The Garage Is Where the Subsidy Went

When you read that the median new house in America is around 2,400 square feet, you are not reading the size of the house. You are reading the size of part of the house. Under the measurement standard the whole industry uses, garage space does not count as finished square footage, so the two or three rooms' worth of building attached to the front of the home, sitting on the same foundation and sharing a wall with the heated space you do count, is simply left out of the number. You pay for all of it. It is in your mortgage and your heating bill. It is just not in the figure anyone cites when they talk about how much house people buy now.

That gap matters more than it sounds, because the garage is where a huge amount of the cost went, and it went there mostly out of sight.

Start with how much it grew. For most of the postwar era a garage was not a given. As late as 1973, more than half of new American homes still came with only a single garage, a carport, or none at all, and the ones that did have a garage usually got a single bay of maybe 260 to 380 square feet, a place to put the car and not much else. Today about two-thirds of new homes come with a two-car garage, and the share built with three bays or more climbed to nearly a quarter of all new homes by 2015 before pulling back. In the Upper Midwest the number still runs higher. In the census division that covers North Dakota and Minnesota, a third of new homes get three or more bays. A three-car garage runs somewhere between 700 and 1,200 square feet, roughly the size of an entire postwar house from the era when the average new home came in near a thousand. Set against a finished house of roughly 2,400 square feet today, that garage is a quarter to half of the building, and none of it lands in the count. The car got an addition. The family it belonged to got measured out of the comparison.

Now the part that explains why. For decades the federal government has subsidized access to homeownership, most visibly through the mortgage interest deduction, on the theory that lowering the cost of carrying a mortgage would put more people into homes of their own. The economist Andrew Hanson studied what the deduction actually does, and in research published in 2012 he found that it inflates the size of houses by something like 11 to 18 percent while having no measurable effect on whether people own homes at all. The subsidy did not expand access. It expanded the product. Money aimed at getting people under a roof went into building a larger roof for the people already under one.

This is the trap that runs through a lot of American policy, and the garage is the cleanest place to watch it happen. You subsidize access to a thing. The industry that supplies the thing responds the way any industry responds to a flood of subsidized demand, by enriching and enlarging the thing rather than holding it cheap, because there is no money in selling you the small version. The subsidy gets captured upstream and comes back to you as a bigger product that costs more, wearing the language of an upgrade.

The garage is the sharpest single example because it grew the most while hiding the best. The other functions the modern house swallowed at least show up on the tape measure. A home theater adds to the square footage. So does a big kitchen. The garage ballooned and got measured out of it. So you end up with a product that costs far more in real terms than the one your grandparents bought, and the official accounting tells a reassuring story about why. Mark Perry's analysis of census data shows that the inflation-adjusted cost of a new house per finished square foot held in a narrow band for decades, even as the total price climbed. The house did not get much more expensive to build per foot. It got bigger and absorbed more, and the garage absorbed the most without ever entering the number that is supposed to tell you what you are paying for.

Notice who gets blamed for this. When the size and cost of the American house comes up, the explanation usually lands on the buyer. Americans want too much house. People have champagne taste and no discipline. Or the blame slides to the builder, who is greedy and gold-plating everything. Both miss the mechanism completely. Almost no one sat down and chose a 900-square-foot garage out of vanity. The financing rewards putting more building under one loan. The cost approach appraisers use for new construction values garage space at well under half the per-foot rate of finished living area, so a third bay is cheap to add relative to what it does for the loan amount and the resale price. A buyer in a cold place like Fargo or Minneapolis will in fact use a garage that size and heat it all winter, which makes the absorption feel like a preference instead of what it mostly is, which is the predictable shape of a market optimizing against a subsidy. The structure produced the garage. The buyer just gets told they wanted it that big.

Which is why you cannot fix this at the outcome layer. Capping garage size, or scolding people for their floor plans, treats the symptom and leaves the engine running. A subsidy that pays off for inflating the bundle will keep inflating the bundle no matter what rule you bolt onto the far end. The garage is just the room where you can see it most plainly, standing there in concrete and vinyl siding, costing you tens of thousands of dollars, and not counting.