Starter Home Starts Highest Since Great Recession

Last year was the best for "missing middle" home construction since before the Great Recession, according to the National Association of Home Builders.

NAHB tracked 19,000 total starts of two- to four-unit housing projects—roughly 5,000 a quarter except for a slightly slower third quarter. These medium-density projects of townhouses, duplexes, and other small multifamily homes are termed "missing middle" because they often serve as a starter home or first purchase for young people.

While that's flat with the final quarter of 2024, it's the largest annual number since 2007, according to NAHB. For comparison, 2024 saw 18,000 missing middle housing starts.

Realtor.com® senior economist Joel Berner said the housing type has seen more interest in urban infill lots, replacing older single-family homes. New developments in exurban enclaves sometimes contain a townhome element to go with single-family homes.

"In both cases, the appeal is affordability and access to a neighborhood that can't always be attained through the traditional single-family home path," Berner said. "These townhomes or duplexes offer entry-level buyers the opportunity to own a home in a neighborhood they like without spending more than they can afford."

Housing shortage continues to grow

Still, the pace of homebuilding before the subprime mortgage crisis was still significantly faster, with 2007 seeing over 30,000 starts for missing middle projects, for instance.

The fourth-quarter 2025 missing middle housing was just 5% of the overall multifamily market. It was regularly about 11% of multifamily construction in the decade leading up to and including the recession. NAHB blamed zoning restrictions for slowing the pace of development, saying government reforms are the best solution.

The overall homebuilding market, though, also continues to disappoint. The U.S. currently faces a shortage of 4.03 million homes as new construction faltered last year, according to the 2026 U.S. Housing Supply Gap report from Realtor.com.

Lawmakers in several states have proffered zoning reforms to encourage more small homes. And President Donald Trump joined them with an executive order last week aiming at curtailing some restrictions to building.

But zoning changes also often bring entrenched resistance from homeowners opposed to more dense housing, with major fights in suburbs of DC and New York City in recent years, to name a few.

Ed Brady, president of the Home Builders Institute, said this housing segment is prone to regulatory burdens. But housing will become cheaper when there are more affordable options for people to buy homes.

"It's a population we're not serving today, and that reflects on the rental market," Brady said. "When they can't move up out of rentals, that supply gets more expensive. It's an ecosystem, and if you don't provide opportunities for homeownership, the whole ecosystem goes off balance."