A study published Aug. 11 from LendingTree shows new homes are 11% smaller yet 74% more expensive per square foot in the past decade. The average size of a new single-family home dropped from 2,707 square feet in 2014 to 2,404 square feet in 2024, according to the report. And over that decade span, the average price per square foot for a new single-family home jumped from $97.25 to $168.86.

Housing shrinkflation isn’t a new concept, but it’s becoming more evident as both new- and existing-home prices remain elevated.

Miles Alexander III, principal at real-estate development and investment firm Alexander Goshen, told Fortune housing shrinkflation is the result of a “perfect storm” from land, labor, and material prices surging. 

“To keep projects viable, builders are trimming square footage but maintaining price points,” Alexander said. “It’s not that we want to deliver less space, it’s that the economics demand it.”

Housing materials costs have been on the rise since the pandemic, but a recent study from Evernest, a property-management and real-estate brokerage services firm, shows President Donald Trump’s tariffs have already added more than $100,000 to the cost of a new home in at least one state. Many other states have also seen prices rise by tens of thousands of dollars, according to the study, due to tariffs on materials like imported steel, copper, drywall, and lumber. 

There is also a major construction-worker shortage. The Associated Builders and Contractors (ABC) reported the construction industry needs to attract nearly half a million workers this year and next to meet demand for services. 

Jake Kennedy, a licensed real-estate agent with Compass in Tennessee, said housing shrinkflation isn’t just about giving buyers less—it’s about builders finding new ways to keep construction affordable.

“It’s the basic economics that happen when land, labor, and lumber all cost more, square footage is where the cuts get made,” Kennedy told Fortune. “Yes, new homes might be smaller, but the rising costs are being absorbed by fewer square feet, resulting in the on-paper appearance of houses being more expensive.”

Smaller homes force creativity

Smaller footprints and more expensive resources have “forced creativity” for developers, Alexander said. This means designing homes with pocket offices, multifunctional living areas, and layouts that maximize every inch. Plus, hallways are disappearing, he said. 

John Burns Research & Consulting also warned last year about the “death of the hallway” in new-home construction. “All that Tetris we played in the ‘90s has finally paid off. Instead of shrinking rooms to reduce overall home size, a common tactic among our architectural designers was to eliminate unnecessary circulation space,” JBREC wrote in its 2024 US Residential Architecture and Design Survey report. 

“Essentially, we’re Tetris-ing the functional rooms together, avoiding wasted square footage on non-functional areas like hallways.” 

Kennedy said he’s also seen builders essentially create smaller versions of the homes they were building before the pandemic. Bedrooms that might’ve been 12 feet by 15 are now closer to 10 feet by 12 feet. 

“Add that up in a two-story house with four bedrooms and it’s easy to see how a 2,500-square-foot house is becoming 2,000 square feet,” he said.

Different demands

Developers and real-estate experts also say younger generations have different needs and demands when it comes to housing. Millennials and Gen Zers, as well as other first-time homebuyers, “aren’t chasing the big suburban mansion,” Alexander said. 

“They’re more cost conscious, and they actually prefer compact layouts that are easier to maintain and more affordable,” he said. 

Elyse Sarnecky, marketing director with Marketplace Homes, told Fortune because affordability has become the chief concern for new buyers during the past year or so, many are willing to forgo extras or upgrades they would’ve wanted in new-home construction. And to be sure, new homes still remain spacious by historical standards, according to the LendingTree report: The average size of a new single-family home rose from 2,050 square feet in 1994 to 2,404 in 2024.

Sarnecky said most of her company’s new-construction buyers are more concerned with getting the best possible home they can get within their budget, she added.

“The actual floor plan of the home is really important as well when considering this. It has to work for their family,” Sarnecky said. “As long as it does, size is less of a factor.”