Tuesday, March 11, 2014

Housing Dreams, American and Mexican

In the previous post, I observed how newly-built single-family housing in the Mexican border city of Matamoros (and in fact in most Mexican cities) is both much smaller in size and far cheaper, even adjusting for lower incomes, than almost any housing in the United States outside of Detroit.

New Matamoros rowhouses. (Google Maps).
This is partially due to the underdevelopment of the mortgage banking industry in Mexico, with the result that six percent of all homes in the country are financed with mortgages. The vast majority of homes are either inherited, bought with cash, or else are self-built on cheap vacant land, although informal lending systems among friends and family members no doubt lie behind many of these cash purchases. In the absence of debt-financed home consumption, most new homes must be very modest to match the limited purchasing power of potential buyers. 

Although one might expect this lack of financing to impair individual property ownership, a surprising 80 percent of Mexicans own their own homes. This compares to a rate of only 65 percent in the United States, where 70 percent of homes are encumbered with mortgages and only 1 in 10 buyers pays in cash (at least, until the recent surge in buying by institutional investors). As I pointed out in a previous post, the homeownership rate in the US has actually been more or less stagnant since the mid-1960s in spite of extraordinary efforts to expand the availability of credit.

I think there is something else at work here, though, beyond the influence of two very different lending environments, and it relates back to the modest size of houses observed in Mexican cities. It's been a point often noted that the average size of new American homes has been steadily increasing since 1950 even as household sizes have fallen. Home sizes and household sizes have diverged so sharply, in fact, that a major structural mismatch has emerged throughout the US housing market, as shown below (charting percentages of all US housing units and all US households):

Data from 2012 ACS three-year estimates.
Although over 60% of US households consist of just one or two people, only 13% of housing units are studios or have one bedroom. Moreover, we know that very few single-family homes of the type produced over the past few decades years have been studios or one bedrooms (or even two bedrooms), making it likely that most of these units are apartment rentals. This can be confirmed through housing data on tenure status, which show that studio and one bedroom units are overwhelmingly renter-occupied:

Data from 2012 ACS five-year estimates.
Homeownership in the United States, evidently, is very much a large or larger-home phenomenon (assuming that number of bedrooms is a reasonable proxy for housing unit size). When owned units are looked at in isolation, this fact becomes even more startling:

Data from 2012 ACS five-year estimates.
In essence, new single-family detached or attached homes intended for just one or two people, of the size built in mass quantities in Mexico, virtually do not exist in the United States. A Zillow or Trulia search in most any major American city will quickly show that this type of home largely ceased being built after the late 1950s, which, perhaps not entirely coincidentally, is about the same time that the homeownership rate began to level off. Today, only about one in ten new single-family homes have two or less bedrooms. Although this might be understandable if the decline had been offset by significant increases in the proportion of small units in multifamily buildings, it turns out that this has not been the case.

To what extent these patterns are an expression of consumer preferences, market forces, financial and tax incentives and/or land use restrictions (such as minimum lot or square footage restrictions) is unclear, although there is evidence that square footage restrictions generally seem to have appeared at around the same time as smaller homes ceased being built in large numbers and to have increased in restrictiveness thereafter.* Very small houses, and very small lots, have in typical American zoning fashion been segregated and stigmatized in so-called trailer parks (note that Matamoros, despite being poorer than any American city, apparently has no trailer parks).
Tiny House movement circa 1921:
"Just the thing for two people!"

Whatever the explanation, the effect must be to impede further increases in homeownership. As the country has undergone a long-term reduction in household size, the market has produced fewer and fewer for-sale options sized for small households. The options that remain are not ideal. One can either buy a home that is far larger and more expensive than one needs or enter a competitive rental market for legally restricted multifamily supply (large swaths of American cities, due to restrictive zoning, have few or no apartments for sale at all). An additional option  subverting late 20th century cultural norms* by renting out rooms within a single-family dwelling larger than needed for just one or two occupants  invariably raises the hackles of incumbent homeowners (as seen in the occupancy limit controversy in Austin and many other cities).

These trends have been noted countless times before, in particular by Christopher Leinberger, while Nathan Lewis has been adamant about the need for an increase in production of much smaller homes (including multifamily construction) and, just as importantly, the availability of much smaller building lots. Americans seem to have some difficulty conceptualizing separately-owned very small homes on small lots, though, and even when structures of this size are recognized as meeting an important market need, they are typically imagined as mere accessories to "proper" single family homes, not least by the New Urbanists themselves. Still, that is an approach that tries make something better out of the traditional American pattern of building a series of small houses (on their own separate street network!) just for cars to live in:

Indianapolis residential alley with garages, origin ca. 1920s. (Google Maps).
The Tiny House movement, which partly emerged in reaction to the financial burden imposed by large homes, has no such hang-ups, though the emphasis seems to be almost exclusively on shrinking the size of the home, rather than the size of the lot, and is often associated with rural environments (though certainly not always, and also see here). But large houses seem to be a natural fit for oversized lots and overbuilt infrastructure, as Nathan Lewis has noted.

What would be a reasonable price goal, within the context of the dominant single-family detached form, for housing cost using both small homes and small lots? Nathan, in his writings on this subject, aims for $50,000, which, when adjusted for higher American incomes, would be roughly comparable to the greenfield homes of Matamoros. Nick Derome estimated $170,000 for very small-lot homes in surburban Toronto in comments on the previous post. For even the highest cost towns in Fairfield County, Connecticut, based on land prices, 1,000 sq. ft. homes of less than $200,000 appear financially (if not politically) feasible. Going almost anywhere else from such a high cost location, prices should drop significantly.

Even within certain parts of ultra-expensive Fairfield County itself, the few manufactured and/or mobile homes available for sale (the only type of contemporary single-family detached housing that, with its special zoning designation, has anywhere close to the lot sizes found in Matamoros) tend to run around $60,000 for a 1,000 sq. ft., two-bedroom home. Higher quality architecture and construction  such as that found on the Katrina cottages or better — could surely be provided at only somewhat greater expense. A major challenge, it would seem, is not simply surmounting legal barriers, but reaching an understanding that small homes are not just for poor families, but for small families and others too.


Related posts: It turns out I'm not the first to connect Tiny Houses and Mexican urbanism -- an American homebuyer in the Mexican city of Merida linked the two on his blog here. Also, Life Edited opines on Why Household Size Matter and Why Are American Homes So Big?

*In striking down a Connecticut town's law fixing the minimum home size at 1,300 square feet (under challenge by a builder attempting to construct a 1,000 sq. ft. modular home), the Connecticut Supreme Court noted "the significant increase of the minimum floor area requirements over the years since 1955 when [the town] had its first regulation controlling minimum floor area requirements. At that time, the minimum floor area requirements were only 750 square feet for a one-story house... ." Builders Service Corporation v. Planning & Zoning Commission (1988). Similar New Jersey ordinances dated as early as 1949.

*Consider the connotations of the very term "single-family dwelling" and what it implies about the identity of the inhabitants of such a dwelling. However, such creative use of single-family dwellings used to be very common, legal and accepted as more or less ordinary (for an example, browse the appendix of the 1950 Housing Census, which describes a bewildering array of housing arrangements within a single home that enumerators might encounter).


  1. Really liking this series of posts.

    I spent a little time documenting Matamoros as well as slum areas and it inspired me to write a little about some of the spaces at the margins of rapidly evolving cities like these:

    A bit orthogonal, but it's such a fascinating place...

    1. Thanks, Zach. I agree with everything you said in your post. Streetview gives more or less equal attention to rich and poor alike, though as you mention it does avoid very dangerous areas, and is also weak in covering places that cars can't pass through easily (which includes large areas of certain cities).

      Although Streetview doesn't have a timelapse feature (yet), with some of the Mexican cities I have looked at, you can approximate one by looking at suburban neighborhoods of different ages. Setbacks are built into, second stories are added, stores open in what were once homes, and in general you witness a process of both intensification and diversification of use -- in so many words, urbanization. Were a close-up timelapse of the favelas provided, I have no doubt you'd see stunning and rapid changes that would dispel any notion that these are moribund or hopeless places.

    2. True that. I hope such a feature becomes available.

  2. Greetings from INDIA,
    We have plenty of examples for small houses, as you may well imagine, but my favorite upper-middle class locality is Vivek Vihar, about 12 km from Central Delhi. Here is a mix of 90 sq m to 200 sq m, houses, narrow lanes, say 10 ft wide with small parks interspersed.
    Houses are townhouses, 1 to 4 stories tall, There are 3 schools and 3 compact pedestrian shopping area.
    It is definitely not a slum but a sought-after locality populated by business people and professionals.

    You could look it up at Google Maps.

    1. Thanks Gyan! I wish Streetview were available there, but it looks great from the air. Attached houses, narrow streets, well-connected but not repetitive street pattern, ample but not excessive parks, excellent transit access -- it has the kind of sensitive, compact and integrated design that's so lacking in most contemporary American developments.

    2. Interestingly, Vivek Vihar was developed by the Development Authority and not by private developers. However, the actual houses are privately built.

      Vivek Vihar is still undergoing rapid development, consisting in converting previously built single-story houses to multiple-story, multiple-family buildings.

      I am not in Delhi otherwise I could send you some street photos.

    3. Vivek Vihar photos are available at real estate sites such as 99acres.com. Just look for property in East Delhi, Vivek Vihar. There are 45 pics.

  3. I would suggest three reasons for "house size creep." One is that as greenfield suburbs expanded in the 50s by developers, they both built bigger houses to increase their profits and because new suburbs used minimum lot zoning, floor-area-ratios to maximize tax revenue. The other thing is the American idea of a house as savings account -- bigger house, bigger savings. The third is that the feds were guaranteeing mortgages and so banks, developers and buyers figured that they might as well treat themselves if Uncle Sam was paying the bill.

    1. The mortgage guarantee, in combination with the mortgage interest deduction, no doubt has encouraged the construction and purchase of larger, more expensive homes. And once the typical home reaches a certain size, you may as well throw in that third bedroom regardless of whether or not it's needed by the occupants. Certainly that point has been reached with an average of 2500 sq. ft.

  4. My estimates were for a 1000sf 2 storey house on a lot of maybe 1000sf, with a 400sf basement as required in colder climates on top of that. Costs would be more or less in line with the assumptions Nathan Lewis used (he got $150k for a 1000sf house, but no basement). I did check that the assumptions worked for a typical suburban Toronto house, which might be around $550,000 for a 2500sf house on 1/10 acres with the typical suburban infrastructure (a significant part of the cost) in one of the less expensive suburbs (Brampton, Milton, Durham).

    By the way people often equate places with expensive housing with being desirable. Fairfield County has expensive housing... but I'm not convinced the location is that desirable. I think it just has expensive houses because the houses are big and have lots of land rather than the land being worth a lot.


    That's actually pretty damn cheap for 2.17 acres and 2944 sf. Assuming at least $100/sf for the value of the house, that leaves just $250,000/acre for the land. Using the same methodology, another similar home gives $200k/acre. A larger home gives about $700k/acre. Some houses on smaller (~1/4 acre) lots yield much higher land values in the millions per acre using these assumptions. Perhaps this is because the buildings are worth more than $100/sf (which means land values would be lower than I estimated), or maybe the large lot properties have land values held down by large lot zoning or less infrastructure. Or maybe there's just big variations in desirability of locations in different parts of the county.

    1. Nick -- those are very perceptive observations about this area. The house you linked to above is actually in a two-acre minimum zone, which covers approximately 40% of Fairfield (the town, not the county). It can't be subdivided, and the land values reflect that. Most likely it also doesn't have city sewer, but I can't find that out online. And while Fairfield is a desirable town, it is much cheaper than several others closer to NYC.

      Your hunch that the county has "expensive houses because the houses are big and have lots of land" probably has a lot of truth to it. Connecticut, more than most other states, really fell head over heels for large lot zoning in the 1950-1970 period as a reflexive and rather counterproductive response to rapid population growth in the post-1945 era. A typical example is Ridgefield, which during those years adopted two then three acre zoning in an attempt to "preserve rural character," yet the result was that new development rapidly consumed all rural land (two acre zoning presents an extremely sprawling, but definitely not rural, aspect). By 1980 the town recognized its mistake, but instead of reducing lot sizes, decided to just forbid development on most remaining vacant land. You can read the whole story here if you're curious, starting three paragraphs above the 1950-2000 section:


      And here's a NYT article showing the heights of absurdity these policies can reach in some towns:

      "What Easton also isn’t, residents say, is Fairfield, which has streetlights, highways, strip malls and car-packed business districts. Indeed, Easton’s zoning code, unchanged in 66 years, bans commerce altogether, save for the random cafe or gas station whose lot predates World War II."


      And Fairfield is 50% zoned for two and one-acre lots, and has virtually no multifamily housing at all!

      "“I’m not against all development,” he said, “just want to keep the rural character."

      This is the sort of thing you see throughout the county.

  5. I think houses are this big in the US because of zoning and the impact of highways on land prices.

    Zoning is simple enough, minimum lot sizes mean that each lost would be very big, so there is little advantage of building a smaller house as you can't leverage the smaller size of buildings to increase density. House building costs are also not proportional to square feet, the cost of a marginal square foot is much lower than the average cost per square foot.

    As to highways and land prices, I think you must consider the impact of car-oriented "urbanism" and very high highway coverage. Let's suppose a city with a strong center with jobs and stores located there. People who want to go live in the city will tolerate living maybe 15-20 minutes from downtown. Now, if you only have residential streets, as cars travel on average about 20-25 mph on them (including stops and lights), that would mean that the lands available for development would be lands located within 5 or 6 miles of the downtown area, so maybe 80-100 square miles.

    Now add 60 mph highways through the area. Suddenly, the land situated at 6 miles from downtown is not at 15-20 minutes from downtown, but at 6 minutes from it. People will tolerate living much farther away, up to 15-20 miles away from downtown. That's 700 to 1200 square miles of lands close enough to downtown for people to settle on. Proximity is measured in minutes, not in miles.

    The result of that is that land prices collapse because there's so much land that is at an acceptable distance from downtown. Since land is cheap, there is no pressure to build smaller houses. People can build spatially inefficient houses that are cheap to build as they are mostly empty spaces.

    If you go see Europe on the other hand, most highways circumvent urban areas, they do not penetrate them. So the distance people are willing to live away from downtown is much shorter. People tend to concentrate closer to the main cities. For instance, most Paris suburbs just stop 20 miles away from the city center (they have highways, they just stop a few miles from downtown). The city of Newman, an Atlanta suburb, is 40 miles away from downtown Atlanta.

    It means that land prices will be much more expensive, creating an incentive to use less land per housing unit, ie more density.

    So in the US, where highways cover most of metropolitan areas, land will be very cheap, and thus it allows for people to build bigger houses for the same price.

    Finally, the low-density car-oriented public realm will likely be extremely poor. Therefore, most people will spend almost their entire lives inside their homes, as there is little point to going outside. So you need an expansive and rich private realm in order to compensate and to avoid cabin fever.

    1. An excellent summary -- I think you nailed it, Simval. Small houses in car-oriented areas evoke rural poverty more than urban efficiency. May as well go big. The US doesn't have many counter-examples, but Washington DC largely declined to build freeways through its downtown, and an aerial view will show a complete lack of northbound routes heading into Maryland from the CBD (although there is both rapid transit and commuter rail). The extent of residential growth is much less there, and in recent years has tended to be of a denser form (the New Urbanist developments of Kentlands and Lakelands are both in this area). This area is characteristic of it:


      Overall, density is fairly high at 3500/sq/ mi., significantly higher than Philadelphia or Baltimore despite consisting of relatively more post-1950s residential development. I frequently hear that the refusal to build highway connections to the CBD will contribute to the formation of edge cities, but as it turns out Washington has one of the most centralized employment patterns of any American city.

      Your blog is terrific, by the way -- it's up on the blogroll now.

    2. Thanks for your nice words about my blog. I noticed you put it there when I saw the hit counter for my English blog jump up ;)

      That has prompted me to translate a few articles over from my French version blog.

      I will return the favor, once I find out how to make a blogroll... though don't expect many hits from me. I don't get much traffic, if at all, in fact. My blog was mainly myself thinking out loud, trying to organize my thoughts on the matter of urbanism and transport by writing them down.

    3. Great -- I'm glad to hear about the translated versions. The post summarizing Japanese zoning needs to be widely read. It's one of the clearest descriptions I've seen on the topic, and with very helpful comparative commentary.

    4. That's exactly what I've been working on today. It's up now.

  6. Hi Charlie,

    You always do such great work.

    I think a good way forward in the US is via "manufactured housing." It is already very cheap per sf, although build quality tends to stink. Instead of providing an 800sf unit for $40,000 ($50/sf), if they could do a 400sf unit for $32,000 ($80/sf) with better build quality, we'd be there. That is already 4x the size of many "tiny houses."

    The "manufactured housing" regulatory channel allows many things that are much more difficult for typical SFDR construction in the existing municipal bureaucratic/regulatory structure.

  7. I love reading through your blog, I wanted to leave a little comment to support you and wish you a good continuation. Wish you best of luck for all your best efforts.

    Accommodation in Sitges & Sitges Apartments For Sale

  8. There are so many sites who provides the online shopping services.

  9. Hi, im Shelfa at Success Horizons, we do a lot of web searching for good articles for our site, we will tell our customers about your site, keep up the good work and please keep us in mind for
    home business ideas adelaide

  10. Happy to see your blog as it is just what I’ve looking for and excited to read all the posts.I totally agree with your concept.

  11. Thank you for the fantastic article. The place else could anyone get that kind of info in such a perfect means of writing? I have a presentation next week, and I am at the search for such information.
    To get new information visit here
    home business ideas adelaide
    home business ideas

  12. It is really very nice and informative blog..
    Real Estate Agents In East Delhi

  13. Articles and content in this section of the website are really amazing. Great ideas indeed! I will surely keep these in my mind!

    holiday rentals sitges & Holidays in Sitges

  14. Excellent read, I just passed this onto a colleague who was doing a little research on this topic. And he actually bought me lunch because I found it for him. So I should thank you for the free lunch I got.

    holiday rentals spain, holiday rentals france & france holiday rentals

  15. . This is really inspiring :) Thanks for being such an inspiration in fueling my passion for Real Estate Trades!

    Free listning of Real Estate

  16. It's really a great blog. Thanks for posting it. Keep it up. credito hipotecario mexico

  17. This comment has been removed by the author.

  18. Thanks for taking the time to discuss this,would you mind updating your blog with more information? It is extremely helpful for me.

    Townhouses in Oakville & Buy Vacant Land in Oakville

  19. This comment has been removed by the author.

  20. Thanks for sharing this with us! Some really amazing features.
    Good contest , it’s really helpful for new bloggers. All the best guys Thank you for your post. This is excellent information.
    To get new information visit here ........

    Student apartments in Huddersfield

  21. This is an intresting blog that you have posted, you shares a lot of things about
    Online Shopping Sites in Mexico

  22. I live in Mexico and actually we're not that poor, the neighborhood in the picture is a middle class neighborhood. Most of credit to buy houses comes from a public institution called INFONAVIT. I don't think the small lot thing comes from poverty and low income at all, it is caused mostly by greed from construction companies, the national minimum lot size is 6×15m and most of houses are built on that size, there are even smaller houses 70sq. M. Despite regulation establishes housing must have a lot of at least 90sq m, if regulation established a minimum lot size of 150sq m then around 7 houses could be built on a 1000 sq m lot, you could build 11 houses consisting in 90 sq m lots and even more talking about 70 sq m. We're talking about $850,000 to $1,000,000 MXN and the price is arising. The middle class doesn't have the opportunity to buy something better because all companies adhere to the same size. The great majority (9 out of 10) of houses are attached and there is nothing beautiful on that it is not practical or convenient at all, you got mud inside the house when moving something from the front to the patio, we got no backyards at all. The front is often eaten by more self construction leaving ugly and deformed neighborhoods full of graffiti without a soul. We got no space to plant trees, if we do then the sidewalk or drainage will break, why not detaching homes and raising the lot area requirements? Sometimes the lot is bought 5 MXN sq m. from the original owner and sold even more expensive to the future home owner,it is true there are excessive lot regulations in the U.S. but 150 sq m for the middle class or even 200 sq m for the middle-high and higher classes wouldn't be bad at all. Also the minimum lot area should be given to the States and not be controlled by Mexico City, the country is not tight overpopulated Mexico city. Shrinking houses based on the income of the really poor is not the solution at all what about building aparment buildings for them instead of "Pies de casa" (one or two room with living and kitchen) wouldn't it be a better solution to build aparments or mixed use buildings instead of useless tiny houses for them? Why should the middle class and professionals be unable to get something better for their money instead of conforming to the 6×15 lot? I think a detached house like the ones they traditionally build in the U.S is much better than the attached one here in Mexico. Even your neighborhoods look better than ours, both middle class and high income ones. It is not a house alone, it is the place people will live in ,it's a home, the experience, and the view. If I could I would move to the U.S. by the way it is necessary to drive a lot both in the U.S. and Mexico, there's no difference. The solution is decentralizing things instead of centralizing and shrinking everything aroud the old downtown. Have a nice afternoon!