Single-story homes are a hot commodity. However, as high land prices and scarce space continue to drive densities higher, the share of single-level floor plans is shrinking. With buyers fighting over a limited supply, we would expect single-story homes to sell at a premium, but how much? Though dependent on the submarket, a single-story home sells at an average premium of around 10% relative to a two-story counterpart.
To quantify this figure, we assessed recent resale transactions in a variety of submarkets throughout the Sacramento, East Bay, and Central Valley regions. We stuck with generally newer suburban areas and single-family detached housing to maximize comparability. We compared data for one- and two-story homes and adjusted the impact of key variables (age, home size, etc.) to arrive at a like-to-like price comparison.
The tables below show the premium derived by single-story homes relative to two-story home pricing. This premium varies by area but is consistently positive, ranging from 5%–16% for an average single-story premium of about 10%.
This strong demand for single-story product coincides with one of the largest booms in the retiree population in American history. According to the book Big Shifts Ahead (Burns, Porter), the population of those aged 65+ in the United States will grow by 18 million people from 2015–2025, a 38% increase. These home buyers are almost always searching for single-level living, but they’re not the only ones. Our work in a variety of markets indicates a strong and growing preference for single-story homes across nearly all buyer segments. Retirees and empty nesters naturally, but also mature and young families and even young couples.
Our consumer survey research reinforces this. John Burns Real Estate Consulting conducts an annual survey of new home shopper preferences. Of the 22,000+ respondents in the United States, 51% would prefer a one-story home. Filtering the survey to only new home shoppers in the Sacramento region, the preference for one-story jumps to 71% of buyers.
Not only will single-story homes garner a price premium, but their appeal to older buyers will typically expand the buyer pool and increase sales velocities. Gains in both price and absorption make single story a true win-win.
So why aren’t builders building more single-story homes? There are two good reasons: costs and revenue. Direct construction costs tied to the larger footprint of the floor plan (e.g., larger foundation, roof, etc.) increase expenses for a single-story home by about 3%–8% compared to a two-story home. The smaller size of single-story homes stemming from lot constraints decreases revenues and puts a strain on margins. So those high land prices and limited developable land we mentioned earlier mean builders favor bigger two-story homes even if that results in a disconnect with their buyers.
The key is finding the correct markets in which to implement single-story product. Where are single-story plans most undersupplied or most out of step with new designs and features? Will buyers in this submarket support the premium necessary to cover added costs? Where do the demographics work best? In a recent analysis of a suburban Bay Area market, we found an elevated premium for single-level homes due to the age of the one-story existing housing stock and the scarcity of single-level options in the new home market.
Smart builders are always looking for ways to separate themselves from the competition. More single-story homes, in the right places, will often be a winning strategy even with the added cost.
If you have any questions, please contact Dean Wehrli at (916) 647-3263 or by email.