Despite weakness for single-family construction in 2023, townhouse construction recorded the best quarter for starts in more than 17 years.
According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the fourth quarter of 2023, single-family attached starts totaled 47,000, which is 27% higher than the fourth quarter of 2022. This represents an acceleration over the last four quarters, during which townhouse construction starts totaled a strong 158,000 homes, which is almost 7% higher than the prior four-quarter period (148,000). Townhouses made up almost 20% of total housing starts in the final quarter of 2023.
Using a one-year moving average, the market share of newly-built townhouses stood at 16.7% of all single-family starts for the fourth quarter. With the recent gains, the four-quarter moving average market share is the highest on record, for data going back to 1985.
Prior to the current cycle, the peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6%, on a one-year moving average basis. This high point was set after a fairly consistent increase in the share beginning in the early 1990s.
The long-run prospects for townhouse construction are positive given growing numbers of homebuyers looking for medium-density residential neighborhoods, such as urban villages that offer walkable environments and other amenities. Where it can be zoned, it can be built.
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The surge in townhouse construction, marking the best quarter since 2006, signals opportunities for construction loans. Lenders should capitalize on this trend by offering tailored financing solutions to developers eyeing townhouse projects. However, thorough market analysis and risk assessment remain crucial to ensure loan viability amidst this positive momentum.