Townhomes Gain Popularity as Builders Seek Affordable Options

Amid a nationwide shortage of 4.5 million homes, builders are going all out to supply the single-family residences consumers want. But there’s a catch: affordability.

So even though almost one million single-family homes were completed in 2023 – the second-highest total since before the global financial crisis of 2007-2008 – the pace of construction is slowing this year as would-be buyers feel priced out of the market. Though 946,000 single-family homes were started in 2023, that was 7% fewer than in 2022 — but it was 6% higher than in 2019, according to a new Zillow report.

The result is that builders are finding other ways to satisfy the market while containing costs. “The best long-term solution is more supply. Builders are helping where they can by shifting to more cost-conscious and space-efficient designs. But promoting density through local laws is key — that will go a long way to bring in more affordable homes where they’re needed the most,” said Orphe Divounguy, Zillow senior economist.

One solution is to build townhomes instead of detached houses. By doing so, builders can construct more units on smaller lots and lower land acquisition costs, promoting affordability. As a result, even though the median size of a new home remained steady at around 2,200 SF, the median lot size dropped by 700 SF from 2022 to 2023.

Starts for attached single-family homes rose more than 3% in the same period, while the figure for detached single-family homes fell by 9%. New construction has become increasingly important as owners of existing homes hold back from putting them on the market, according to Zillow. New construction in a region is also associated with faster jobs and income growth which generate housing demand.

The top five issuers of single-family housing permits between January 2020 and August 2024 were all Sun Belt cities, which have seen strong population growth. Houston led the way with 232,810 permits issued, and a 39% growth in home values. Dallas ranked second with 207,471 permits issued and a 47% rise in home values. Then came Phoenix (138,445 permits, 54% increase in home values), Atlanta (128,202 permits, 59% rise in home values) and Austin (94,361 permits, 43% uptick in home values).

Others in the top 10 were Charlotte, where 87,987 permits were issued, and home values soared 61%, Orlando (76,355 issued, prices up 55%), Tampa (74,265 issued, and a nation-leading 62% leap in home prices), Nashville (70,850 issued, prices up 50%), and Jacksonville (65,610 issued, prices up 53%).