This article is the first in a short series of articles examining multifamily trends from 2013 Characteristics of New Housing Units, the most recent of an annual series released by the US Census Bureau and the Department of Housing and Urban Development. This report examines a variety of characteristics of completed housing, allowing us to identify long-term trends in multifamily development, with data available over a 20-year data period for some attributes.
One trend we have noticed is that multifamily for-rent developers are building fewer townhouses (multistory units with living space separated from bedrooms by stairs). We were surprised, however, by the fact that the ratio of garden/ranch units to townhouse units in 2013 was 49 to 1, as illustrated in the following graph:
Source: 2013 Characteristics of New Housing, US Census Bureau
Why so few rental townhouses? Some key factors:
- Developers want to maximize density. Given the cost, length, and regulatory issues involved with the development process, it is not surprising that developers wish to develop at peak density.
- Townhouses, because they separate the sleeping area from the living area, are perceived as attracting a disproportionate share of families. This may lead to more community opposition from those who fear the potential impact on the school district.
- Townhouse development and design differs from garden unit development and many developers are more comfortable building the garden product they have always built.
- More developers are building for empty-nesters and seniors and one of the major design features of such product is single-floor living, whether the setting is ranch-style or in an elevator-serviced building.
- Recent popularity of infill development in the urban core has developers building up rather than out, especially in markets without a history of brownstone/rowhouse development.
- Integrated-use development places greater emphasis on placing units above retail, which favors garden development.
Given the above reasons for developing gardens, what kind of case can be made for developing rental townhomes?
- Townhouses achieve a premium over garden units. Relative to other metro areas, Columbus has a high ratio of townhouse development. In our most recent full-metro survey, garden units represented 66.8% of all rental units and townhouse units represented 33.2%, a substantially higher ratio than found in most markets. In Columbus, market-driven rent at a 28.0 comparability rating, a typical rating for new moderate to upscale development, was 15.8% higher for two-bedroom townhouses than for two-bedroom garden units. For three-bedroom townhouses it was 17.9% higher than three-bedroom gardens. While the amount of premium will vary from market to market, we have found that townhouses consistently achieve a premium over garden units at the same comparability rating.
- Low density is an amenity with value. Townhouses by their very nature require a lower density than conventional three-story walkups, mid-rises or high-rises. Some renters want an apartment where they are not crammed in on top of other renters and are willing to pay for it.
- Townhouse units are an exploitable niche market. We have long been preaching the value of niche development and designing unit and amenity packages to meet all the needs of a particular segment, who will pay a premium for units that meet their specific needs. Some renters have their specific needs best met by a floor plan that separates living and sleeping space.
- Scarcity has a value. If 98% of new units are garden units, how much more valuable are those 2% new townhouse units to those who prefer townhouse living, especially when a mature market with a variety of established townhouse options can support them at a ratio of 33%?
- Attached garages can easily be added to townhouse units, whereas non-ranch garden units typically must settle for detached garages or underground parking.