But this is the problem, I suppose. It's obvious that the fractal complexity, materials, beauty and craftsmanship of older buildings is vastly superior to what even rich folks can afford today, but we have to sit around and argue about taste and air conditioning, rather than figure out what the hell happened.
I personally like having more than one set of clothes to wear. I also like air conditioning when I'm in a hot climate and central heat in a cold one. Electricity and running water are also nice.
But this house was sold to average humans, in contrast to Savile Row suits.
I think we need to embrace the healing power of "and" here: the modern amenities and size are great, but we've lost something very significant in the materials and aesthetic quality (regardless of taste, I have seen well done houses in nearly every style save brutalism) far out of proportion to what we pay for housing.
I don't think so. From some not-too-reliable numbers I found in Google (if you have better ones, feel free), the median house price in 1925 was $6,000. This Sears house cost almost 60% of that just for materials. No land, labor, mechanical...
If we apply your 4x adjustment, the Sears house cost about $14,000 as built. That's more than twice the median house price of the day.
This was a house for wealthy people.
Whether this was actually "bad" or not depends on whether you think it was better to keep returning veterans in crowded, archaic housing, or whether it was better to let them have a modern house (with modern wiring, plumbing, etc.) that doesn't conform to your personal taste in the year 2016.
Note also that your 1921 Sears house doesn't include electrical wiring, plumbing, or heating.