Builders Continue Shift to Condos and Townhomes amidst Affordability Crisis

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 4.5 million homes. The latest analysis from Zillow® shows 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. 

The Metro Phoenix market has seen single family permits increase and a significant single-family home value increase, since January 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 9% from 2022 to 2023, but starts for attached single-family homes rose by more than 3% over the same time span.

“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 7% fewer than in 2022 and 16.5% fewer than in 2021. This is a decline from a very strong couple of years; it still represents a solid number, historically speaking, 6% higher than 2019.

Markets that have issued the most single-family permits since 2020 are Houston, Dallas and Phoenix. That is good news for housing affordability in these markets, which have already been stretched by population growth.

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 U.S. platform.