A recent NAHB study on home buyer preferences* found that a single-family detached home remains the first purchase option for two of every three buyers. Far smaller shares are looking to buy a townhome (16%), a multifamily home (10%), or a manufactured home (5%).
In the face of such strong preference for a detached home, and given the significant growth in home prices and lot values in recent years, the study aimed to understand what size discount would give buyers a strong enough incentive to buy a townhouse instead of a detached home. The question specified a critical assumption: the townhouse would be in the same location as the detached home, have the same square footage of finished space and include the same quality materials. In other words, the townhouse would be comparable to the detached home in every practical way except for the size of the land around it.
Our findings show that, on average, buyers would need a 30% discount to consider buying a (mostly) comparable townhouse instead of a detached home. Yet previous NAHB research has shown that the finished lot only accounts for about 18% of the price of a new detached home. This means that in most cases, it is simply not feasible for builders to offer a 30% discount for a townhouse of the same size, quality and location as a detached home– even one sitting on the smallest possible plot of land.
* What Home Buyers Really Want, 2024 Edition sheds light on the housing preferences of the typical home buyer and is based on a national survey of more than 3,000 recent and prospective home buyers. Because of the inherent diversity in buyer backgrounds, the study provides granular specificity based on demographic factors such as generation, geographic location, race/ethnicity, income, and price point.
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