In an effort to create more affordable housing options for entry-level buyers, home builders are increasingly turning to townhomes.
In recent years, builders focused on constructing higher-end homes. Less than 20 percent of newly built single-family homes were priced below $200,000, and the size of a new home grew to an average of 2,700 square feet, according to Census Bureau data.
The National Association of Home Builders say that rising regulatory costs – up about 30 percent over the past 5 years – means that it is more expensive to build a house today. As such, first-time home buyers have mostly been priced out of the new-home market.
But builders think townhomes may change that. These homes tend to be smaller (the average size was 1,983 square feet, according to 2015 Census data).
Townhouse starts totaled 94,000 in the last four quarters ending with the first quarter of 2016 – a 29 percent increase over the prior year, estimates Robert Dietz, chief economist for NAHB. In fact, the growth rate exceeds the total single-family building market, Dietz notes.
Currently, the townhome market share comprises 13 percent of all single-family homes on a one-year moving average basis, down slightly from just under 15 percent from the high set at the start of 2008. Since the Recession, the townhome market share has steadily grown.
“These trends will continue,” Dietz says. “As regulatory cost impacts persist and millennials enter the for-sale market, the cost of construction and the growing demand for medium-density housing in walkable neighborhoods in inner and outer suburbs will support townhouse development growth.”