Homes have gotten bigger, but Americans aren’t any more pleased with the extra space.

According to a recent paper, Americans aren’t getting any happier with their ever bigger homes. “Despite a major upscaling of single-family houses since 1980,” writes Clément Bellet, a postdoctoral fellow at the European business school INSEAD, “house satisfaction has remained steady in American suburbs.”

This finding, Bellet reasons, has to do with how people compare their houses with others in their neighborhood—particularly the biggest ones. In his paper, which is currently under peer review, he looks closely at the construction of homes that are larger than at least 90 percent of the other houses in the neighborhood. By his calculation, if homes in the 90th percentile were 10 percent bigger, the neighbors would be less pleased with their own homes unless those homes grew 10 percent as well. Moreover, the homeowners most sensitive to such shifts are the ones whose houses are in the second-biggest tier, not the ones whose houses are median-sized.

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Bellet, Clement, The McMansion Effect: Top Size Inequality, House Satisfaction and Home Improvement in U.S. Suburbs (April 25, 2019).

Available at SSRN: https://ssrn.com/abstract=3378131 or http://dx.doi.org/10.2139/ssrn.3378131

Despite a major upscaling of single-family houses since 1980, house satisfaction has remained steady in American suburbs. This Easterlin paradox in the realm of housing can be explained by upward-looking comparisons in the size of neighboring houses. Combining data from the American Housing Surveys with a geolocalised dataset of three million suburban houses, I find that new constructions at the top of the house size distribution lower the satisfaction that neighbors derive from their own house size. Upward-looking comparisons are stronger among people living in larger houses and decrease with the distance from McMansions. I provide further evidence that homeowners exposed to the construction of big houses in their neighborhood put lower prices on their home, are more likely to upscale to a bigger house and take up more debt. 

Keywords: Housing, Positional Externality, Subjective Wellbeing, Inequality