Shrinkage

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When I was a kid and I couldn’t fall sleep right away, I would imagine wonderful spaces designed to my specs.

The one that I remember best was a secret door under our stairwell.

It opened up into a sprawling subterranean playground accessible only by a firehouse ladder.

There was a batting cage. There was a store room packed to the ceiling with candy and snacks. There were arcade games and movie theaters and a bowling lane. There was a pool with a waterslide.

Translating this into my current understanding of how much space stuff takes up, my subterranean layer was probably about 7500 to 8500 ft.² of “rad.”

Many years down the line, and a year after leaving cardiology fellowship and entering into private practice I found myself house hunting for the first time.

Although exactly none of the items in my boyhood imaginary subterranean lair were on our checklist, my wife and I did find that our vision for what our new home should look like expanded ever outwards.

We ended up with a beautiful 1890 Victorian with high ceilings, wood floors, lots of light, and a tastefully updated chefs kitchen. There was a finished basement with a sewing room for my wife and wine cellar for me. There was a fancy front loading washer and dryer conveniently located in a hidden closet in our master bathroom (which also has two sinks and a clawfoot tub.)

The cost was reasonable relative to my salary and we loved the place so we bought it.

And I still love the place.

It’s just that it’s… too much.

Too much empty space waiting to be filled with new purchases that I have no desire to make.

Too many closets and garages and basement nooks to store the detritus of our past unnecessary purchases.

Too many cubic feet of air to efficiently heat in the winter and cool in the summer.

In fact every summer we all religiously move our mattresses down to the basement and camp out together in the cool foundation-insulated air during the hot July and August nights.  And our life is none the worse for having shrunk our living space. In fact it’s kind of cozy.

Which is why now when I close my eyes and imagine my dream house, it has more in common with a MP3 player than a mansion: The smaller the better.

So when I heard Graham Hill’s TED talk about his company: www.lifeedited.com I was intrigued.

Mr. Hill is a gent who made millions of dollars early in the.com bubble and eventually found himself somewhat disillusioned with the lack of happiness that the big purchases and the big spaces that he purchased brought to his life.

He combined this disillusionment with the conventional trappings of wealth with his own entrepreneurial spirit and began developing prototypes of small apartments that packed generous amounts of functional living space into small amounts of actual space through the use of clever design, multi functional furniture, and the editing of the unnecessary.

A brief video of his prototype 400 square-foot New York apartment can (and should) be seen here:

And aside from being a really cool space, the economic benefits of sacrificing square footage, without sacrificing livability are numerous and obvious.

It is easy for me to imagine moving my family of five into an optimized 1000 square-foot living space having seen Hill’s approach to 420 square feet.

And what would the economic benefits of such a “trade down” be?

1. Transforming Current Unneeded Square Footage Into Liquid Equity.

If we were to sell our house today and move into a 1000 square-foot space in the same neighborhood, I estimate we could extract about $4- 500,000 worth of investable money.

(Houses are valued by the square foot, not by the livable square foot. )

It goes without saying that this money could then be invested and allowed to compound on itself thus turbocharging our own (already speedy) journey towards financial independence.

2. Tax savings.

Real estate taxes, like homes, are assessed by the square foot.

All other things being equal this would be a 66% savings in real estate taxes per year. (Not chump change.) This little adjustment would greatly decrease our post financial independence expenses without (I suspect) sacrificing any real happiness.

3. Less maintenance.

Houses are in many ways probabilistic. The more square footage you have , the more things you need, and the more things that can go wrong.

And eventually the things that do go wrong are undoubtably more expensive to fix in a larger house.  (Roofers charge by the square foot too, just like tax assessors and real estate appraisers.)

4. Energy efficiency.

When we turn on our air conditioner, the upstairs of our house laughs at us.

The cold air is a thimbleful of spring water spritzed into a boiling cauldron.

All coolness dissipates, elevates and is neutralized by the heat sink in our rafters. What little coolness stays on the ground level eeks its way out between our floorboards and our windowpanes.

Small spaces, on the other hand, are easy to insulate, cool and heat, often passively.

In addition to being the right thing to do for our planet, this move towards efficiency would also be the right thing to do for our pocketbook.  (Not to mention the temperature in the house would consistently be more comfortable.)

5. Ease of cleaning.

Less square footage means less space to clean. Sweet.

And beyond the personal reasons for thinking about this concept, there are the societal arguments.

I recently heard an excellent interview with the famed bond trader Jeff Gundlach.

He was relatively bearish on new home construction going forward because of the aging of the baby boom generation.

His thinking was that when the boomers sell their homes in the coming years to fund their retirements, this supply will create a glut of old homes on the market, leading to negative price pressure.

The glut will be compounded by the ongoing lack of real wage growth by the majority of Americans.

These are not good dynamics for new homebuilders.

Gundlach argued that the growth within construction will come from the building of multi-generational family homes, and… you guessed it, micro-housing!

All roads lead to microtopia…..

Is the lifeedited concept attractive to you? Can you imagine downsizing… and liking it?

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11 Responses to “Shrinkage”

  1. M Ashori MD September 9, 2014 at 8:32 am #

    I think another factor is that with less space we are less likely to want to fill it with things. There is a great cascade effect when we downsize, especially in the home department because that’s probably one of the bigger expenses. We will likely become more efficient and probably become a little closer to family members. It’s very liberating to come to realize that we can have the same conveniences and enjoyment with less square footage. I’ve never lived in anything too large but owned 2 different condos at different times in nice parts of town. Now I rent a 210 sqft studio and it’s amazing.

    • Miles Dividend M.D. September 10, 2014 at 1:48 pm #

      M

      That’s a terrific point.

      An apt metaphor might be a budget. By limiting the amount of money that you can spend you end up focusing your resources on the highest yield purchases.

      The signal-to-noise ratio is improved!

      Great job resisting lifestyle inflation. Some of us are slow learners I guess.

      AZ

  2. AJ September 9, 2014 at 10:28 pm #

    Downsized 4 months ago myself.
    Out of a 3100 sq ft house off skyline blvd for a 1800 sq ft house a bit out of town.
    Glossing over details, but overall has been great. New garage is cluttered with stuff, but that is a winter project. With the cheaper house, now we own primary residence without mortgage and half rate on property taxes – large savings on expense side. I could have gone smaller, but considering family of 4 it seems about right. Now biggest problem is what to do with $100k extra cash.

    • Miles Dividend M.D. September 10, 2014 at 1:51 pm #

      AJ,

      While I’m busy pontificating you’re busy moving. Great job!

      Having an extra $100,000 is a wonderful thing.

      I’m biased but I think the correct course of action is to get your windfall into the market in whatever proportion of stocks to bonds that is appropriate for you.

  3. Mrs SSC September 26, 2014 at 5:12 am #

    I am looking forward to cutting down on our house next time we move (likely still 5 years away). We moved into a gorgeous 3500+ house, upgrading from ~2000 sq/ft a few years ago. We did end up buying probably a little bit too much, just to make the house minimally lived in. And we still have rooms we hardly use and keep mostly closed off. Unfortunately, we bought for location, so there is no way we want to move anytime soon. But, I am really looking forward to our next house being a bit more cozy and efficient!

    • Miles Dividend M.D. September 27, 2014 at 9:18 pm #

      Thanks for your comment.

      Sometimes it’s useful to experience too much, so that we can recognize the limits of our needs.

      I still love my house as well, but look forward to living in a smaller space in the future.

      If I had never lived in a big house how could I have known that it was unnecessary?

  4. Niki September 26, 2014 at 1:37 pm #

    My husband and I bought our first house almost two years ago, and it’s a 3-bedroom 1-bath with all of 780 square feet. Even though it isn’t as micro as the apartment above, it is definitely a small house, and the smallest out of all of our family and friends.

    We didn’t go out specifically seeking a smaller home, but this one had most of the things on our priorities list, except for square footage. We decided it was worth it anyway.

    I. love. my. small. house.

    Mortgage, taxes, and insurance combined is about half of our previous rent payment. We were able to completely renovate the home because we only needed such small amounts of materials, and were even able to upgrade the quality of materials (i.e. granite counter tops in the kitchen) because of the relatively small size.

    Even though our rooms are small (our bedroom is about 8×9′) we still have plenty of room to sprawl and thanks to sleek furniture styles that are multipurpose (our bed is our dresser due to built-in drawers) we don’t feel cramped or claustrophobic.

    Eventually when we decide to grow our family we may consider moving to a bigger space, but buying our first home to suit our current needs is probably the best financial decision we’ll ever make. Between the actual cost of the house, maintenance costs, and additional furniture costs we considered when looking at larger places, we’ve been able to save money and increase our quality of life.

    Smaller homes are awesome!!!!!

    • Miles Dividend M.D. September 27, 2014 at 9:21 pm #

      Indeed, smaller houses are awesome. Especially when they are engineered to maximize the space as in the life edited apartment.

      Isn’t there a saying that a man is rich when he knows that he has “enough?”

      If this is the case, than you are definitely rich. Congratulations.

  5. Lance September 26, 2014 at 3:10 pm #

    It’s interesting that we start with little, can’t wait to move up and then realize that we don’t want as much and downsize. My parents and grandparents stayed in the same house their whole lives so we tried to do the same. It is faster to pay off and the hassle of moving is gone. Hopefully work will stay steady so we don’t have to move but if you can be satisfied and happy early on with a modest house then you will have a lot more money to work with in life.

    • Miles Dividend M.D. September 27, 2014 at 9:23 pm #

      Well said Lance.

      This endless impulse to “upgrade,” can definitely become a luxury trap if we’re not careful.

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  1. Decrease Your Home Size To Reduce Compulsive Shopping | Lifehacker Australia - September 26, 2014

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