It’s no surprise that smaller homes cost less, but perhaps it is a surprise to learn just how much less. The short answer is that every 100 square feet of new house costs at least $10,000 in the first 10 years of homeownership while existing homes are probably closer to $7,000 per 100 square feet in the first 10 years. By this reasoning, buying 500 square feet less of a home can save $50,000 in the first decade of ownership.
How much does the average new house cost in the U.S? The Census Bureau says it is about $80 per square foot (or $120,000 for a 1,500 square-foot home), but this misses some additional expenses, such as closing costs, opportunity costs (on average, housing isn’t the best investment), costs to furnish the house, interest costs, property taxes, etc.
According to my rough calculations, $100 per square foot is a more accurate estimate of the fully-loaded cost for new housing in the U.S., likely even more than that if interest costs and taxes are taken into account for the entire term of the mortgage, not to mention maintenance, utility, and upkeep costs, among other things (Update: ROI that includes utility expenses is available at the bottom).
So how much does a bigger house actually cost a homeowner over the course of 10 years? That is the subject of this article, and the simple answer is that each additional square foot of a new house will cost about $100 over a 10-year time-frame (versus say, $70, for existing homes). Therefore, deciding to buy a new 1,500 square-foot home will cost about $50,000 more than buying an equivalent 1,000 square-foot home, all else being equal.
Read moreThe True Cost of a Big House