Month: October 2019

Background

In the previous post we looked at American’s spending on housing doubling since the post-WWII era.   From 1950 to 2000, the average home purchase price more than doubled.  Are houses just getting pricier – or are we opting for ever bigger abodes in the era of McMansions? What is the trend in the size of American homes?

Findings

• Modest increase in price per square foot:  Data for the past 30 years shows that adjusting for inflation, the average price per square foot for new homes has increased only 15%, but..
• Houses are getting a lot bigger:  Since 1950, the average square footage of a new single family home has increased 180%, from 938 square feet to 2,631 square feet.
• And fewer people are occupying that home:  The average household size dropped from 3.0 in 1973 to 2.5 today.  That means that the square footage of living space per person in a new home has nearly doubled to 970 square feet since 1973.
• Yet – we are chucking a lot more stuff into storage units, too:  Self-storage rentable space in the U.S. totals 2.5 billion square feet – or more than three times the size of Manhattan.  This industry took off in the 1990’s when we were already building bigger houses.

Implications

You shouldn’t blame our nationwide big housing expense on real estate market inflation (though if you are currently trying to buy or rent in certain pricey locations like San Francisco, that’s certainly a challenge).  The bigger long-term issue is that we’re buying or renting bigger houses, and putting fewer people in them!   Add in our thirst for self-storage and it becomes apparent that we are a consumption society – both the trend in the size of American homes, and the stuff we put in them.  

If a family needs to reduce spending substantially, for example to fund retirement, downsizing homes and reducing buying of “stuff” are obvious targets.  We’ll see in later posts why this is so challenging to accomplish, and ways to potentially help people do it.

The small print

Average new home square footage back to 1973 is from the US Census; earlier data is a 24/7 Wall Street analysis using various US Census and other data.  Average HH size is also from a US Census report.  Price per square footage is from the US Census and I used an online inflation adjustment calculator to normalize this price.  Public storage data is from the Self Storage Association.  

One caveat – I’m comparing the average new home size to the average number of persons in an overall US HH – we don’t know the size of family moving into the new homes so can’t be certain of the average living space trend for the average American; the simplifying assumption is that new home buyers are of average HH size.  Also, looking only at new home data – which is the cleanest data on homes available – excludes of course purchases of existing homes which sometimes are smaller, and sometimes are remodeled into something much bigger.

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Background

If you need to work with your clients on their finances, it’s important to understand the trend in American spending.  We know that households’ spending has changed over time, but how?  This analysis looks at the Bureau of Labor Statistics’ Consumer Expenditures study; to get a sense of change, it includes 1950, 1997 (the closest date to 2000 available), and 2017.

Findings

• House poor? The average household spends 1/3 of their budget on housing, up from ¼ after WW II.  Because budgets have grown over time, this is even more dramatic.  In constant dollars, Americans since WWII have doubled their annual housing spend to $20K/year.
• The love affair with cars:  16% of the budget goes to transportation, almost all of which is for automobiles.
• Cheap food and clothing:  We’re spending a lot less on these categories, food at 13% down by half and clothing at 3% down by 2/3 since 1950.  This is mostly a function of mass production in agriculture and textiles driving down costs.
• Big jump in retirement spending, but:  This includes both social security and retirement plan/IRA contributions.  This item has increased to 11% of “spending” but is largely replacing the pensions which went away as the burden of retirement savings shifted to workers.  As we’ll see in later posts, it’s not enough.
• Healthcare costs rising:  It’s risen from 5% to 8% of the budget in the past 20 years.  
• It’s not much different for the affluent:  If you look at the data for households with the top 10% of income, while they’re spending a lot more ($143K/year vs. $60K for the average household), the percentages on the different categories are very similar.  The one large difference is that they’re putting 16% of their budget toward retirement savings.

Implications

In one sense, the findings above about the trend in American spending shouldn’t surprise – anyone managing their own budget probably is dealing with big mortgages or rent payments, spends a lot on cars, and is paying more than they used to for health care.  However, this foundational data sets the perspective for future analyses which will look at how to help Americans improve their financial situation.  If you want to counsel a customer on how to save more money, it’s unlikely that cutting back on their morning latte’ or a pair of shoes will make a big dent in their finances; you’ll have to focus on the bigger expenses.   We’ll explore much of this in future posts.

The small print

All this data is from the Bureau of Labor Statistics Consumer Spending survey.  1950 and 1997 are from 100 Years of Consumer Spending and 2017 is from Consumer expenditures in 2017.   To adjust the total budget amount for inflation I used the BLS CPI inflation calculator and calculated the budgets in 2017 dollars.  

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