As everyone emphasizes, the cheapest form of renewable energy is really energy efficiency—just not wasting as much energy. A cousin of this point, however, is that the truly cheapest thing of all is to just do with less. So for example, American houses actually use slightly less heat energy per square meter than do European houses. But since American houses are much bigger than European houses, we use far more energy in home heating than do Europeans. The Danes are substantially more efficient than the average Europeans, so they use less energy per square meter than we do despite living in a much colder climate. But on top of that, the average Danish house is about half the size of the average American house.
Since home-related energy use is a big deal and housing is a big component of household finances, the large size of American houses is a really important aspect of the American way of life. And it is worth asking how valuable our super-sized homes really are. It’s definitely a good thing that our modern houses are much bigger than houses were circa 1900. That brought about substantial reductions in overcrowding and real benefits in human welfare. It seems to be the case, however, that we’ve crossed over into territory where further increases in house size are driven by positional arms races. People aren’t looking for bigger houses, in other words, they’re looking for houses bigger than their friends’ houses in a way that’s not producing much of any net gains in welfare.
If that’s right, then we’re really wasting a disturbing quantity of resources not only building the very large homes but also heating them. Housing spending has the long duration properties of investment goods, but it’s not really productive the way a factory or an office building is. It’s just a very big, very expensive, very durable consumer good. Which is fine, insofar as it’s really leading to satisfied consumers. But it seems that it isn’t and if we all crowded into Danish-sized houses we’d quickly adjust, feel just as good about ourselves, and then go buy more non-housing stuff (or if we actually moved to Denmark, spend the money we’re saving on housing paying very high taxes in exchange for generous public services).