SMALL may be beautiful, but we are hardly building any small houses. Now we need them. Househunters might dream of a big house in the country, but prophecies of a market downturn and more interest-rate rises are forcing them to rethink their budgets. The prospect of controlling both mortgage and commuting costs in uncertain times is daunting, so more people are ready to settle for a house that is smaller and more urban.

But buyers who think a railway cottage or a mews is the solution could be severely mistaken. The urban cottage is becoming highly priced and hard to find.

Across the country, apartments make up more than 40 per cent of the new homes being built and most are sited in town and city centres. By contrast, only 8 per cent of new homes are two-bedroom houses. Ten years ago more than one in five new homes was a small house. The absence of smaller new houses is most noticeable in city and town-centre locations across London, the West Midlands and the North.

The housebuilders blame the shift on Whitehall’s demands for more homes to be squeezed on to every parcel of available ground. “Government planning guidance requires us to make more of scarce land for development and therefore densities have increased,” says Chris Crook, the managing director of Countryside Properties.

“Small two-storey cottages rarely enable the density specification to be satisfied, and their need for parking, garden and amenity space makes for very inefficient use of land.”

Where smaller houses do get built, they are generally shoehorned into gaps on larger sites, on infill sites that are not large enough for apartment blocks, or in areas where local authority planners demand smaller properties to fit with existing street vistas. A typical location is Macellum Gate, in Chichester, West Sussex, where Berkeley Homes is developing mainly apartments and larger townhouses, but has found space to squeeze in a pair of two-bedroom, semi-detached houses.

The shortage of small houses is most acutely felt by young families, trade-downers, garden lovers and pet owners who don’t want to, or can’t, live in apartments. “They are either having to go to the second-hand market or accept a house further out of town,” says Tony Jamieson, a partner with the estate agent, Clarke Gammon Wellers.

Peter and Janet Beazley are among the lucky few. The couple have traded down from a large home in Somerset to a compact three-bedroom house with just under 900 sq ft of space at Park View, a Martin Grant Homes development in Guildford, Surrey, being marketed by Clarke Gammon Wellers.

The couple found only one other development of new houses in the Guildford area, but they saw plenty of new apartments that left them rather unimpressed. “The main problem was that they were all far too small. We didn’t like them very much,” says Peter. The new house is half the size of the couple’s previous home, but Janet is delighted that it is a house. “Having stairs to separate the living and sleeping areas was one of our specific preferences,” she says.

Where housebuilders do manage to construct small houses, it can prove profitably worthwhile. “Most of the new houses that we handle are three and four-storey,” says Stephen Briegel, a partner with the southwest London estate agent, Allen Briegel. The agent has just sold all of a new development of smaller houses near Putney Common, the first such scheme to come on to its books in three years. The development is by Bewley Homes, a company that is planning a number of similar schemes and likes to develop urban houses, partly because they are good business.

“We have turned down some apartment schemes because we want to develop more town-centre housing. We believe urban houses would sell at a premium,” says Colin Brooks, the chairman of Bewley Homes.

The price of such houses could well be pushed up by their scarcity, says Dominic Grace, the head of new homes at FPDSavills: “It is difficult to know whether this is happening already, but over time it must do. The bottom line is that very few new houses are being built in urban areas.”

Grace also highlights broader implications for town life. “The question is whether this writes off young families as urban homebuyers,” he says. “On the Continent there is a culture of apartment living for families, but British buyers are conditioned to family living being centred around the house.”

The problem is beginning to catch the Government’s attention. The Office of the Deputy Prime Minister is due to announce proposals to revise the planning advice that promoted higher-density homebuilding. The proposed revised guidelines are expected to give powers to local planning authorities to dictate the housing mix so that they can match housing supply to need and then balance the delivery of houses and apartments.

It may take some time to reverse the trend of the past decade, but a greater balance is badly needed, says Bewley Homes’ Colin Brooks. “The development of apartments in our town centres has brought life back to them,” he acknowledges. “But many towns have had enough of apartment blocks now.”

Josephine Smit is housing editor of Building magazine

Berkeley Homes 01403 211230

Bewley Homes 0118-970 8222

Martin Grant Homes 01483 537522

Allen Briegel 020-8780 1642

Clarke Gammon Wellers 01483 880900

DOWNSIZE

A pretty two-bedroom period cottage on a private road in the popular village of Haslingfield, near Cambridge. It has been extended and updated, and has a large brick fireplace, beamed ceilings and a small courtyard garden. The village has its own school, pub and church and is an easy commute to Cambridge. Price: £169,500, for sale through Redmayne Arnold & Harris, 01223 323130.

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• Cool In Your Code

• Specials

• First-time buyer

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers