How can home prices be lowered and affordability improved?
Ed Pinto, senior fellow and co-director of The American Enterprise Institute (AEI) Housing Center, said one way is to focus on the supply side of the supply-and-demand paradigm.
“I’ve come up with what are the three most important things in housing affordability,” Pinto said on an episode of October Research’s Keys to Real Estate podcast. “Small lot, small lot, small lot. … Small lots cost less. Small lots have smaller houses; they’re still family sized but cost less to build.”
Pinto added that townhomes occupy less land than a small, single-family detached home. “Townhomes are simpler and easier to build than a single-family detached (home) of the same size, because you don’t have as many exterior walls, you have fewer windows, they’re a simpler footprint.”
Pinto described a thought experiment to illustrate how building on smaller lots would make homes more affordable. From 2000 to 2024, there were about 12 million single-family, detached homes built in the U.S.
“We found that of the nearly 12 million that were single-family detached, they were built (at a rate of) 5.4 (homes) per acre based on lot size. So that’s about (an) 8,000-square-foot lot,” he explained. “We found that the 1.2 million townhomes were built at about 22.6 homes per acre, which is just around 2,000 square feet.”
The next step of the thought experiment was to determine how many more homes could be built if the lot sizes were reduced. Pinto suggested increasing the amount of homes constructed from 5.4 per acre to 8 per acre.
“Instead of getting 11.9 million homes on that amount of land … you would have 17.6 million homes, or nearly 6 million more homes on the exact same amount of land,” Pinto said.
He then introduced townhomes to the hypothetical example.
“Let’s assume 20 percent of that land instead got used for townhomes,” Pinto said. “Instead of 13 million homes, we’re looking at 26 million homes. It’s built on the exact same amount of land.”
For more from Pinto on addressing the housing shortage, download the Housing Inventory Solutions report and read the full story.