Zillow: Builders turn to condos and townhomes amid affordability crisis

America’s housing stock is growing faster than it was prior to the pandemic-induced housing craze, as builders scramble to fill a 4.5 million-home shortage.

According to Zillow’s most recent data, approximately 1 million single-family homes were finished in 2023, the second highest yearly total since before the global financial crisis.

This is approximately 11% more than the number of dwellings completed in 2019.

To reach this pace, builders shifted toward increased density, constructing more townhomes rather than detached single-family homes, as they did in 2022.

From 2022 to 2023, construction starts for detached single-family homes fell by over 9%, while those for attached single-family homes increased by more than 3%.

“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,” Orphe Divounguy, senior economist at Zillow stated.

“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 connected homes enables builders to overcome some of the obstacles associated with site acquisition costs while also providing homes that are more affordable to cost-conscious purchasers.

They are constructing more units on smaller lots—the median size of a new home stayed constant at roughly 2,200 square feet, while the median lot area decreased by 700 square feet when compared to 2022.

However, the rate of construction is declining, most likely due to slowing demand amid housing affordability issues.

In 2023, construction commenced on 946,000 single-family dwellings, a 7% decrease from 2022 and a 16.5% decrease from 2021. This is a drop from a very good couple of years, but it still a solid level historically, 6% greater than 2019.

Houston, Dallas, and Phoenix have issued the most single-family permits since 2020.

That is good news for housing affordability in these markets, which are already strained by population expansion.

Markets with faster job and income growth, and consequently higher home demand, have generally experienced greater increases in new construction activity than slower growing markets.

The Zillow data demonstrates this association further: markets with bigger gains in home values from 2020 to 2024 had higher permitting over the same period of time, on average.

New development has gained relevance by giving buyers with options at a time when existing owners have refrained from marketing their properties.

Zillow has more new construction communities than any other US platform.