Brief

Townhouse construction slows in Q1, still near 20-year high

Dive Brief:

  • Townhouse construction is on the rise, but the sector's growth rate has slowed recently, though it's expected to pick back up, according to a National Association of Home Builders' analysis of Census Bureau data.

  • Construction in the segment increased 4% year-over-year during Q1 2017. Townhouse starts took a 12.4% share of total single-family starts in Q4 2016, a cycle high, nearing the highest level recorded in the last 20 years in Q1 2008 (14.6%).

  • Growth in townhouse starts, until recent quarters, was tracking ahead of that of overall single-family starts. 

Dive Insight:

While the rate of townhouse construction seems to be slowing, the segment is expected to expand in the coming years as more prospective buyers, particularly young first-timers, turn to such offerings for their relatively lower cost and accessibility to transportation and other resources. Millennials are leading the charge for townhouse construction, helping to push the category to a 12.8% rise in starts between 2015 and 2016, according to a separate NAHB report.

Mixed-use projects, such as Buffalo, NY's 13-acre Forge on Broadway, are incorporating townhomes in response to growing demand for lower-cost housing near job centers, transportation and other services. Separately, a 31-acre, $650 million mixed-use project in Rockville, MD, a suburb of Washington, DC, is set to offer 300 townhomes alongside retail and office space, apartments and a hotel.

New townhome construction is expected to be an increasingly important part of the entry-level housing market, as low levels of starter-home inventory challenge many new, often young, buyers from entering the market. Rising home prices, for one, are leaving many existing owners wary of trading up to free entry-level properties for first-time buyers.

At the same time, the ongoing lot and labor shortages are hampering builders' ability to meet high demand in the entry-level segment. Starter-home supply tumbled 8.7% year-over-year in Q1 while the median price for those listings notched up 8.3% for the quarter, according to Trulia.

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Filed Under: Residential Building Economy