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Builders are shifting their focus to smaller, taller, and off-site homes as a response to high interest rates, financing costs and softer home buying demand, Zillow<\/strong> economist Orphe Divounguy said in a recent blog post<\/a>.<\/p>\n An analysis of the Census Bureau<\/strong>‘s Survey of Construction 2022 microdata<\/a> showed that builders started building smaller, attached homes \u2013 with more stories and fewer bedrooms \u2014 than they had in previous years. They also started a larger share of homes off-site than they had in the past. <\/p>\n Meanwhile, the typical American family size is shrinking<\/a> and many older Americans will likely be looking to downsize, feeding into the shift to smaller homes. According to Divounguy, the trend looks sticky.\u00a0\u00a0<\/p>\n New construction projects of standalone (or \u201cdetached\u201d) homes declined by 12% in 2022 from 2021, while starts of \u201cattached\u201d single-family homes, like condos and townhouses, continued to increase, rising 2.9% over that same span.<\/p>\n Compared to pre-pandemic levels, single-family home starts in 2022 exceeded 2019\u2019s starts by 14.3%. While detached homes make up the large majority of new single-family home construction, this growth from pre-pandemic levels was more concentrated in attached homes. More than 37% more attached single-family homes began construction in 2022 compared to 2019, and detached single-family construction starts increased by just 11% during the same period.<\/p>\n Starts of single-family homes with fewer than three bedrooms increased by 9.5% in 2022 from 2021 while construction on homes with three bedrooms or more fell by 13.1% over that same span.\u00a0Divounguy attributed this to builders responding to worsening affordability conditions\u00a0 for potential first-time home buyers.<\/p>\n New homes also got taller but smaller. Single-family homes more than two stories tall saw construction starts increase by 4.9% while starts of single-family homes with two stories or fewer fell by 10.8%. These new homes also shrunk relative to lot size in 2022, reversing a trend that had formed over four years. As costs increased and housing demand dipped in 2022, the size of the median new single-family home<\/a> fell by 100 square feet (-4.3%), while the median lot size was unchanged. As a result, the ratio of the two measures decreased.<\/p>\n Starts of such off-site homes saw a 23.9% annual increase in 2022 from 2021. Comparatively, more traditional on-site single-family home construction projects saw a 11.2% decline over that same period. Compared to pre-pandemic 2019 levels, off-site starts of single-family home building projects were up 18.8% in 2022, while on-site projects were up 14.0%.\u00a0<\/p>\n