Townhome Boom Opens Up Entry-Level Inventory

Townhome construction outperformed other building sectors in 2018, bringing more entry-level housing to the market. But while townhouse construction, along with other submarkets, softened during the fourth quarter, it is still poised for further expansion as more renters enter the sale market, the National Association of Home Builders reports. Townhouse construction—or single-family attached housing—also helps builders grapple with land shortages and respond to growing demand for walkable neighborhoods.

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© Volodymyr Kyrylyuk – Fotolia.com

Last year, townhouse starts totaled 119,000 and were 14 percent higher than 2017. Townhouse construction grew more than five times as fast as the overall single-family construction sector in 2018, the NAHB notes. The market share of townhouses stands at 13.8 percent of all single-family starts, near a post-recession high. For comparison, the peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when it reached 14.6 percent of total single-family construction.

“The share for townhouse construction is expected to increase in coming years, with occasional ups and downs,” the NAHB notes on its Eye on Housing blog. “The long-run prospects for townhouse construction are positive given large numbers of home buyers looking for medium density residential neighborhoods, such as urban villages that offer walkable environments and other amenities.”

More single-family construction overall, however, is coming to the market as the spring homebuying season starts to heat up. The U.S. Commerce Department reported on Friday that total housing starts increased 18.6 percent in January to a seasonally adjusted annual rate of 1.23 million units. Broken out, single-family starts rose 25.1 percent to 926,000 units, while the multifamily sector—which includes apartment buildings and condos—increased 2.4 percent to 304,000. “The bounce-back in single-family starts mirrors our builder confidence surveys, as sentiment fell in the latter part of 2018 but rebounded in January after mortgage rates showed a notable decline,” says Greg Ugalde, the NAHB’s chairman.

Regionally, combined single-family and multifamily starts in January rose 58.5 percent in the Northeast, followed by a 29.3 percent increase in the West, and a 13.8 percent increase in the the South. Housing starts fell 5.7 percent in the Midwest.

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