In a housing market that needs additional inventory, builders are often called upon to develop more entry-level housing. However, even as the new-home market has shifted to the high end, there is one submarket in the home building industry that is both growing and providing a separate product option: townhouse construction.

In recent years there has been a notable shift for new construction, characterized by larger, more expensive homes. For example, according to Census Bureau data from May, less than 20% of newly built single-family homes were priced below $200,000. And as of the first quarter of 2016, the average size of a new home was just under 2,700 square feet, larger than during the housing boom.

These facts are due to current economic conditions. There are simply fewer first-time buyers in the market, as rental demand continues to be strong. The National Association of Realtors’ existing home sales data reveal that only about 30% of existing homes—lower priced and less valuable than new construction—are sold to first-time buyers. This is lower than the typical 40% expected for first-time buyers.

First-time buyer shares for new construction are lower still. Rising regulatory costs, which are up about 30% over the past five years according to estimates by the NAHB, mean it is more expensive today to build housing. As these costs must be absorbed or passed along to consumers, the economics of the market require the product mix of homes to shift to more expensive offerings.

Townhouse construction offers an interesting exception to this rule. Single-family attached homes are smaller. Census data for homes started in 2015 show that while the average square footage of single-family homes was 2,689, for townhouses the average was 1,983 square feet.

And despite the more general upward shift in the new-home market, townhouse construction is growing. My calculations using Census data indicate that townhouse starts totaled 94,000 starts for the last four quarters ending with the first quarter of 2016. This marked a 29% gain over the prior year. This growth rate exceeds that of the total single-family building market.

The current townhouse market share stands at 13% of all single-family homes on a one-year moving average basis. This is down just under 15% from the cycle high set at the start of 2008, but the market share has been rising following the end of the Great Recession.

These trends will continue. As regulatory cost impacts persist and millennials enter the for-sale market, the cost of construction and the growing demand for medium-density housing in walkable neighborhoods in inner and outer suburbs will support townhouse development growth.