and homeowners have been eager to explore the possibilities.

“In addition to the their small size and urban settings,” the article pointed out, “many of these examples also boast sustainable features like rainwater catchment, super insulation and the use of simple and durable materials.”

It is interesting to note that some of the most fashionable streets in Warrenton and Culpeper feature large, older homes, many of which have “backyard cottages” that do nothing if not increase the appeal of the property.

“We really have extremely liberal accessory dwelling unit [regulations],” Fauquier Zoning Administrator Kim Johnson told Piedmont Business Journal last year, though liberal is in the eyes of the beholder.

“Almost anybody can put a second house, for family members, or even an apartment, a small apartment up to 600 square feet, or even a larger apartment in some cases, on their property,” she said, “if they have the room for it and they can meet setbacks and can get the sewer and water and all those issues resolved.”

There are opportunities, she noted. There are also a lot of restrictions.

Build an efficiency apartment in your home, for instance, and “you can have only two people living in it, and it can only be so big, and, in the case of an efficiency apartment that’s open to anybody, not just family, it has to be incorporated above a garage or other existing building, or it could be in a basement or be part of the house,” Johnson said.A free-standing backyard cottage must be occupied by a family member.

And if that family member should die or move away? “The planning commission is looking at that,” Johnson said.