Builders continue shift to condos and townhomes amidst affordability crisis
According to a Zillow analysis, America's housing stock is growing faster than pre-pandemic levels, with builders completing about 1 million single-family homes in 2023, the second-highest annual total since the global financial crisis. This represents an 11% increase from 2019 completions. To achieve this pace, builders have shifted towards higher density housing, with starts for attached single-family homes rising 3% year-over-year, while detached single-family home starts declined 9%.
The analysis also reveals that markets with faster-rising home values have seen a greater surge in permitting. Houston, Dallas, and Phoenix have issued the most single-family permits since 2020. However, the overall pace of construction is slowing, with 946,000 single-family home starts in 2023, 7% fewer than in 2022. This shift towards more affordable, space-efficient designs is seen as a response to the ongoing housing affordability crisis and the need to fill a shortage of 4.5 million homes.
- Completion of 1 million single-family homes in 2023, 11% more than in 2019
- 3% increase in starts for attached single-family homes year-over-year
- Builders adapting to affordability crisis by focusing on higher density housing
- Houston, Dallas, and Phoenix leading in single-family permits since 2020
- New construction providing options for buyers amid low existing home inventory
- 9% decline in starts for detached single-family homes year-over-year
- Overall pace of construction slowing with 7% fewer single-family home starts in 2023 compared to 2022
- Ongoing housing affordability crisis and shortage of 4.5 million homes
- Median lot area for new homes decreased by 700 square feet compared to 2022
Insights
The shift towards higher-density housing is a significant trend in response to the ongoing affordability crisis. The 3% increase in attached single-family home starts, contrasted with a
This pivot has implications for both investors and homebuyers:
- Increased supply of more affordable housing options
- Potential for higher returns on investment in urban and suburban areas where land is scarce
- Changing neighborhood dynamics with higher-density developments
The 11% increase in completions compared to 2019 is positive for addressing housing shortages, but the
The correlation between home value increases and higher permitting activity suggests a self-reinforcing cycle of growth in hot markets, potentially creating investment opportunities but also risks of overheating.
The trend towards higher-density housing reflects a important shift in urban development strategies. By focusing on attached homes and reducing median lot sizes by 700 square feet, builders are maximizing land use efficiency—a critical factor in addressing housing shortages in high-demand areas.
This approach aligns with smart growth principles and can lead to:
- More sustainable urban development
- Improved infrastructure efficiency
- Enhanced walkability and potential for mixed-use developments
The emphasis on "promoting density through local laws" highlights the need for policy support to facilitate this transition. Investors should pay attention to zoning changes and urban planning initiatives that could create opportunities in densification projects.
The regional disparities in permitting activity, with sunbelt cities leading, indicate potential shifts in economic gravity. This could have long-term implications for real estate markets and regional economic development patterns across the United States.
Markets with faster-rising home values have seen a greater surge in permitting, on average
- Builders finished about 1 million single-family homes in 2023, the second-largest number since the global financial crisis of 2007–2009.
- Starts for attached single-family homes rose
3% year over year, while starts for detached single-family homes declined9% . Houston ,Dallas andPhoenix have seen the largest increase in permits since 2020.
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
"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," said Orphe Divounguy, Zillow senior economist. "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."
Focusing on attached homes allows builders to overcome some of the challenges related to land acquisition costs and also provide homes that are more affordable to cost-challenged buyers. 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, when compared to 2022.
But 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
Markets that have issued the most single-family permits since 2020 are
Markets with faster jobs and income growth, and thus higher housing demand, have historically seen larger increases in new construction activity relative to lower growth markets. The Zillow analysis further illustrates this relationship – markets with higher increases in home values from 2020 through 2024 also tended to see higher permitting over the same period of time, on average.
New construction has taken on more importance by providing options to buyers at a time when existing owners have pulled back from listing their homes. Home shoppers can find more new construction communities on Zillow than any other
Where the most single-family construction has been permitted since the pandemic | ||
Metro Area | Single-family permits | Single-family home value change |
232,810 | 39 % | |
207,471 | 47 % | |
138,445 | 54 % | |
128,202 | 59 % | |
94,361 | 43 % | |
87,987 | 61 % | |
76,355 | 55 % | |
74,265 | 62 % | |
70,850 | 50 % | |
65,510 | 53 % | |
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SOURCE Zillow
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