As New Home Lots Shrink, Investors Should Question a Yard’s Value

As lot sizes for new homes remain relatively small by historical norms, the amount of yard space most developers are allotting for new homes is shrinking. According to the U.S. Census Bureau’s Survey of Construction (SOC), median lot size fell below 8,600 square feet in 2015 and has remained there since. The result: yards will remain small as homebuilders make the most of every square foot to optimize the indoor living space in newly built homes.

Regional Differences are Important

Of course, as with most national surveys, investors will find this trend means different things in different markets. For example, New England states have strict zoning regulations requiring lower densities for new construction. On the other hand, Pacific states tend to permit dense development. As a result, in New England, the median lot size is 0.4 acres (17,424 square feet), while Pacific states’ median lot size is 0.15 acres (6,534 square feet).

How Important is That Big Backyard?

Few real estate professionals dispute the importance of having whatever landscaping is associated with a property well-maintained. Most also agree with the premise that outdoor living space can be a big attraction for homebuyers. However, statistics on how important a large backyard is to buyers are in short supply.

The best way to make a decision about a yard’s value is to identify what outdoor activities it permits. For example, a yard without a patio will likely be less attractive to a buyer than a yard with one (patios recoup about 100% of installation costs immediately). But unless the surrounding properties have comparatively large yards, a small yard is likely not a significant handicap.