This story was originally published in Builder.
In a housing market increasingly constrained by supply-side bottlenecks and demand-side affordability concerns, the need for more entry-level housing continues to grow.
Demographics are playing an important role, as the peak age of millennials moves into the early 30s. These demographic tailwinds will continue to cause demand for for-sale single-family homes to expand. And while most consumer preference survey data, including research done by NAHB, indicate that millennials want a single-family aesthetic, suburban locations, and homeownership itself, the data do indicate a willingness to make compromises for a first home and a relatively higher desire for walkable neighborhoods.
Add in a lack of developable land in major job centers, and these market conditions point to growth conditions for single-family attached or townhouse construction. Townhouses span price and amenity ranges, from entry to luxury submarkets. But the ability to develop more units on a given amount of dirt, plus the possibility to construct urban village or town center projects with walkable retail, means townhouse construction offers an effective way to add supply to tackle a lack of inventory in markets with growing price burdens.
Recent Census Bureau data, as analyzed by the NAHB Economics team, indicates this market is expanding in terms of counts of units and market share. In the second quarter of 2018, 36,000 townhouses started construction.
This was a 44% jump over the second quarter of 2017 (25,000). And measured over a four-quarter basis, townhouse construction starts totaled 116,000 units over the past four quarters, a 23% gain over the 94,000 units that started construction in the four quarters before that.
The market share of townhouses, as a percentage of total single-family starts, is also increasing. From 1999 to the start of 2008 and as measured on a one-year moving average basis, townhouse market share rose from 9% to 15%.
The share declined during the Great Recession, as smaller home construction declined, but the percentage has increased during the recovery, growing to 13% as of the second quarter of 2018.
I expect this market share to continue to grow and exceed the prior market share high set before the Great Recession, as builders seek to add more entry-level inventory, grapple with land and lot shortages, and develop more walkable neighborhoods.
While traditional single-family attached suburban home building will constitute the majority of homes built in the coming years, expansion of the townhouse market will provide an additional model for communities seeking to add density and confront declining affordability conditions.
This story was originally published in Builder.
