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Builders see growth in attached housing

In this economy, affordability is the key.

In Mount Laurel , townhouses line Spinnaker Drive at the Rancocas Pointe development. Analysts say the region's shift to townhouses has aided a drop in new-home prices. (David M. Warren / Staff Photographer)
In Mount Laurel , townhouses line Spinnaker Drive at the Rancocas Pointe development. Analysts say the region's shift to townhouses has aided a drop in new-home prices. (David M. Warren / Staff Photographer)Read more

In a troubled new-home market in which price is now an object, a growing number of suburban builders see attached products - townhouses - as an increasing part of their sales.

Townhouses and, in smaller numbers, condos, are attracting suburban buyers at a higher rate than single-family houses - 49 percent in this year's third quarter. At the height of the boom in 2005, when credit was looser and mortgage money ran like water, townhouses garnered just 34.8 percent of the seven-county suburban market.

The chief reason for the change: affordability.

Such "entry-level" housing is the most active market because buyers can jump right in without having to sell their existing home, said Wayne Norris, regional sales manager for Hanley Wood Market Intelligence, which tracks new-home sales in this region and across the United States.

These buyers might be priced out of most single-family homes, but they can get into a townhouse or condo at an affordable monthly payment, Norris said.

In the third quarter of 2008, with sales of all new homes in the region down more than 40 percent, the average sale price of a single-family house was about $459,000 compared with $307,000 for a townhouse.

Builders have been adjusting to the demand by introducing attached homes in the mid-$100,000 range. Norris said the number of communities offering entry-level townhouses below $200,000 has increased 20 percent since 2006.

In addition, almost 60 percent of 39,059 housing units for which suburban developers are seeking planning and zoning approvals fall into the attached category, Norris said. Of the 21,094 new homes for sale in the suburbs, slightly under half are attached.

Granor Price Homes for decades has specialized in attached housing - not only its own projects but those of other developers who have gotten into trouble and needed to be "worked out."

Many of the newer projects - in Doylestown Borough earlier in the decade and in Royersford more recently - were infill attached housing on brownfields.

Twins and towns

"All our active communities are attached in some way or other - quads and twins for active adult; twins and towns for general population," said Marshal Granor, a principal in the company.

A lot of the company's focus has been on the entry-level buyer, especially as the demographics in the mid-1990s shifted from traditional families to single professionals, both men and women, couples with no children, one-parent households and older people who were downsizing.

"Right now, we have nothing over $325,000" for sale, Granor said, adding that buyer interest is in prices "as low as possible - I'd say $250,000 and under."

Combine fixed interest rates with affordable prices, and there is buyer interest, said Granor, citing higher traffic in the first two weeks after rates fell at Thanksgiving.

"It is still slow versus prior years, and people want to play Let's Make a Deal," he said.

Garo Hovnanian, director of marketing for J.S. Hovnanian, the South Jersey builder, said that keeping the price affordable on both attached and detached housing means that both will sell.

"We find that first-time buyers are attracted to our $199,000 townhouses and our $200,000 singles," he said, which means that Hovnanian sees no reason to increase its percentage of attached to detached as long as the builder can keep prices of both in the affordable range.

The people who buy townhouses - young singles coming from the city, or just out of college, and those who have been recently divorced - do not necessarily buy as a stepping stone to a single, but because the price is right and fits their lifestyle, he said.

Attached housing does suit the builders' changing business model, however.

Little land left

There isn't much buildable land left within easy commuting distance of Philadelphia, Valley Forge, King of Prussia, Wilmington and other regional job centers.

What land that is for sale is expensive, and coupled with high lot-development costs and having to wait a minimum of three years for all the necessary approvals to start building, it is hard to keep prices in the affordable range.

When you consider total cost and the need to increase affordability to deepen the buyer pool, attached housing seems to make economic sense.

The chief obstacle builders of attached housing face is government opposition, said Gopal Ahluwalia, vice president of research for the National Association of Homebuilders in Washington.

"Attached housing is more common where land costs are too high and where the local jurisdiction allows it," he said. "The chief opposition from local governments lies in concerns about the effect it will have on the infrastructure and the impact on schools."

Nationally, the ratio of attached to detached is not very high, since the bulk of residential construction over the last 15 years has been in the West and South, where there is more and cheaper buildable land and fewer regulations.

Attached housing as a percentage of annual starts nationwide has ranged from 10.2 percent in 2000 to 14 percent in the third quarter of 2008, Ahluwalia said - much lower than in the Philadelphia suburbs.

He acknowledges that there is an increase in attached housing, but isn't sure that the surge will be sustained after the housing market pulls out of the present slump.

Ahluwalia does say, however, that demographic changes and high energy costs - despite recent declines - will keep houses from getting any bigger than their current average 2,500 square feet, detached or attached.

In the city, most of the housing built or rehabbed since the enactment of the tax-abatement laws in the late 1990s is attached - either townhouses or condos - because there is little buildable land and it makes more financial sense.

In the suburbs, some developers discover they can make better use of a parcel by shifting from detached to attached.

Main Line builder Chip Vaughan has an attached development in Rose Valley, near Media. Traymore began as a single-family project of 20 houses, but with the blessing of borough officials, it morphed into one of 40 carriage houses starting at $625,000.

They are hardly entry-level. But Vaughan points out that these 2,900-square-foot townhouses are less expensive than Andover, his single-family project south of West Chester with 3,000- to 4,000-square-foot homes in the $800,000 range, or the 20 singles originally planned for Traymore, which would have started at $1.3 million.

"The ground really drives the price of a house," Vaughan said. "We worked with the borough to accommodate double density," which also allowed the builder to increase the amount of open space.

The result was that the borough housing stock of 300 units was increased by about 13 percent.

It's true that 2,900 square feet is higher than the national average. But, Vaughan says - and Ahluwahlia's research confirms - that those who buy attached housing are looking to avoid outdoor maintenance, not less indoor space.

That, and not affordability, according to Ahluwalia, may be a major reason for the continued growth in the percentage of attached housing.

"There are 80 million boomers, and they start turning 65 in 2011, and they are the ones looking to cut down on maintenance work," he said.

Another reason is the cost of energy - both for commuting to work and heating and cooling houses.

"I think most consumers have not forgotten the recent spike and are making home purchasing decisions based on $4.50 gas," Norris said. "This is causing them to look closer to centers of employment, where large parcels of land are scarce," leaving attached housing "the most attractive option."

Townhouses Grow in Suburbs

Sales of detached and attached homes 2005-2008

Year       Sales      Detached    Attached       Pct. Attached

2008       3,722       1,786       1,936            52

2007       5,862       3,233       2,629            45

2006       6,551       3,925       2,626            40

2005       8,770       5,615       3,155            36

Active selling supply

Detached         Attached         Total

11,380            10,298         21,678

Proposed supply

17,965            21,094         39,059

SOURCE: Hanley Wood Market IntelligenceEndText