Townhouse boom fizzles

Ringed by single-family homes built in the past few years, the large, empty center of Lakeville's Stoneborough development is finally filling in -- but not as originally intended.

Once designed for almost 100 townhouses, it's now mapped out for single-family homes. "There was zero demand from builders for townhome lots," said Luke Israelson, president of the subdivision's developer, K.J. Walk. He said he's had no trouble selling the sites for standalone houses.

Across the Twin Cities, demand for new townhouses has plummeted. During the pre-recession boom, they accounted for almost half of new home construction, but that's dropped to just over 10 percent.

Groups that traditionally have fueled the popularity of townhouses have found other options: First-time buyers have increasingly turned to suddenly affordable single-family homes, and empty nesters often have been choosing rentals or staying put. A large inventory of existing unsold townhouses also has dampened demand for new units.

"I don't have anybody calling and asking me to find them some land for townhomes," said Laurie Karnes, a Maple Grove land broker. Single-family and apartment projects are the top priorities among residential developers these days, she said.

Stoneborough is one of two developments in Lakeville where single-family houses are going up on former townhouse sites. In Blaine, two townhouse projects have been reconfigured for single-family homes while another has been repurposed for a church, according to Bryan Schafer, director of community development.

In Savage, the homeowners association of a 250-unit townhouse development this year bought a site where 12 more units were planned but never built; the land may instead become green space and a community garden.

It's a dramatic shift for a category of housing that had been a staple on the suburban scene. At the start of the decade 3,500 or more townhouses a year went up in the Twin Cities, mostly in the suburbs, according to figures from the Metropolitan Council.

As recently as 2007, townhouses and single-family homes had nearly equal shares of the 13-county area's home construction market excluding condominiums, according to Metrostudy, a residential research firm. But in the past few years townhouses' share has slipped steadily, reaching just 11 percent at the end of November.

Skipping a step

Karnes and other real estate experts attribute some of the downturn to former townhouse buyers gravitating to single-family homes. "These are the people looking for affordability, mostly entry-level buyers, who would later trade up to a house. Now they can skip that step and buy single-family," Karnes said.

"You always think of the young couple getting married, having a townhouse and then getting a bigger single-family house later. It's kind of amazing that things don't work that way anymore," said Erin Jackson, 33, who recently bought a single-family house on one of the repurposed lots in Stoneborough from Ryan Real Estate, an Apple Valley builder. She said she and her husband, Glenn, would not have been able to afford a house when they first got married and instead purchased a townhouse in Northfield.

Builders and city planners also say the townhouse market has suffered because it was overbuilt before the housing market crashed. "Until that inventory gets worked down, there's probably not going to be much interest in building new ones," said Daryl Morey, Lakeville's planning director. The city has seen only six permits for townhouses this year versus 237 for single-family homes.

Foreclosures also have clogged the pipeline of townhouse units on the market. Last year townhouses were the only type of housing where foreclosure sales were on par with traditional sales, according to figures from the Minneapolis Association of Realtors. This year traditional townhouse sales have increased while foreclosure sales have fallen, a sign the glut of low-priced units may be easing.

Signs of a turnaround?

Ron Clark, whose company has been building townhouses in the Twin Cities since the late 1970s, said it's taken about four years, but the inventory of unsold units and those in foreclosure has started to shrink.

Clark said sales are going well at his townhouse developments in Maple Grove, Minnetonka and Eagan, and one resort-style development in Chanhassen has sold out.

Clark builds some moderately priced townhouses, but he said most of his market is higher-end units for empty nesters. Owners of existing townhouses also have contributed to the slowdown in townhouse building during the recession because of the poor resale market. "They had no urgency to move, so they just sat tight," he said.

Clark said the situation has begun to improve for those owners, who now are beginning to put their houses up for sale. But Karnes said some may now opt instead for upscale apartments that are springing up throughout the Twin Cities.

Meanwhile, several vacant townhouse projects, like a 78-lot site in Shakopee taken back by lenders, continue to sit on the market. In Champlin, a 27-lot townhouse site recently sold to an investors' group at a deep discount from its asking price of $10,000 per lot, according to Charlie J. Pfeffer, a sales associate at Maple Grove land broker Pfeffer Co. "In 2005 or 2006 those lots would have gone for $35,000 to $45,000," he said.

Pfeffer said he believes that more townhouse sites would be reconfigured for single-family construction if communities weren't concerned about bumping up against their own or Met Council commitments on increasing housing density. "They just can't switch everything," Pfeffer said.