Historically in the United Kingdom, Ireland and in some other countries, a townhouse (or a "house in town") was a residence of a peer or member of the aristocracy in the capital or major city. Most such figures owned one or more country houses in which they lived for much of the year. However during the Social Season (when major balls and drawing rooms took place), and when parliament was in session, peers and the servants moved to live in their townhouse in the capital.

In North America and Australia, the term "townhouse" is used exclusively to refer to terrace housing.

In the United Kingdom and Ireland most townhouses were terraced. Only a small minority of them, generally the largest, were detached, but even aristocrats whose country houses had grounds of hundreds or thousands of acres, often lived in terraced houses in town. For example the Duke of Norfolk owned Arundel Castle in the country, while his London house was a terraced house called Norfolk House in St. James's Square - although that particular terraced house was over 100 feet (30 metres) wide. However, the British and Irish architectural term for a house with party walls with its neighbours on both sides was always "terraced house", not townhouse. There was little difference between the more modest terraced townhouses of less opulent members of the aristocracy, and the terraced houses of wealthy middle class Londoners, but they were generally located in different districts.

Many aristocratic townshouses were demolished or ceased to be used for residential purposes following the First World War. In the post World War II period large terraced houses in general in London and other British cities were divided into flats or converted into offices. However, in the early 21st century this trend is being reversed to some extent, as there is less demand for old houses as offices nowadays since open plan layouts are preferred, and the number of very rich people in London has risen. For example, in 2004, the Grosvenor Group sold two grand terraces houses in Belgrave Square which had been in office use, for reconversion to family houses. The asking price was ?12 million each.

Nowadays British property developers and estate agents often call new terraced houses townhouses, probably because the aristocratic pedigree of terraced housing is widely forgotten, and for many people the main mental association of terraced housing is with working class terraced housing, especially in poor districts in the north of England. "Townhouse" still has more exclusive connotations.

Canada and United States

Townhouses and townhomes are popular in Canada and the United States as cheaper alternatives to houses. However, in major metropolitan areas of the United States where land is at a premium, the ownership of even a townhouse connotates wealth. Some examples of cities where townhouses are occupied almost exclusively by the wealthy are New York, Boston, and San Francisco.

"Townhomes" usually consist of non-uniform units in suburban areas that are designed to mimic detached or semi-detached homes.

In Canada, and especially in Ontario, townhouses are split into two categories:

In condominium townhouses, the purchaser owns only the interior, while the building itself is owned by a condominium corporation. The corporation is jointly owned by all the owners, and charges them fees for general maintenance and major repairs.

Freehold townhouses are exclusively owned, without any condominium aspects.

"Stacked townhouses" have multiple units vertically (typically two), normally each with its own private entrance from the street.