Developers Feed Millennial Hunger for Ownership With Townhouses

  • Starts for attached U.S. homes hit highest level since 2007
  • ‘Millennials are underserved,’ developer Jim Clark says

While competing developers focus on pricier single-family homes, Jim Clarke is building townhouses for cash-strapped millennials. And the units are going fast.

Almost a third of Robertson Brothers Homes’ projects are for townhouses, compared with zero a few years ago, said Clarke, president of the closely held builder, based near Detroit. The 37-home Sherman Oaks development opened for sales a year ago, walking distance from the thriving downtown in Royal Oak, Michigan, and it’s almost sold out. Now the company is starting three more projects, Clarke said.

“Millennials are underserved,” he said. “The only way to get affordable housing built in a lot of these areas is by attaching it.”

Townhouses, which are often less expensive than detached single-family homes because they’re smaller and more densely packed, are making a comeback in the U.S. as young people, saddled with student debt, look for an affordable path to homeownership. Starts for attached homes increased to 28,000 in the second quarter, the highest level since the fourth quarter of 2007, according to data released today by the Commerce Department. In the past four quarters combined, townhouse construction jumped 26 percent, more than double the growth for detached properties.

First-time buyers accounted for 33 percent of all sales in June, up from 30 percent in May and the largest share since July 2012, according to the National Association of Realtors.

“It’s a hint that we can see builders growing the entry-level space,” said Robert Dietz, chief economist at the National Association of Home Builders. “This is the single-family experience in a slightly more affordable development.”

Homebuilders during much of the recovery have been appealing to wealthier buyers with bigger houses, partly because land and labor costs have been rising -- a trend that’s left many first-time buyers on the sidelines. In the second quarter, townhouses accounted for almost 13 percent of single-family starts, up from a low of less than 9 percent in 2011.

In the next few years, townhouse construction is likely to surge past the 16 percent peak reached during the last boom, in 2007, Dietz said. Small builders working locally will probably lead the charge, he said.

Tennessee Townhouses

Andy and Chad Baker, 37-year-old identical twins, are getting ready to build 30 townhouses on 1.5 acres (0.6 hectares) just east of downtown Nashville, Tennessee. They’re knocking down three single-family houses to make way for the project, which will have homes of about 1,700 square feet (160 square meters) with two-car garages.

“It’s the middle ground, literally and figuratively, for a lot of millennials,” Andy Baker said. “They want to be close to the downtown, so being a few miles away is the best of both worlds. You have some green space but you don’t have the parking hassles.”

The typical U.S. townhouse has less than 2,000 square feet, compared with about 2,500 square feet for a detached house, Dietz said.

Clarke, the Michigan builder, said many of his buyers couldn’t afford a single-family home close to the action in downtown Royal Oaks. A detached home in the area would be about $100,000 more expensive than the $280,000 his townhouses go for, he said.

“You’re giving up your yard,” Clarke said, “but what you’re getting is that you’re walking distance from the restaurants and bars.”

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