US Home Builders Focusing on Townhomes and Condos to Alleviate Housing Shortage

In its latest housing market analysis, Zillow reported that America’s housing stock continues to grow faster than it did before the pandemic-induced housing frenzy, as builders race to fill a shortage of approximately 4.5 million homes. Roughly 1 million single-family homes were completed in 2023, the second-highest annual total since before the global financial crisis. That’s about 11% more homes than were completed in 2019.

Zillow notes that in order to achieve this pace, builders pivoted toward higher density, building more townhomes as opposed to detached single-family homes—similar to what they did in 2022. Construction starts for detached single-family homes declined by nearly 9% from 2022 to 2023 but starts for attached single-family homes rose by more than 3% over the same time span.

Focusing on attached homes has allowed builders to overcome some of the challenges related to land acquisition costs and also provide homes that are more affordable to cost-challenged buyers, Zillow said. They are building more units on smaller lots: The median size of a new home remained steady at around 2,200 square feet, while median lot area fell by 700 square feet compared to 2022.

However, the pace of construction is slowing, likely due in large part to slowing demand amid housing affordability challenges. Construction began on 946,000 single-family homes in 2023, about 7% fewer than in 2022 and 16.5% fewer than in 2021. This is a decline from a very strong couple of years, but it still represents a solid number, historically speaking, at 6% higher than 2019.

Commenting on the report, Zillow Chief Economist Orphe Divounguy said:

“The housing affordability crisis still grips America. It was precipitated by decades of underbuilding, and despite builders’ recent efforts, the unmet need for homes is growing. 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.”