Lam Thuy Vo observes that though the median size of newly built homes has dipped a little bit from its peak level, we’re still building houses that are quite large by historical standards. I would also add that Americans have extremely large houses by international standards.
Some policy thoughts on this:
One thing you’re seeing here is the home mortgage interest tax deduction at work. This is often described as a program to encourage homeownership, but the homeowner/renter margin is a pretty small element of the impact. A much bigger impact is that it encourages every homeowner in America, at the margin, to buy a slightly larger house than would otherwise be the case and therefore encourages homebuilders to build slightly larger houses. There’s nothing wrong with big houses, but it’s far from clear why you would specifically want the tax code to encourage big houses rather than fancy cars or expensive rugs or whatever else people might buy in a neutral environment.
This is also a case of it being useful to actually disaggregate the elements of living standards rather than talking about broad averages. Americans are affording bigger houses even as family size is dropping, even as finding a place to live in certain specific cities has gotten less affordable than ever.
You can also see that there are going to be some problems with new development in cities that haven’t updated their zoning code since the 50s or 60s—a very common scenario. Rules about building height and lot occupancy were written with certain ideas in mind about how many people could be accommodated in such structures. But as America gets richer, people want bigger dwellings meaning that old codes are accommodating fewer people than their authors had in mind.