This shift in strategy reflects a growing need for more affordable and space-efficient housing options amid rising costs and limited land availability, according to a new analysis from Zillow released Thursday.
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Homebuilders are increasingly focusing on the construction of townhomes and condos, rather than detached single-family homes, in an effort to address the current housing shortage of 4.5 million homes, according to a Zillow analysis released Thursday.
This shift in strategy reflects a growing need for more affordable and space-efficient housing options amid rising costs and limited land availability.
While housing inventory has grown since the pandemic, with around 1 million single-family homes completed in 2023 — an 11 percent increase from 2019 and the second-highest annual total since the global financial crisis — the construction landscape is evolving, according to the analysis.
From 2022 to 2023, construction starts for detached single-family homes fell by nearly 9 percent, while attached single-family homes, such as townhomes, saw a 3 percent rise over the same period.
Orphe Divounguy
Zillow Senior Economist Orphe Divounguy highlighted the root of the affordability crisis, adding the “unmet demand” has continued to grow and only legislation aimed at allowing bigger buildings can solve the issue.
“The housing affordability crisis still grips America, driven by decades of underbuilding,” Divounguy said. “Despite builders’ efforts, the unmet demand for homes continues to grow. The best long-term solution is more supply. Builders are contributing by shifting to more cost-conscious, space-efficient designs, but local laws promoting density will be key to increasing the availability of affordable homes where they’re most needed.”
By focusing on attached homes, builders are able to overcome challenges associated with high land acquisition costs. These designs allow them to build more units on smaller lots, providing more affordable options for buyers facing cost pressures. For instance, while the median size of a new home in 2023 remained steady at about 2,200 square feet, the median lot size shrank by 700 square feet compared to 2022.
However, rising costs and affordability challenges have slowed the pace of overall construction. In 2023, construction began on 946,000 single-family homes, which is 7 percent fewer than in 2022 and 16.5 percent fewer than in 2021. Despite this decline, the figure remains 6 percent higher than in 2019, indicating that demand still outpaces supply.
Certain markets have seen higher construction activity in response to job and income growth, which drives housing demand. Since 2020, cities including Houston, Texas (232,810 permits), Dallas, Texas (207,471 permits) and Phoenix, Arizona (138,445 permits) have issued the most single-family permits.
The Zillow analysis revealed a correlation between rising home values and permitting activity—markets with faster increases in home values between 2020 and 2024 saw more new construction on average than lower-growth areas.
Despite the slowdown in some areas, homebuilders’ shift toward more space-efficient, affordable housing solutions is seen as a step in the right direction to mitigate the housing crisis.